Private Secondary Discounts as Ignorance Premium
Dan Akivis, senior associate at Expansion VC, on selling secondary and managing LP relationships
The discount in private secondaries is less a neat pricing formula than a rough payment for ignorance. Buyers are usually not getting audited quarterly numbers, broad disclosure, or a clean trading history, so they protect themselves by bidding below the last round. That discount also absorbs messy details like thin trading, uncertain company cooperation, and the risk that the shares being sold are common stock sitting beneath a stack of preferred investors.
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In practice, buyers often anchor to the last round and then haircut it because they cannot diligence the company like a public stock. Dan Akivis describes buyers repeating the same discount even after an up round, which shows the haircut is often standing in for missing information more than new fundamentals.
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That is why broad market rules like 20% off the last round only go so far. Ani Banerjee notes that pricing also depends on what security is being bought, how large the liquidation preference stack is, and whether the company is close enough to IPO that common and preferred will soon converge.
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When companies create more structured liquidity and disclosure, the discount should compress. The private liquidity research shows that active secondary programs improve price discovery, while highly sought after names can trade at only 15% to 30% discounts, and in rare cases even at a premium when demand is strong.
The market is heading toward smaller discounts for companies that share more information and run repeatable liquidity programs. As private firms stay private longer, the winners will look more like lightly public companies, with regular disclosure, recurring trades, and tighter spreads between round price and secondary price.