Negative Selection in Private Secondaries
Ani Banerjee, co-founder of Andromeda Group, on secondary diligence and companies staying private
Negative selection is the core tax of private secondaries, because the shares that reach the market most aggressively are often the ones informed insiders most want to exit. In practice that means a buyer is rarely choosing from the whole universe of late stage companies. The buyer is choosing from the slice that sellers, brokers, and cap table constraints make available, often with weak data, little time, and unclear reasons for sale.
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In private secondaries, access itself can be a warning sign. When many brokers suddenly circulate the same marquee name, the key question is not just whether the company is good, but why so many holders are trying to sell now. That is the selection problem Ani is pointing to.
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Diligence is often thinner than in a primary round. Sellers may be legally unable to share company data, so investors piece together a view from public signals, network references, market comps, and cap table details like whether the block is common or preferred stock and where it sits in the preference stack.
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This is why experienced secondary buyers lean on relationship sourced blocks over broad brokered processes. Other market participants describe the same pattern, where investors often price off headline company reputation and limited comp data because detailed operating metrics are not available in the market.
As private companies stay private longer, the winning secondary platforms will be the ones that reduce negative selection by giving companies more control over who buys, what gets disclosed, and how price discovery happens. That shifts the market from opportunistic resale toward structured liquidity, where high quality companies are less likely to appear only when someone is rushing for the door.