Direct Secondary

A direct secondary is the purest form of pre-IPO transaction: one party transfers shares directly to another on the company's cap table, and the buyer holds the shares directly (not through a fund or SPV). No pooling, no carry, no additional legal entity between the investor and the company.

Direct secondaries are generally preferred by sophisticated buyers because they avoid SPV fees and carry, and because the buyer appears directly on the cap table (giving them better information rights and cleaner governance). However, they require larger minimum check sizes, often $100,000 or more, because the company and transfer agent have limited appetite for small cap-table additions.

Illustrative example: a fund buys 500,000 shares at $10.00 each from a departing employee, paying $5M. The company's transfer agent updates the cap table: the employee's name is replaced by the fund. The fund now holds the shares directly and receives any dividends or liquidation proceeds without an intermediary.

The gotcha: direct secondaries require company consent and are subject to ROFR. Even after a deal is struck, the company has the right to step in and buy the shares at the agreed price, effectively voiding the secondary buyer's purchase. ROFR exercise rates vary widely by company. Budget for a 15–30-day ROFR review window in any deal timeline.