Explainer

Pre-IPO secondaries, explained

Q: What is the difference between a primary and a secondary?

In a primary transaction, an investor buys newly issued shares directly from the company, and the company receives the capital. In a secondary transaction, an investor buys existing shares from a current holder, and the proceeds go to that seller rather than to the company.

Q: What is a discount to NAV?

A discount to NAV is the gap between the price paid for a secondary position and the most recent reported value of that holding. Sellers who need liquidity often accept a price below the last valuation, which can give the buyer a lower entry point.

Q: Are pre-IPO secondaries liquid?

No. Pre-IPO secondary positions are private and illiquid. They cannot be sold on a public exchange, a listing may be delayed or may never happen, and an investor should expect to hold the position until a liquidity event.

A pre-IPO secondary is the purchase of an existing shareholding in a private company from a current holder — rather than from the company itself — giving the buyer a position in a late-stage company before it lists on a public exchange. This page explains how that works, where the entry point comes from, and the risks involved.

In one line. Primary = you buy new shares and the company gets the money. Secondary = you buy existing shares and a current shareholder gets the money. Pre-IPO secondaries apply this to private companies on the path to a NYSE or NASDAQ listing.

Primary, secondary and co-investment

Three terms get used loosely. They are not the same:

Primary. The company issues new shares and receives the capital. Closed to most investors; priced for insiders and lead funds.
Secondary. An existing holder — an employee, founder or fund — sells shares they already own. The company issues nothing; the seller receives the proceeds.
Co-investment. An investor invests alongside a lead fund into a specific deal, usually by invitation.

Arco Shares operates in the second category: secondary positions in late-stage private companies, made accessible to qualified investors.

Where the entry point comes from

The strongest private companies now stay private for longer. Employees and early backers accumulate paper wealth they cannot easily convert to cash, and funds reach the end of their life while still holding good assets. Both need liquidity before a public listing arrives. That need is what creates the secondary market — and the reason positions sometimes change hands below their last reported value.

Discount to NAV

A position's net asset value (NAV) is its most recent reported worth. When a seller needs liquidity, they may accept a price below that mark — a discount to NAV. For a disciplined buyer, that discount is the entry point the public market does not offer. A discount is never guaranteed, and a low price does not by itself make a position attractive; company quality matters more.

Shorter duration and the J-curve

Committing to a private-equity fund means capital is drawn over years and returns arrive late — the so-called J-curve, where value dips before it climbs. Buying a secondary in a late-stage company starts further along that curve: the company is already mature, already valued, and closer to a liquidity event.

LP-led and GP-led secondaries

In institutional markets, secondaries are usually grouped into two types:

LP-led. A limited partner (an investor in a fund) sells its stake in that fund to another investor. The fund and its manager are unchanged; only the owner of the stake changes.
GP-led. The general partner (the fund manager) restructures one or more assets — often into a continuation fund — so existing investors can cash out while new investors buy in and the manager keeps running the asset.

Pre-IPO company secondaries — direct positions in a single late-stage company, the focus of Arco Shares — sit alongside these as a distinct, single-name route into private markets.

The risks, stated plainly

This is high-risk investing. Pre-IPO secondaries can lose their entire value. Consider all of the following before participating.

Illiquidity. Private positions cannot be sold on demand. You should expect to hold until a liquidity event, which may be years away or may never come.
Listing risk. A company may delay its IPO, list at a lower valuation than expected, or never list at all.
Valuation uncertainty. Private valuations are infrequent and based on limited information. NAV is an estimate, not a market price.
Information asymmetry. Private companies disclose far less than public ones. Diligence reduces this risk but cannot remove it.
Concentration. A single-name position carries company-specific risk that is not diversified away.

Past performance is not a reliable indicator of future results. Nothing here is investment advice; each investor must assess suitability independently. See our legal and risk information.

How qualified investors access secondaries

Direct secondary positions have historically been hard for individuals to reach: minimums are high, sellers are hard to find, and transfers are document-heavy. Arco Shares consolidates that into one regulated channel for professional and qualified investors, from a €100,000 minimum.

See how the process works →

Glossary

Secondary: The sale of an existing shareholding from one holder to another. The company receives no new capital.
Pre-IPO: A private company at a stage where a future listing on a public exchange is a credible prospect.
NAV (net asset value): The most recent reported value of a holding, used as a reference point for pricing.
Discount to NAV: A purchase price below the last reported value, often accepted by sellers who need liquidity.
LP-led secondary: An investor in a fund sells its fund stake to another investor.
GP-led secondary: A fund manager restructures assets, frequently into a continuation fund, to offer liquidity.
Continuation fund: A new vehicle into which a manager moves existing assets so some investors can exit and others enter.
J-curve: The typical early dip then later rise in the value of a private-market commitment over its life.
Liquidity event: An event — usually an IPO or acquisition — that lets holders convert a private position into cash.

Questions

Common questions

What is the difference between a primary and a secondary?

In a primary transaction you buy newly issued shares directly from the company, and the company receives the capital. In a secondary transaction you buy existing shares from a current holder, and the proceeds go to that seller rather than to the company.

What is a discount to NAV?

It is the gap between the price paid for a secondary position and the most recent reported value of that holding. Sellers who need liquidity sometimes accept a price below the last valuation, which can give the buyer a lower entry point. It is not guaranteed.

Are pre-IPO secondaries liquid?

No. These positions are private and illiquid. They cannot be sold on a public exchange, a listing may be delayed or may never happen, and you should expect to hold the position until a liquidity event.

Who can access them through Arco Shares?

Professional and qualified investors within the meaning of MiFID II — high net worth individuals and institutional investors — subject to onboarding and suitability checks. The minimum ticket is €100,000.

See the live pipeline

Ten active secondary positions in private companies targeting a NYSE or NASDAQ listing.

View the pipeline →