What is a direct secondary?
A direct secondary is a transaction in which an investor buys existing shares of a private company directly from its current shareholders, such as founders, managers, employees or early investors. Unlike in a funding round, the shares already exist: they simply change hands, and the seller receives the proceeds.
What is the difference between primary and secondary capital?
In a primary transaction, such as a funding round, the company issues new shares and the investment goes onto its balance sheet to finance growth. In a secondary transaction, an existing shareholder sells shares they already own, and the money goes to that shareholder.
Primary (funding round) | Direct secondary | |
Who receives the money | The company | The selling shareholder |
New shares issued | Yes | No |
Dilution for other shareholders | Yes | No |
Main purpose | Finance the company | Give shareholders liquidity |
Why are direct secondaries growing?
Tech and growth companies are staying private for longer before an IPO or acquisition. Founders, early employees and early investors can hold a large part of their wealth in shares that cannot be sold on a stock exchange for many years. A direct secondary lets them turn part of that stake into cash while the company stays private and independent.
Who sells shares in a direct secondary?
• Founders who want partial liquidity after years of building the company.
• Managers and employees holding shares or vested options.
• Early investors such as business angels or seed and venture funds that need to return capital to their own investors.
Direct secondary vs fund secondaries: what is the difference?
The word "secondaries" covers several distinct markets. A direct secondary concerns shares of one operating company. Fund secondaries concern interests in private equity or venture funds.
Direct secondary | LP-led fund secondary | GP-led secondary (continuation fund) | |
What is sold | Shares of a single private company | A fund investor's (LP's) stake in a fund | Assets moved from an existing fund into a new vehicle |
Typical seller | Founders, managers, early investors | Pension funds, endowments, family offices | The fund manager (GP), on behalf of its fund |
Exposure for the buyer | One company | A portfolio of companies | One or a few companies |
What is a founder-led secondary?
A founder-led secondary is a direct secondary in which the founder sells part of their own shares, usually a minority of their holding, while remaining in their role. It is typically organized with the knowledge of the board so that the sale does not affect governance or the company's next funding plans.
Who invests in direct secondaries?
Buyers include specialist direct secondary funds and growth and crossover investors that also buy secondary shares. Specialist funds negotiate directly with sellers and usually work alongside the company and its board. Most focus on late-stage companies, where the business is established and an exit through an IPO or acquisition is in sight.
About Secondary Capital Secondary Capital is a Swiss private equity fund based in Fribourg, Switzerland, founded in 2020, and a brand of PTF. It focuses exclusively on direct secondary transactions: buying existing shares from founders, management and early investors in high-growth private technology companies valued above $500 million, with tickets up to $50 million. Transactions are board-friendly, with no disruption to the company or its cap table. secondary-capital.com
This article is for general information only and does not constitute investment, legal or tax advice, or an offer to buy or sell any financial instrument.
