Secondaries Explained

Reference · Pricing & valuation

Discount / premium

How far a secondary price sits below (discount) or above (premium) the last round.

Worked example

A worked example of how discount size varies by demand (illustrative figures):

  1. Company A last raised at $25/share. It's a well-covered, in-demand name with several marketplaces and funds actively bidding — secondary trades clear around $24/share, just a 4% discount, because buyer competition for the name is high.
  2. Company B also last raised at $25/share, but its last round was over two years ago, its growth has slowed, and information is scarce. Secondary trades for Company B clear around $17.50/share — a 30% discount — because buyers are pricing in staleness risk and thin information.
  3. The same "last round price" tells you almost nothing about what a share is actually worth today; the discount is where the real information about market sentiment toward a specific company lives.
  4. A handful of the most in-demand pre-IPO names occasionally trade at a premium to the last round — buyers bidding up scarce available supply in a name they expect to re-rate higher at its next round or IPO.

Where this trips people up

Reading a discount as a verdict on quality is the classic error. A discount to net asset value prices illiquidity, the age of the marks, and the buyer's required return, all at once. In periods when reported valuations lag reality, part of the discount is simply an adjustment to a stale number rather than a haircut on the assets.

Frequently asked

Is a bigger discount always better for a buyer?

Only if the net asset value it is measured against is credible. A 30% discount to a stale, generous mark can be worse value than a 10% discount to a conservative one — the reference point matters as much as the percentage.

Do secondaries ever trade at a premium?

Yes, for sought-after funds and strong single assets, particularly when the reported value is believed to be conservative or when the fund holds a position the buyer cannot access any other way.

See the full glossary entry, or browseevery term.