The information asymmetry problem in every secondary deal, and how buyers manage it

In almost every secondary transaction, the seller has spent months or years inside a company — as an employee, an early investor, or an LP with fund-level visibility — while the buyer is often relying on a data room, a few public reports, and whatever the seller chooses to share. That structural gap doesn't disappear with good intentions on either side; it has to be actively managed, priced, or structured around.

Why the gap is baked into the discount itself

The standard 10-30% secondary discount to the last round isn't purely about illiquidity — a meaningful share of it compensates the buyer specifically for knowing less than the seller does. A seller who knows a company is about to raise a down round, lose a major customer, or face a difficult regulatory outcome has an obvious incentive to sell now, at a price that doesn't yet reflect that information — and a buyer who can't independently verify the company's current state has to assume that risk exists in every deal, not just the ones where it's later confirmed.

Structural responses buyers actually use

Sophisticated buyers manage the gap in several concrete ways: negotiating representations and warranties from the seller about the shares and their knowledge of the company (creating legal liability if the seller misrepresented something material); favoring sellers with less obvious information advantage, like departing employees in ordinary circumstances over insiders selling right before a major company announcement; and building in structural protections like SPV holding structures or forward contracts that delay full economic transfer until certain conditions are confirmed.

Why company-organized tenders reduce (but don't eliminate) the problem

A company-run tender offer partially addresses information asymmetry by standardizing the price and terms across all sellers and implicitly signaling company approval of the transaction's timing — a company generally won't run a tender right before disclosing bad news it knows will tank the price. That's a meaningfully lower-risk structure than a one-off private sale from a single seller a buyer knows little about, though it doesn't eliminate the gap entirely, since the company itself still knows more than outside buyers do.

When the honest answer is to walk away

Not every information gap can be adequately priced or structured around — a buyer facing a seller who won't provide basic representations, a company with a history of surprising its own investors, or a security whose rights and preferences aren't clearly documented is often better off declining the deal than accepting an unquantifiable risk at any discount. Seethe due diligence checklist a secondary buyer actually uses for what to check before deciding either way.