The due diligence checklist a secondary buyer actually uses

A secondary buyer operates with a structural disadvantage a primary investor doesn't face: no board seat, usually no negotiated information rights, and often limited direct access to management. That doesn't mean diligence is impossible — it means it has to be built from a different, more indirect set of sources. Here's what a disciplined buyer actually checks before committing capital.

The security itself, not just the company

What exactly is being sold matters as much as who's selling it. Common stock and preferred stock in the same company can be worth meaningfully different amounts per share once you model theliquidation waterfall — a buyer needs to know the specific share class, whether it carries a liquidation preference, and where it sits relative to every other class outstanding.

Transfer restrictions and consent history

Before agreeing to price, a serious buyer checks the company's transfer restrictions and, where possible, its track record on ROFR exercises and consent requests — a company that reliably waives its rights for reasonable buyers is a fundamentally lower-risk counterparty than one with a history of blocking or slow-walking transfers.

The last round, and how stale it actually is

The last primary round anchors pricing, but its usefulness decays with time. A buyer checks not just the headline price but how long ago the round closed, whether the company has raised any bridge financing since (often a signal of tighter conditions than the last priced round implies), and what current secondary marketplace pricing suggests about how the market has moved since.

Cap table depth and dilution risk

A buyer models the full cap table where possible — not just the current ownership percentage, but how much of the company's option pool remains unissued, whether any outstanding convertible notes or SAFEs will convert at unfavorable terms, and whether existing preferred holders carryanti-dilution protection that could dilute the position further in a future down round.

Path to liquidity, realistically assessed

Finally, a buyer assesses — as honestly as available information allows — how far away a real liquidity event actually is: a credible IPO timeline, an established pattern of recurring tender offers (as with Databricks), or neither. A position with no visible path to liquidity within a reasonable horizon needs to be priced very differently from one with a company actively running periodic buybacks.

None of this fully closes the information gap a secondary buyer accepts by definition — but a buyer who works through this checklist systematically prices that gap deliberately, rather than discovering it after the wire has already gone out. Seethe information asymmetry problem in every secondary deal for how experienced buyers manage what diligence still can't uncover.