The Secondary Market Looks Like a Shortcut. It Isn’t.

For most of the past two years, a lot of wealth managers had the same conversation. Clients wanted to know why they didn’t own pre-IPO SpaceX shares. After all, an acquaintance had purchased shares at a discount through a platform offering access to private technology companies before they go public. Why hadn’t the advisor done the same for them?

In June, that question got its answer. SpaceX listed on Nasdaq at $135 a share. Investors who had bought exposure through layered special purpose vehicles then began the slower work of finding out what they actually held. Press reports following the listing described holders learning their shares had been sold before public trading began, and others still waiting while each SPV layer distributed down the chain. PitchBook expects the fee and disclosure problems attached to these structures to surface further as lockups expire.⁸ The question itself has simply moved: Anthropic and OpenAI both filed to go public in June.

Famed portfolio manager Peter Lynch had a theory about moments like these. His Cocktail Party Market Indicator explained how enthusiasm for equity investing grows as markets move higher. The market tops out when people who once were bored by talk of the stock market begin offering stock tips.

In venture capital, there is a similar progression. Investors rarely ask advisors about participating in obscure seed-stage companies. Today, they’re clamoring to buy shares of private-market giants on the secondary market. The pitch is appealing: Buy a great company at a discount before it goes public. Yet it sidesteps serious structural questions around access restrictions, fee stacking, fraud exposure, and valuation distortions that have real consequences for long-term returns.

While the secondary market looks like it offers democratized access to elite private companies, great companies and great investments are not the same thing. We’ve spent years building a better entry point — one that starts long before a company becomes a name everyone recognizes.

Here’s a look at key issues everyone should understand to properly evaluate private shares offered through the secondary market.

The Best Companies Don't Want Outside Buyers

Many private companies put controls in place to limit share ownership. Shareholder agreements establish clear rules for share ownership and transfer, giving founders and major investors influence over who can join the shareholder base. Provision for share transfers may include board approval requirements, rights of first refusal, transfer restrictions, and other measures. It is not bureaucracy. It’s intentional governance.

Shares of private companies sometimes become available through tender offers. These are company-structured mechanisms that give an investor, company, or group of investors the chance to buy shares from current shareholders at a specific price, over a set period. Tender offers provide liquidity for the shareholder base as companies stay private longer. In 2025, the median period between a company’s founding and its IPO was 12 years, up from six years in 1980.¹ As a result, tender offers are on the rise, up 62% by transaction count in 2025, according to Carta’s State of Private Markets 2025 in Review.²

The growth of tender offers highlights a fundamental tension in private markets. Existing shareholders often want liquidity, while prospective investors want access. Through the informal secondary market, investors can purchase shares or economic interests tied to shares, from existing shareholders. This is where Special Purpose Vehicles (SPVs) and other secondary market vehicles enter the picture.

The Fee Stack Nobody Actually Calculates

Most retail investors cannot gain direct access to private-company shares. Instead, they purchase shares of SPVs or other vehicles through the secondary market. SPVs pool the capital of many investors and, ostensibly, use that capital to purchase interests in one or more private companies.

The SPV structure looks simple, but the economics are not. In some cases, an SPV owns an interest in another SPV, which owns an interest in a fund or another structure that ultimately owns the underlying shares. The investment’s fee stack can include the accumulation of management fees, performance fees, administrative costs, and intermediary charges that accompany each layer within the investment.

The compounding is easier to see with numbers on it. Take a hypothetical two-tier structure — a 3% placement fee at closing, 1.5% annual management fees at each of two levels, and 20% carried interest taken at both. The placement fee means $100,000 committed puts $97,000 to work. The management fees run at 3% a year combined, which over a decade is roughly a third of the original commitment. And because carry is taken twice, about 36% of any gain is removed before the investor sees it. These are illustrative figures chosen to show how layering compounds, not market rates; actual fees are set by the sponsor and vary by offering.

“Nobody does the math on this before they write the check. SPVs get broken apart and re-packaged into new SPVs, sometimes three and four layers deep. Investors end up paying fees and carry all the way up the chain. By the time a company actually goes public, a meaningful chunk of your upside has already been extracted.”

— Chris Hjelm, Portfolio Manager & Head of Investments, Connetic RIA LLC

The fee stack can significantly affect investors’ long-term returns. All too often, secondary-market investors focus on gaining access to desirable private companies while underestimating how much of the eventual upside will be consumed by fees.

Not all secondary platforms operate in the same way. Some focus on company-approved transactions, others on brokered marketplaces, curated offerings, or company-sponsored tender programs. It’s important for advisors and investors to understand exactly how the platform operates and what they are purchasing as they evaluate opportunities.

The Fraud Risk Deserves More Attention Than It Gets

Multi-layered SPV structures are complex and have little transparency. Investors may believe they own part of a desirable private company when they really own an interest in an entity that owns an interest in another entity that owns an interest in another entity that purportedly owns shares of the company. The investor has limited visibility into whether actual company shares are held at the top of the chain of entities.

Lack of transparency, along with less stringent documentation and diligence during periods of intense demand, can create opportunities for bad actors — and it has. In November 2025, a federal jury convicted the founders and operators of StraightPath Venture Partners of fraud; in May 2026 they were sentenced to eight, ten and eleven years in federal prison.³

According to the U.S. Attorney's Office for the Southern District of New York, the StraightPath principals “acquired nearly $400 million from investors. They pocketed approximately $25 million each over the course of the fraud, and they also diverted investor funds to pay their associates.”³

The SEC’s earlier complaint alleged the firm sold interests in pre-IPO companies it did not own, leaving a share deficit of at least $14 million across its funds.⁷ That is the gap an S-1 eventually exposes: not a company that underperformed, but shares that were never there to begin with.

The takeaway is not that all secondary-market vehicles are problematic, it’s that advisors and investors need to know exactly what they own.

“My estimate is that somewhere between 20–35% of people who believe they own late-stage secondary exposure through informal SPV chains are going to get a very unpleasant surprise when that verification event happens. The reckoning comes at IPO. When a company files its S-1, it must disclose its full cap table for the first time. The ones that don't actually hold shares will have nowhere to hide.”

— Chris Hjelm, Portfolio Manager & Head of Investments, Connetic RIA LLC

The 2021 Valuation Problem Hasn't Reset, and We're Already Seeding the Next One

Another challenge for advisors and investors is valuations. Many investors look at today's private-market discounts and see opportunity. Consider a hypothetical example: a company that was valued at $20 billion during the 2021 venture boom and is now trading at a 40% discount on the secondary market may appear to be a bargain, but a discounted price doesn’t always indicate a good value.⁴ This example is hypothetical and shown for illustrative purposes only. It does not represent any actual company, security, transaction, or investment, and is not a projection or prediction of any outcome.

The venture market is still working through the consequences of the last cycle. More than a quarter of U.S. unicorns are estimated to be worth less than $1 billion today. Many are still perceived to be “unicorns” because of their last financing round.⁵ The point is that valuations shape perceptions long after market conditions have changed.

This creates a dangerous form of optimism. Investors see a large discount and assume the correction is complete. A company that’s worth substantially less than its peak valuation may still be worth substantially less than its current valuation. The correction isn’t over.

The same issues that became apparent following the 2021 boom are occurring today. The gap between median seed valuations and top-5% seed valuations was roughly 2.9x in 2019. It's now 4x and rising fast, with 95th percentile post-money seed valuations hitting $80M against a $20M median. More capital and attention are concentrating at the top, and it's accelerating… The location data is more extreme than most people realize. Bay Area seed valuations at the 95th percentile hit $162M in 2025. The same percentile for every other US city combined is $64M, according to Sierra Ventures.⁶

“The correction isn't over, and we're already seeding the next one. We're seeing 'pre-seed' rounds at $20 million for companies with zero revenue and just an initial vision. Round labels have become largely meaningless. Everyone is chasing the AI wave with complete disregard for price, especially in San Francisco, which is operating in a completely different reality than the rest of the country. That bill will eventually come due, and late-stage secondaries will be the first place it shows up.”

— Chris Hjelm, Portfolio Manager & Head of Investments, Connetic RIA LLC

A Cleaner Path to Private Market Exposure

That’s the problem Connetic was built to solve. The secondary market has a structural issue: it gives investors access after the value has already been established, after the crowd has already arrived, after the SPV chain has already taken its share. Advisors and investors who participate in private markets should give careful thought to entry points. Retail investors have become fixated on buying pre-IPO shares of well-known companies — SpaceX until its June listing, and now Anthropic and OpenAI, both of which filed to go public in June. They’re excited about purchasing exposure through secondary markets without fully understanding the risks and limitations.

Secondary market platforms serve an important purpose, especially for employees and early investors who need liquidity. But they offer a late entry point — after consensus has formed, after the crowd has arrived, after fees have stacked. Early-stage venture capital occupies a fundamentally different position on that timeline.

Connetic was built around that insight. Our AI analyst Wendal® finds promising companies before they attract broad attention, identifying founders on merit across diverse U.S. markets, not because they had the right connections or happened to be in the right city. Where only about 10% of deal flow at institutional venture firms comes inbound from founders themselves,⁹ Wendal doesn’t favor founders who already know the right people or happen to be in the right location. Instead, it evaluates every application with the same data-driven rigor, seeking businesses worth owning before they become the companies everyone is trying to buy. That’s how we democratize access to venture capital — by making the sourcing process itself more transparent and inclusive.

The irony of today’s private-market enthusiasm is that many investors are asking how to buy the next SpaceX after it has already become SpaceX. Venture capital has historically generated its best returns by identifying tomorrow’s winners before anyone knows their names, and making that opportunity accessible to investors who were previously locked out.