A forward contract is an agreement: you pay today, or commit to pay on a set date, and the seller commits to deliver actual shares at a future point — typically when a lock-up expires, when a company completes an IPO, or when a transfer restriction lifts. In a private market marketplace, the underlying shares often do not move at signing. If you're still building foundational context on how pre-IPO investing structures and secondary transaction mechanics work, review the complete guide to pre-IPO investing before evaluating forward agreements. What you hold in the interim is a contractual promise, not a direct equity position — one reason the secondary transfer structure you choose matters.
That distinction matters more than most buyers realize when they first encounter the structure. Forwards are genuinely useful. They are often the only practical way to gain economic exposure to a company whose cap table is frozen, whose transfer policy prohibits direct sales before an IPO, or whose shares are held through a structure that cannot be unwound quickly. But useful and low-risk are not synonyms.
What you are actually buying
When you execute a forward contract, you acquire the right to receive shares — subject to the seller performing. The seller retains legal title until settlement. This means the seller can, in theory, fail to deliver. They might sell the same shares to another party. They might face a garnishment, a divorce proceeding, or a personal bankruptcy that encumbers the shares before the transfer date. The company might block the transfer even after the lock-up ends, asserting a right of first refusal (ROFR) that was not cleared in advance.
None of these outcomes are common. But they are possible, and a buyer who does not understand them cannot properly price that possibility into what they are willing to pay.
The three counterparty risk categories
1. Seller insolvency or legal encumbrance
Pre-IPO employees and early investors are individuals or entities with their own financial lives. A seller who signs a forward in good faith may face creditor claims, IRS liens, or estate complications before the transfer date arrives. A well-drafted forward will include representations and warranties about the seller's title and the absence of encumbrances, but representations are only as good as your ability to enforce them — which requires litigation if the seller cannot perform.
2. Duplicate sale or pledge
In an illiquid private market, the same block of shares can sometimes be informally pledged as loan collateral or verbally committed to more than one buyer before a formal contract is signed. A reputable marketplace will pull and review the relevant sections of the company's shareholder agreement and obtain seller representations of clear title before any indication is accepted. Buyers should ask specifically whether this verification has happened.
3. Company-level transfer block
Many shareholder agreements give the company — and sometimes existing investors — a ROFR over any secondary transfer. Some agreements go further and require board approval regardless of ROFR. If a forward is executed without pre-clearing the company's consent requirements, the buyer may find that, even after the lock-up lifts, the company refuses to record the transfer. The economic exposure existed throughout; the actual share position never arrived.
How structure and documentation reduce (but do not eliminate) risk
The primary tool against counterparty risk is a well-drafted purchase agreement with specific performance remedies — meaning the contract entitles the buyer to compel delivery of shares rather than only sue for money damages. Specific performance clauses are more valuable than damages clauses in a rising market, because cash damages may not compensate for the appreciation in share value that occurred while the dispute was pending.
Escrow is the second tool. A buyer who deposits funds into a qualified escrow rather than paying the seller directly retains leverage: if the seller fails to deliver, the buyer can recover the purchase price without chasing an individual. Sellers, in turn, should want escrow to signal good faith and reduce the buyer's risk premium.
Some platforms use a special purpose vehicle (SPV) to hold the forward obligation, which can make the structure more legible — investors own membership interests in the SPV, and the SPV holds the forward contract. This does not remove counterparty risk; it shifts where it sits and adds SPV fees and carry to the equation. Buyers in an SPV-wrapped forward should read the operating agreement carefully for what happens if the forward fails to settle.
Questions to ask before signing a forward
- Has the marketplace confirmed the seller holds the shares and that no lien, pledge, or duplicate commitment exists?
- Does the purchase agreement include a specific performance remedy, not just a damages clause?
- Is the purchase price held in escrow, or paid directly to the seller at signing?
- Has the company's ROFR process been addressed, or is it deferred until post-lock-up?
- What happens to your escrow if the company exercises ROFR and the transfer cannot complete?
- What jurisdiction governs disputes, and is that jurisdiction practical for you to litigate in if needed?
Where forwards make sense despite the risk
None of this is an argument against forwards. For buyers who want exposure to a company whose shares cannot yet transfer cleanly, a well-documented forward with escrow and specific performance is often the most practical option available. The alternative — waiting until all restrictions lift — frequently means paying a meaningfully higher price as uncertainty resolves and broader demand arrives.
The right frame is: forwards offer earlier access in exchange for documented but manageable counterparty risk. Buyers who understand that trade-off can price it appropriately and negotiate for the protections that matter most to them.
At Limen Markets, forward-structured listings identify the transfer trigger, escrow arrangement, and ROFR status on the listing detail page before any indication of interest is submitted. Buyers can review the structure before committing capital. Browse current forward and direct listings across all 28 issuers at /marketplace.