Most buyers focus their due diligence on valuation. They model discount to last round, stress-test the cap table, and review liquidation preferences. What they rarely model is the settlement process itself — the period between signing and the moment legal title (or an SPV interest) actually lands in their name. In private secondary markets, that window carries real risk.

Settlement timelines vary widely depending on transfer structure, issuer cooperation, and whether a Right of First Refusal (ROFR) applies. Direct transfers at companies with streamlined consent processes can close in five to ten business days. SPV structures can take longer if the general partner is standing up a new vehicle. Forward contracts — where you agree to purchase shares contingent on a future trigger — can leave capital exposed for months. Each structure has a different risk profile during the gap.

The three things that can go wrong before settlement

The first risk is seller fall-through. A seller who has signed a purchase agreement but not yet received funds has, in some structures, limited obligation to proceed if something changes in their life — a competing tender offer, a change in employment, or simply cold feet. Term sheets that are not paired with a meaningful earnest deposit or a binding escrow arrangement give buyers limited recourse.

The second risk is ROFR exercise. When a company holds a contractual Right of First Refusal over its shares, the secondary transaction must be disclosed to the company (and often to other shareholders) before the buyer can take title. During that notice period — typically 30 days, though some companies run longer — the company can elect to purchase the shares at the agreed price, cutting the buyer out entirely. The buyer loses the deal, recovers any escrowed funds, and has spent time and legal fees for nothing.

The third risk is company consent denial. Many private company charters require board approval before any share transfer. Even when a buyer and seller agree on price and terms, the board can decline to approve the transfer — sometimes without explanation. If consent is denied after the buyer has wired funds into escrow, the unwind process is clear in well-drafted agreements. If the buyer has wired funds without a proper escrow arrangement, recovery can be complicated.

A signed term sheet is not a closed deal. In secondary markets, it is the start of a process that involves at least the company, sometimes other shareholders, and occasionally a court if things go wrong.

How escrow actually works in a secondary transaction

In a well-structured secondary deal, the buyer deposits funds into a neutral escrow account — typically held by a licensed escrow agent or qualified custodian — at the time of signing or shortly after. The funds are released to the seller only when all conditions to closing are satisfied: ROFR waiver received, company consent obtained, transfer agent records updated, and (for SPV structures) the operating agreement signed by both GP and LP.

The escrow agreement should specify what happens if a condition fails. A clean agreement gives the buyer a full refund of escrowed funds if the ROFR is exercised, consent is denied, or the seller cannot deliver clean title. It should also define the outside date — the deadline after which either party can terminate without penalty if closing has not occurred.

  • Confirm escrow is held by a neutral third party, not the seller or the marketplace acting as principal.
  • Read the conditions to release carefully — all of them, not just the ROFR section.
  • Verify the outside date is realistic given the issuer's historical ROFR turnaround time.
  • Understand your remedy if the seller defaults post-escrow: specific performance or cash damages?
  • Check whether the escrow agent's fees are split or borne entirely by one party.

SPV structures and the additional layer of settlement risk

When you invest through a Special Purpose Vehicle rather than taking a direct transfer of shares, you are purchasing a limited partnership or LLC membership interest in a vehicle that holds (or will hold) shares of the target company. That changes the settlement sequence in important ways.

In a direct transfer, settlement is complete when the company updates its cap table and the transfer agent records your name. In an SPV, there are two distinct closings: first, the SPV itself must acquire or confirm its holding in the underlying shares (which involves ROFR and consent processes with the company); second, you as an LP must fund your interest in the SPV and receive a signed copy of the operating agreement reflecting your membership. A breakdown at either stage can leave you in an uncomfortable middle ground.

Some SPVs are structured around shares the GP already holds — called a back-levered or seasoned SPV. These settle faster because the ROFR and consent process has already been cleared. Others are forward SPVs, where the GP commits to acquiring shares and you fund in advance. Forward SPVs carry meaningful counterparty risk: if the GP cannot source the shares on the agreed terms, your capital may sit idle or face a delayed return.

Seasoned SPV
The GP holds the underlying shares already. ROFR and consent are cleared. LP interest settles quickly, typically in days after LP funding.
Forward SPV
The GP has committed to acquire shares but has not yet done so. LP funds first; GP acquires later. Counterparty risk sits with the GP during the acquisition window.
Direct transfer
Buyer takes shares (or options) directly on the cap table. ROFR and consent apply. No GP layer, but no GP infrastructure either — legal setup falls to the buyer.
Forward contract
Buyer and seller agree now to transact at a future date or trigger event (e.g., IPO filing). Settlement deferred. Counterparty risk is highest and persists longest.

What to ask a marketplace before you fund

Not all secondary marketplaces run the same settlement infrastructure. Before wiring funds, ask five specific questions: Who holds the escrow? What is the documented ROFR timeline for this issuer? Has this seller's title been verified — meaning, has anyone confirmed they actually hold the shares they are selling? What happens to my funds if consent is denied? And what is the marketplace's role if a dispute arises — principal, agent, or neither?

At Limen Markets, seller-side supply is confirmed before a buyer indication is accepted, ROFR processes run in parallel with document execution rather than sequentially, and templated SPV documents reduce the legal back-and-forth that typically extends timelines. Settlement targets one to five business days depending on the issuer and structure. That does not eliminate settlement risk — nothing does — but it compresses the window in which things can go wrong.

The fastest path to settlement is a marketplace that has already cleared the seller's title and has a documented ROFR relationship with the issuer before you sign anything.

The practical checklist before you commit capital

  1. Request a copy of the draft escrow agreement or, if an SPV, the draft operating agreement before funding.
  2. Verify the escrow agent's identity and confirm they are licensed in the relevant jurisdiction.
  3. Ask the marketplace for the typical ROFR waiver timeline for the specific issuer you are buying.
  4. Confirm the seller has provided documentation of ownership — grant notice, cap table entry, or transfer agent record.
  5. Read the termination and refund provisions. Know exactly what triggers your right to a full refund.
  6. Set a calendar reminder for the outside date so you can act if closing stalls.

Settlement risk does not make secondary investing unworkable. Tens of thousands of private share transfers close cleanly every year. But the buyers who avoid costly delays and failed deals are the ones who ask these questions before they sign — not after. If you are ready to evaluate specific listings with these questions in mind, the current marketplace inventory is available at /marketplace.