One of the first questions buyers ask when they look at a private-company listing is: 'Why is this trading below the last round?' The question is reasonable. If Databricks raised at an $85 billion valuation six months ago, why would anyone sell at a lower implied valuation today? The answer is not that the seller knows something catastrophic. It is structural — and once you understand the mechanics, the discount becomes predictable rather than alarming.
What a primary round valuation actually represents
When a company raises a primary round, it sells newly issued preferred shares directly to institutional investors. The price at which those preferred shares are sold sets the headline valuation. But preferred shares in a private company come with significant protections that common shares — and even older series of preferred — do not carry.
A fresh preferred investor typically receives a liquidation preference (often 1× non-participating, sometimes participating), anti-dilution protection, board rights or observer seats, and pro-rata rights in future rounds. These contractual protections have real economic value. They mean that in a downside scenario — an acquisition below the round price, for example — the new preferred investor recoups capital before common shareholders see anything.
Most secondary market transactions involve common shares, or preferred shares that have been outstanding for several years and may carry lighter protections than the most recent series. Strip away the governance rights and the liquidation stack advantages, and the underlying economics of those shares are genuinely worth less than the headline primary price — even in an unchanged business.
The five structural forces behind the discount
The lag between primary and secondary prices is not one thing. It is several forces operating simultaneously, each with a different magnitude depending on the issuer and the moment.
1. Share class and stack position
As explained above, common shares sit at the bottom of the capital structure. In a strong exit — an IPO above the last round price — the difference is irrelevant; everyone converts at the same ratio and common shareholders do well. But in anything less than a strong exit, that stack position matters enormously. Buyers in the secondary market price in the probability distribution of outcomes, not just the bull case.
2. Illiquidity premium demanded by buyers
Secondary buyers accept illiquidity. They cannot exit the position whenever they choose. A typical private holding could remain locked up for another two to five years beyond purchase, with no guaranteed liquidity event. Buyers demand compensation for this through a lower entry price — which mechanically shows up as a discount to the primary valuation. The longer the expected time to a liquidity event, the larger this discount tends to be.
3. Information asymmetry
Primary round investors receive detailed financial disclosures, audited statements, board-level projections, and months of due diligence access. Secondary buyers receive far less — often a cap table, a 409A valuation, and whatever is publicly available. When buyers have less information than sellers, they compensate by pricing more conservatively. This asymmetry is a persistent structural feature of private markets.
4. Transfer restrictions and ROFR friction
Most private company shares can only be transferred with company consent, and many carry a right of first refusal (ROFR), which allows the company or existing shareholders to step in and buy at the agreed secondary price before the transaction closes. ROFR creates execution risk: a buyer may spend weeks in diligence and negotiation only to have the company exercise its ROFR and absorb the transaction. Buyers factor this risk into their pricing, nudging bids lower.
5. Timing of the primary round itself
Primary rounds in private markets happen infrequently — often every twelve to thirty-six months. By the time a buyer looks at a secondary listing, the primary round that set the headline valuation may be eighteen months old. A lot can change in eighteen months: public market comps may have compressed, sector sentiment may have shifted, or the company's own growth trajectory may have evolved. The secondary market re-prices continuously; the primary valuation is a snapshot.
When the discount narrows or disappears
The forces above are not constant. Certain conditions compress the discount significantly, and occasionally secondary prices trade at or above the most recent primary mark.
- A confirmed IPO filing or S-1 submission eliminates the liquidity-timing uncertainty that creates much of the discount. Buyers know when they will be able to sell, so they are willing to pay closer to primary prices.
- A company-sponsored tender offer sets a floor price and effectively compresses the bid-ask spread in the open secondary market around that floor.
- Constrained supply drives secondary prices up independently of fundamentals. If a company has very few willing sellers — because employees are prohibited from transacting, or existing shareholders are restricted — buyers compete for scarce positions and the discount closes.
- Strong public-market comps pull secondary marks upward. When listed comparables re-rate higher, private-market buyers revise their fair-value estimates upward even without new primary round data.
- A high-profile new investor entering at a primary round above current secondary prices can immediately pull secondary marks up toward the new primary level.
What this means for buyers and sellers right now
For buyers, the practical implication is to avoid anchoring to the primary round headline as a ceiling. The secondary market is its own price discovery mechanism. A company trading at a 20% discount to its last primary round is not necessarily undervalued — it may simply reflect the structural factors above being accurately priced in. The right question is whether the current secondary price is fair given the specific share class, the estimated time to liquidity, and what is publicly known about the business.
For sellers, this means timing and structure matter. Selling into a moment when the discount is structurally narrower — around a tender, around IPO momentum, or when supply in your specific name is genuinely thin — will produce meaningfully better proceeds than selling into a quiet period with no near-term catalysts.
On Limen Markets, bid and ask indications across all 28 issuers refresh hourly, which means the discount you see for any name reflects live supply and demand rather than a stale mark. If you are working through a position sizing decision or evaluating entry across multiple issuers, the marketplace is the right place to compare where each name is trading relative to its last known primary valuation.
Buyers ready to explore current secondary marks can browse the marketplace directly. Sellers who want to understand how their specific share class and transfer policy interact with today's secondary pricing can start with our seller playbook.