For outside investors in private companies
Owning a piece of a private company, before the market prices it.
An outside investor buys pre-IPO shares one of two ways: directly from an existing holder in a secondary transfer, or through a special purpose vehicle that holds the shares and sells interests in it. Either route requires accredited-investor status under SEC Rule 501(a), and the shares are restricted securities that cannot be freely resold. We read the terms, test the price against the last round, add up the fees at each layer, and set the size the plan can carry.
The situation
The offer arrives before the plan for it does.
Interest in a private company usually starts with a name: a company a household knows, admires, or once worked for, now raising money or letting employees sell. The invitation to buy in from the outside comes through a broker, a fund manager, or a friend with an allocation, and it comes with a deadline.
What it rarely comes with is a full account of what is being bought. It may be common stock, or an interest in a vehicle that holds common stock. The price may reference the company’s last funding round, which was set for preferred shares with rights the buyer will not have. The seller is often an employee or early investor choosing to take money now, in a tender offer or a negotiated transfer, and their reasons deserve attention.
This page covers the outside-investor side: how the shares are bought, what each route costs, the rules that decide when they can be sold, and how we size one inside a plan. The employee side, exercising options, deciding on a tender, and preparing for a lockup, has its own guides, linked below.
Why it’s complex
Five things the term sheet decides
Who is on the other side of the trade
The seller is usually an employee or early investor selling in a company-run tender offer or a negotiated transfer. A tender resets the company’s 409A valuation and shows what informed holders were willing to accept. Our tender guide covers their decision; this page covers yours.
Read the guideDirect transfer or a vehicle
A direct purchase puts your name on the cap table, subject to the company’s approval and any right of first refusal. A special purpose vehicle holds the shares and sells you an interest in it, adding a management fee, carried interest, and often a placement charge on top of the company’s own result.
How fund access differsWhat the price is anchored to
Quotes reference the last funding round, which priced preferred stock with liquidation preferences that common shares lack. Between rounds the mark goes stale. A vehicle raising money under Rule 506(b) owes accredited buyers no specified disclosure, so the information gap is the buyer’s to close.
Read the guideWhen you can actually sell
Pre-IPO shares are restricted securities. Rule 144 requires a six-month hold at a reporting company and one year at a non-reporting one, IPO lockups typically add 180 days, and the company may never list at all. The exit map is written before the check, not after.
Read the guideTax character and the QSBS gap
The qualified small business stock exclusion requires shares acquired at original issuance, so a secondary purchase does not qualify. Gains are long-term after a year, vehicle interests bring a Schedule K-1, and an in-kind distribution after an IPO carries its own basis questions.
Read the guideSources: 17 CFR §230.501(a); 15 U.S.C. §80a-2(a)(51); SEC Release IA-6961 (Apr. 28, 2026); 17 CFR §230.144(d); 26 U.S.C. §1202(c); FINRA, Know the Risks of Pre-IPO Funds; SEC Investor Alert: Pre-IPO Investment Scams.
Our approach
Diligence in the order that saves the most time
Most offers fail on fit before they are ever underwritten, so we start with the plan and end with the documents. We do not source deals, take placement fees, or hold ourselves out as having special access. We read, size, and coordinate with your CPA and attorney.
Name the job and cap the sleeve
We write down what a single private company would do for the plan that the public portfolio cannot, and how much the plan could lose without moving a date. That number, not the allocation offered, sets the ceiling. Money already tied up in options, RSUs, or funds counts against it.
Confirm the seller and the shares
Who owns the shares today, whether the company has approved the transfer or holds a right of first refusal, and whether a vehicle already owns the stock or only intends to buy it. FINRA’s guidance flags vehicles several layers removed from the stock; we ask for the purchase agreement and the company’s consent before anything else.
Price the price
We compare the quote with the last round’s preferred price and what that class was promised, ask when the valuation was last set, and add up every fee: management, carried interest, placement, and expenses, in dollars over the expected hold. For a vehicle, we read how and when it distributes after an IPO or a sale.
Draw the exit map
Each path gets a date and a rule: an IPO with its lockup and Rule 144 clock, an acquisition for cash or stock, a later tender, or no event for years. We agree in advance how much would be sold at each release and coordinate the tax year with your CPA.
Hold it like a position, not a story
The stake enters the plan at cost and is marked only when a priced round or tender gives a defensible number. Our Quarterly Rounds keep liquidity, concentration, and tax in view, the K-1 reaches the CPA on time, and the sell rules are ready before the first release date arrives.
The work
What you’ll work through with us
- A written role and dollar ceiling for private-company exposure inside your plan
- A chain-of-title check: seller, company consent, right of first refusal, and share class
- A fee ledger for any vehicle: management, carry, placement, and expenses, in dollars over the expected hold
- A price comparison against the last priced round and its preferred terms
- An exit map covering IPO, acquisition, tender, and no-event scenarios, with sell rules for each
- Tax coordination with your CPA: holding periods, K-1 timing, and basis after an in-kind distribution
- Concentration review where the same company already appears as options, RSUs, or a fund holding
- Ongoing marks and Quarterly Rounds once the position is in the plan
Private-company diligence at the firm is led by Theo Halbardier, CFP®, CIMA®, CAIA®, the firm’s founder. The CAIA curriculum covers the structures on this page, secondaries, special purpose vehicles, and the terms that govern them, so the reading happens on your side of the table. We are fee-only: no commissions, no product sales. About Theo
Questions
Common questions about pre-IPO investing
Can I buy shares of a private company if I do not work there?
Yes, if you meet the accredited-investor test and both a seller and the company allow it. Outside investors buy through a negotiated secondary transfer from an existing holder, subject to the company’s consent and any right of first refusal, or through a special purpose vehicle that holds the shares. Both routes involve restricted securities that cannot be freely resold, and neither entitles you to the information the company gives its own investors.
What is an SPV, and what does it cost?
A special purpose vehicle is a limited partnership or LLC formed to hold one company’s shares and sell interests in it to accredited investors. Typical costs are a placement charge at entry, an annual management fee, and carried interest on gains, all on top of the company’s result. FINRA notes that some vehicles hold the stock indirectly through other vehicles, so we confirm what the entity actually owns before any money moves.
What does accredited investor mean in 2026?
Under SEC Rule 501(a), an individual qualifies with net worth above $1 million, alone or with a spouse, excluding the primary residence, or with income above $200,000 in each of the last two years ($300,000 jointly) and the same expected this year. Holders of the Series 7, 65, or 82 licenses also qualify. The test measures money, not whether a given investment fits a plan.
When can I sell pre-IPO shares I bought on a secondary?
When a buyer exists and the rules allow it. Before a listing, only through another private transfer with company consent. After an IPO, Rule 144 requires six months of holding at a reporting company (one year for a non-reporting issuer), counted from when the shares were acquired from the issuer or an affiliate, and the IPO lockup, typically 180 days, must expire. If the company never lists and is never acquired, there may be no exit.
Do secondary purchases qualify for the QSBS exclusion?
No. Section 1202 requires that the stock be acquired at original issuance from the corporation, so shares bought from another holder do not qualify, whatever the company’s size or the holding period. Gains on a secondary purchase are capital gains, long-term after one year. Ask your CPA to confirm before assuming any exclusion applies.
How large should a single private company be in a portfolio?
Small enough that a total loss would not move a retirement date, a tuition plan, or the cash reserve, and small enough that years without liquidity would not force a sale elsewhere. We set the ceiling from the plan, not from the offer, and count any options, RSUs, or fund holdings in the same company toward it.
How are you paid?
We are fee-only. We receive no placement fee, carried interest, commission, or referral payment from any company, vehicle, or platform. Our compensation comes from clients alone, which is why we can say no to an offer as readily as yes.
Reviewed by Theo Halbardier, CFP® · Updated September 2026 · Figures current for 2026
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