Ten Tips for Working With a Pre-IPO Secondaries Broker

Building a solid relationship with a broker can be valuable when trying to navigate the illiquid, volatile, and complex private secondary market. Here are ten tips to help build a positive and productive relationship with your broker.

1. Demand Honesty. Brokers who intentionally lie to clients are unlikely to retain their licenses, but vague or unusual statements should be a red flag. There are many ways to misrepresent a situation without technically lying, so look for clarity and consistency, and learn to distinguish “enthusiasm” from misrepresentation.

2. Seek Transparency. If a broker says, “My buyer has access to cash,” this may mean that they know people who might provide them funds. Better: “Buyer has provided proof of funds and can wire cash within 72 hours of signing the SPA.”

3. Don’t Bid Against Yourself. While all of our engagements are non-exclusive, keep in mind that if you present your offer or bid to a half-dozen brokers or platforms, these ultimately end up in the inbox of buyers or sellers (a relatively small universe), creating the illusion of more supply or demand than actually exists. This can lead to a spiraling price in the direction opposite to your own interests.

4. Avoid Soothsayers. Be cautious of brokers who make predictions about market trends. Your broker’s role is to facilitate transactions, not predict the future. Rely on research reports and data-driven insights for decision-making. For instance, I provide a snapshot of firm bids, asks, and recent crossed trades.

5. Keep Organized. There are more than 20 steps required to complete the average secondary transaction. Ask your broker how they manage and track them. I use a customized “Trade Roadmap” that lets all parties know which step is next in the process, who is responsible, and the status of all tasks required to complete the trade.

6. Eschew Haste. When a broker rushes you, beware. It may be in their interest to close quickly (or the manager of an unfunded SPV who is trying to raise capital), but not in yours. Of course, after a trade is matched and the transfer process has begun, prompt responses are expected and appreciated.

7. Value Experience. Each company has a unique set of bylaws and processes in place to manage secondary transactions (some block them entirely). Whenever possible, work with brokers who have successfully completed transactions with the company.

8. Stay Compliant. US brokers are required by various laws to conduct KYC/AML to detect potential fraudulent activity. Be sure your broker, even if non-US based, can ensure the counterparty you are introduced to is who they say they are and has the shares or funds they claim to have.

9. Be Realistic. The private secondary market may be illiquid, but exceptional deals are rare. Multiple platforms now give a reasonable estimate of a private security’s price, so if your broker brings you something that is significantly above or below that, the chances are high that the trade will not close. Sellers should keep in mind that their shares could actually be worth nothing, and that buyers are looking at worst-case scenarios when valuing private firms.

10. Honor Your Word. Abide by your written commitments, including those made via email. Failing to do so will likely get you placed on a list of unreliable partners by the company, the counterparty, and the brokerage firm. This will negatively impact your ability to trade in the future.

Bonus Tip — Be Kind. In a volatile market, where sellers’ decisions impact their livelihoods and buyers face substantial risks, try to stay courteous. I don’t work with clients who are unprofessional, angry, or demeaning. Start a transaction with a smile and end with a thank you: even if it doesn’t directly impact your bottom line, it will profit you in the long term.