How to Start a Venture Secondaries Fund

Buying an LP interest means acquiring someone's commitment in an existing venture fund, inheriting both its portfolio and its remaining unfunded obligation. You diligence a manager and a portfolio at once, and the position is diversified from the moment you buy it.

Buying a direct position means acquiring shares in a single company from a founder, employee, or early investor. That is concentrated single-company risk with far less information — you rarely get a data room, and you are frequently buying common stock while institutional investors hold preferred with liquidation preferences stacked above you.

Funds that do both should say in what proportion, because the risk profiles barely overlap and an LP underwriting a diversified LP-interest strategy will not accept discovering the fund is mostly direct common stock.

The reference price in a venture secondary is usually the last primary round, which may be 18 to 36 months old. A company that raised at a $500 million valuation in a hot market may be worth materially less now, and the discount you negotiate is against that stale number rather than against current value.

This is the central skill. A 30% discount to a mark that is itself 50% too high is not a discount. Underwrite the company on its own current metrics — revenue, growth, burn, runway, and the realistic next-round price — and treat the last round as a data point rather than an anchor. LPs will ask how you price, and 'we buy at a discount to the last round' signals that you do not.

Every secondary has a seller with a reason, and adverse selection is the structural risk of the whole strategy. An employee selling to buy a house is a benign reason. A fund selling because it is at the end of its life and must liquidate is a structural reason. An early investor selling because they have information about the company's prospects is the one that costs you money.

Build the seller-motivation question into your process explicitly, and be honest in the investment memo about what you could not verify. Funds that skip this step buy the positions that better-informed holders wanted to shed, which is a slow and expensive way to learn the lesson.

The Fund Builder models the economics — fund size, position count, discount assumptions, expected hold period, and a fee structure that reflects a shorter duration than a primary venture fund — so the J-curve you show LPs matches the model behind it. Legal Canvas prepares the formation and offering documents with your position-type split, concentration limits, and valuation policy carried as strategy disclosures for independent counsel review.

Valuation policy matters more here than in a primary fund, because you are marking positions you bought at a discount and an LP will ask whether you carry them at cost or at the reference mark.