Buying · Stage 3 of 5
Diligence on an Illiquid Position
What you can actually verify before buying — and what you're taking on faith.
Diligence on a secondary purchase is real but structurally limited: you don't have the access a primary investor negotiating directly with the company would have, and the seller's own information may be dated or incomplete.
The goal isn't to replicate primary-round diligence — it's to be clear-eyed about exactly what you can confirm, and treat everything else as a genuine, priced-in risk rather than something to assume away.
Checklist for this stage
- Ask what specific documents the seller (or platform) can share — cap table position, last-round terms, any recent 409A figure.
- Confirm what information rights, if any, transfer with the purchase — often none automatically (see pro rata rights on transfer for the same underlying issue applied to a different right).
- Check for any public information: press coverage, other investors' public statements, hiring trends — the limited substitute for direct management access.
- Weigh the specific structure (SPV vs. direct, vested vs. unvested, SAFE vs. priced stock) as part of diligence, not a separate afterthought — see the relevant mechanics deep dive for each.
Common pitfalls
- Assuming a marketplace's "pre-cleared" listing means full diligence has been done on your behalf — pre-clearance usually just means ROFR/consent issues are resolved, not that the company's prospects have been vetted.
- Not asking how recent the reference pricing (last round or 409A) actually is.
- Treating the seller's optimism about the company as a substitute for your own independent view.
Frequently asked questions
Can I talk to the company directly before buying?
Rarely, and not as a matter of course — most companies don't grant direct access to prospective secondary buyers the way they would a primary investor, though it doesn't hurt to ask through the seller or platform.
Is a recent continuation-fund price a good diligence signal?
It's a genuinely useful, recent, third-party price reference if one exists for the company — see GP-led continuation funds at seed stage for how to use it.
Is this investment, tax, or legal advice?
No. This is independent educational content — every situation has specific facts that can change the right answer. Confirm anything material with a qualified advisor before acting.