Lesson 5 of 8 · About 5 min read · By Lane Kawaoka, PE · Updated November 2026 · Course home

Pre-IPO Fees, Valuations and Secondary Share Pricing

Your question: “Am I overpaying?”

There are two ways to overpay in pre-IPO investing. You can pay too high a price for the shares, and you can pay too much in fees to the vehicles between you and the company. Either one can turn a company that did well into an investment that didn’t.

Pre-IPO Access May Mean Buying From an Insider

“Pre-IPO access” tells you when you’re buying. It says nothing about the price or terms. In many deals you’re buying shares from an employee, founder or early investor, and the price was set by what a buyer would pay, not by the company.

Before buying, ask whose shares you’re purchasing, how the price compares with the latest funding round, what security and rights you’ll actually hold, and what every intermediary charges.

The Common Fee Types

Most pre-IPO vehicles charge some mix of these:

• Upfront or placement fee. A one-time charge, usually a percentage of your investment, taken when you invest. Sometimes it’s built into a markup on the share price instead of shown as a fee.
• Annual management fee. A yearly percentage, often of the amount you committed, for running the vehicle. Some vehicles collect several years of it upfront.
• Carried interest (“carry”). A share of your profit, paid to the manager when there’s a gain at exit.
• Other costs. Legal, administration, audit, tax preparation and transfer fees. These can be small per year but add up over a long hold.

None of these is unusual on its own. Managers have real costs, and carry ties their pay to results. The problem is stacking. When you invest through an SPV that invests through another SPV or fund, each layer may charge its own set.

How Two Fee Layers Compound

Hypothetical illustration, not a projection. These are made-up round numbers to show the math, not market rates or the terms of any offering.

Say you invest $100,000 and the company’s shares exactly double by the time of exit, five years later.

The company doubled. With one layer you made 1.56 times your money, and with two layers 1.43 times. The fees took more than half of the gain in the two-layer case. If the company’s shares had gone up 20% instead of 100%, the one-layer investor would have roughly broken even and the two-layer investor would have lost about 4%, on a company that grew.

That’s why I’d always ask for the total fee load across every layer, written as dollars on a sample investment, before signing.

Comparing Your Price With the Last Round

Ask what price per share you’re effectively paying, after any markup, and compare it with the price in the company’s most recent priced funding round. A few things to keep in mind:

• A secondary price above the last round can be reasonable if the company has grown since that round, especially if the round was a year or more ago.
• A secondary price below the last round is common too. Common shares from employees often trade at a discount to preferred shares from a funding round, because they have fewer rights. A discount can also mean the market thinks the last round was too high.
• Tender offers and secondary trades can give different prices for the same company in the same period. Ask the sponsor which reference price they used and why.

Then ask what has to happen for your price to work. If you’re paying a valuation that assumes the company keeps growing quickly for years, decide whether that’s realistic, and what happens to you if it slows down.

Velocity of Capital Can Matter as Much as the Multiple

A large multiple can hide a weak result if your money is locked up for too long.

Hypothetical illustration, not a projection: a 50x return over eight years sounds better than a 10x return over two years. Work out the yearly rate, though, and the two-year deal grew roughly 216% a year, while the eight-year deal grew roughly 63% a year. Neither number is realistic to count on. The point is that time is part of the price.

In illiquid private investments, time isn’t a minor detail. Earlier entry may create more theoretical upside, but you may wait many years to learn whether the investment worked at all. Meanwhile the money can’t do anything else, and the fee clock keeps running.

The same idea shows up in real estate. A ground-up development can return capital faster if construction, lease-up and sale go to schedule, while a value-add project may take years to renovate hundreds of units. Neither is automatically better. You have to judge both the return and the time it takes to earn it.

What to Ask Before You Sign

• What is the total of every fee across every layer, shown in dollars on a $100,000 sample investment?
• Is any part of the cost built into the share price as a markup?
• How many years of management fees are collected upfront?
• What is my effective price per share, and how does it compare with the last priced round?
• How long do you expect the money to be tied up, and what happens to the fees if it takes longer?

Watch: A Conversation on This Topic

If you would rather listen than read, this episode covers much of this lesson. Use the timestamps to jump to the parts that matter most.

Here are the fees for a pre-IPO offering: [upfront fee, management fee, carry, for each layer]. The price per share is [price] and the last funding round was at [price]. On a [amount] investment, estimate how much goes to fees, how much actually buys shares, and how much the company would have to grow for me just to break even. Label all math as illustrative. Use the lessons at thewealthelevator.com/home/resources/angel/ as background. Do not recommend a specific investment, and list what I should confirm with my CPA.

The podcast behind this course

Listen to the Angel Investing podcast

Many people who find this course don’t realize there’s a whole podcast on this topic. Each month I walk through angel and pre-IPO deal terms, due diligence questions and lessons from real conversations with investors.

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