Direct vs. Structured
A Decision Framework for Deploying Capital into Closed Cap Tables
Imagine you find a company whose business is compounding and the founders are exceptional. You do the work and build conviction. You are ready to move when someone tells you the round closed six months ago. Do you feel frustrated? Good. That frustration means you found something real. The real question is: what do you do next?
The cap table is full. The company is not raising. The existing shareholders are not selling. Traditionally, this would mean the conversation is over. It is not.
Today, capital can reach companies at almost any stage through one of two paths: direct secondary purchases or structured financial instruments. Both offer exposure to the same underlying asset. Both come with real trade-offs that are not always made explicit at the time of deployment.
"The question is never just 'can we get access' but what kind of access, at what cost, and under what terms."
Two routes into the
same closed room
You buy shares directly from an existing shareholder. Your name goes on the cap table. You own the equity with all the governance rights and obligations that come with it.
- Clean, direct ownership of the underlying equity
- Information and pro-rata rights (where negotiated)
- No intermediary between you and the exit proceeds
- ROFR — existing investors can match your offer
- Transfer approval — the company must consent
- Seller sourcing — requires real relationships, not just brokers
You hold a financial instrument like an SPV, forward contract, or participation agreement that gives you economic exposure to the shares without direct ownership.
- Access without appearing on the cap table
- Speed — often no formal company consent required
- Flexibility on ticket size and tax structure
- Counterparty risk — depend on the intermediary entirely
- No governance rights — passive economic participant
- Stacked fees — SPV margin, carry, and broker costs compound
Four variables that
drive the decision
Capital deployment in closed cap tables should be guided by four primary variables. Each one narrows the field before price is even discussed.
| Variable | Direct Preferred When | Structured Preferred When |
|---|---|---|
| Access Availability | Direct allocation is realistically obtainable. A willing seller exists. | No seller available. Structured is the only pathway in. |
| Price Efficiency | Secondary pricing reflects intrinsic value. No scarcity premium is baked in. | Entry is mispriced; structured instruments can optimize the cost basis. |
| Investment Objective | Long-term ownership with governance and information rights matter. | Tactical exposure or diversification. Passive access is sufficient. |
| Conviction Edge | High conviction and strong diligence. Direct ownership is fully justified. | Lower visibility or flexibility required. Structured limits downside. |
Decision Flow
Direct when possible.
Structured when necessary.
Direct ownership is almost always preferable when it is achievable. Not because structured instruments are inherently flawed as we use them, but because they introduce a layer of dependency that carries real and often underpriced cost.
When you buy shares directly, the company's performance is the primary variable. When you access structured exposure, you are also betting on the intermediary's solvency, governance, and incentive alignment. That is a different risk profile than most structured term sheets acknowledge.
The discipline we hold: treat structured access as a tool of necessity, not convenience. The moment it becomes the default because it is easier to execute, you have handed a meaningful share of your return to intermediary economics.
The company may not
want you either way
Both paths carry a risk that rarely appears in investment memos: the company does not want you. Late-stage private companies are increasingly deliberate about who sits on their cap table. A company preparing for an IPO does not want 200 small SPV investors creating governance complexity. Some are now building contractual restrictions that reach through SPV structures to the beneficial owner.
What looks like clean structured access can become a contested position at the worst possible moment — like during a liquidity event. Due diligence on the company's attitude toward secondary activity is not the last conversation. It is the first one.
Relationships before
transactions
Arrow Fund has built its secondary sourcing capability around a simple belief: relationships with motivated sellers are more durable than relationships with SPV syndicates. We invest in maintaining direct contact with founders, early employees, and seed-stage investors at companies we track long before those relationships produce transactions.
When a direct path opens, we move quickly. When it does not, we evaluate structured options against a consistent set of criteria: intermediary quality, fee load, governance transparency, and unwind mechanics. We do not default to either path.
In a market where "access" has become a selling point in itself, the more important discipline is knowing when the access on offer is not worth the terms attached to it.
This article is part of Arrow Fund's Structural Thesis Series and is intended for qualified investors and professional counterparties only. It is provided for informational purposes and does not constitute an offer to buy or sell any security or investment product. Arrow Fund LLC · Venice Beach, Los Angeles · Q2 2026