Forward Contract

A forward contract in private markets is a bilateral agreement where a seller commits to delivering a set number of shares — or the cash-equivalent proceeds — at a specified price on or after a defined future date (often an IPO or qualifying liquidity event). Unlike a current secondary transfer, no shares change hands today.

Forwards solve a timing problem: an employee or early investor wants to lock in a sale price now but cannot transfer shares today due to company restrictions, blackout windows, or lockup periods. The counterparty — typically a fund or dealer — pays a premium for the commitment.

Illustrative example: a startup employee holds 100,000 vested shares currently marked at $10 each. They enter a forward contract at $9.50 per share (a 5% discount for illiquidity and delivery risk) that obligates them to deliver shares within 30 days of an IPO. The counterparty pays a small upfront deposit, with the remainder at delivery.

The gotcha: forwards are legally complex and jurisdiction-specific. Some forwards are structured as loans collateralized by shares rather than true sale obligations, which carries different tax treatment. A forward that is structured as a "loan" may not give the buyer the same rights as an outright purchaser. Legal counsel and tax advice are essential before signing.