Phantom Exits: The Secondary Market Illusion and the Quest for Liquidity In Healthcare Angel Investing

DISCLAIMER: The views and opinions expressed in this essay are solely my own and do not reflect the positions, strategies, or opinions of my employer.

ABSTRACT

Angel investors in healthcare startups face a distinctive challenge that distinguishes them from investors in other venture categories: the extended timeline to liquidity coupled with the binary nature of healthcare outcomes creates portfolios that are simultaneously illiquid and difficult to value. This essay examines the emerging secondary market infrastructure for private healthcare companies, the mechanisms by which sophisticated investors are engineering liquidity in otherwise frozen positions, and the fundamental tension between price discovery and information asymmetry in healthcare venture investments. Through analysis of market structure, transaction mechanics, and the unique challenges of healthcare venture secondaries, this work argues that the promise of liquid secondary markets for healthcare angel positions is largely illusory, and that investors who orient their strategy around secondary liquidity are optimizing for the wrong variables. The central thesis holds that liquidity engineering in healthcare angel investing is less about creating functional markets and more about managing the psychological and portfolio construction challenges of decade-long hold periods in an asset class characterized by high mortality and long gestation.

TABLE OF CONTENTS

- Introduction: The Liquidity Fantasy

- The Time-Value Problem in Healthcare Angels

- Secondary Market Infrastructure and Its Limitations

- Information Asymmetry as Market Failure

- Price Discovery in Illiquid Markets

- Liquidity Engineering: Mechanisms and Realities

- The Portfolio Construction Challenge

- SPVs, Rolling Funds, and Structural Solutions

- Why Healthcare Is Different

- Conclusion: Building for Illiquidity

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Introduction: The Liquidity Fantasy