Exits
What is a secondary sale?
Quick Answer
A secondary sale is when existing shareholders (founders, employees, or early investors) sell their shares to other investors before an IPO or acquisition. It provides partial liquidity without a full exit event.
Detailed Answer
Secondary transactions allow shareholders to sell some or all of their equity to new buyers without the company raising new primary capital.
Types of secondary sales:
**1. Structured secondaries (company-facilitated)** - Company organizes a tender offer for employees and early investors - Common at Series C+ (companies like Stripe, SpaceX run these) - Price set by company/board, usually at last round valuation
**2. Direct secondaries** - Shareholder finds a buyer directly or through a broker - Usually requires company approval (ROFR — Right of First Refusal) - May be restricted by shareholder agreements
**3. Secondary market platforms** - Forge Global, Carta, EquityZen, SharesPost - Matching buyers and sellers of private company shares - Typically available for later-stage, well-known companies
Who sells in secondaries: - **Founders** — Partial liquidity after 5+ years of low salary - **Early employees** — Exercise options and sell some shares - **Early-stage VCs** — Realize returns before a full exit - **Angels** — Capture returns on early bets
Pricing: Secondary shares typically trade at a 10-30% discount to the last primary round valuation, reflecting lower information rights and liquidity.
Growing trend: Secondaries have exploded as companies stay private longer (average time to IPO has increased from 4 years to 10+ years).
Related Questions
What is an exit in venture capital?
An exit is how VC investors realize returns on their investment — typically through IPO (public offering), acquisition (M&A), or secondary sale. The exit is where returns are generated, usually 5-10 years after initial investment.
What is an IPO?
An IPO (Initial Public Offering) is when a private company first sells shares to the public on a stock exchange, raising capital and providing liquidity for early investors. It's the highest-return exit path for VCs, though only ~1% of VC-backed companies achieve it.
How does a VC-backed acquisition work?
In an acquisition exit, a larger company buys the startup. Proceeds flow through the liquidation waterfall: debt first, then preferred shareholders (VCs) get their liquidation preference, then remaining proceeds are distributed based on ownership percentages.