How Secondary Sales Work for Startup Employees: Selling Your Shares Before an IPO

For most of the history of venture-backed startups, equity was illiquid. You got shares or options, you waited for an IPO or acquisition, and only then did you find out what those shares were actually worth. The wait was often a decade or more.

The secondary market for private company stock has changed that, at least partially. Today, it's possible for employees at well-known startups to sell some of their shares before the company goes public — generating real liquidity years before the traditional exit event. But the mechanics are complex, company approval is almost always required, and there are significant tax and legal considerations.

Here's how it actually works.

What Is a Secondary Sale?

A secondary sale is a transaction in which an existing shareholder — an employee, a founder, or an early investor — sells their shares to another buyer. The money goes to the seller, not to the company. (This distinguishes it from a primary transaction, where the company sells new shares and the proceeds go to the company.)

In the startup context, secondary buyers are typically:

• Institutional secondary funds that specialize in purchasing private company stock (firms like Greenoaks, Lexington Partners, and others)
• Other VCs looking to get exposure to a company they didn't invest in at an earlier stage
• Individual accredited investors seeking pre-IPO exposure
• Platforms like Forge Global, EquityZen, or Hiive that connect sellers with buyers

The buyer gets shares in a private company. The seller gets cash — real liquidity — for shares that would otherwise be locked up.

The Two Main Types of Secondary Transactions

Tender Offers

A tender offer is a company-organized secondary transaction. The company (often with investor support) sets up a structured program where employees can sell a portion of their shares at a specific price, to a specific set of approved buyers, during a defined window.

Tender offers are the cleanest secondary mechanism for employees. The company controls the process: it sets the price (or allows the market to set it within a range), approves the buyers, manages the legal documentation, and typically handles the tax withholding.

For employees, tender offers are relatively simple: the company communicates the offer, you decide how much you want to sell within whatever limits are set, you indicate your election, and you receive cash when the transaction closes.

Companies like Stripe, SpaceX, and many other high-profile startups have run regular tender offers — sometimes annually — to give employees liquidity without going public.

Private Secondary Sales

Outside of company-organized tender offers, employees sometimes attempt to sell their shares privately — finding a buyer on their own, through a secondary platform, or through a broker.