Exits & Liquidity
Secondary Sale
The sale of existing shares in a private company by current shareholders (founders, employees, early investors) to new investors, without the company raising new capital.
A secondary sale (or secondary transaction) occurs when existing shareholders — founders, early employees, angels, or VC funds — sell their shares to a new buyer, separate from any primary fundraising by the company. Unlike primary rounds where the company issues new shares and receives the proceeds, secondary transactions transfer existing shares from one investor to another.
Secondaries have become an important liquidity mechanism as the time from founding to IPO has extended from ~5 years to 10+ years. Without secondary liquidity, founders and employees can be 'paper rich but cash poor' for a decade or more.
Secondary transactions require company approval (per shareholder agreements and right of first refusal clauses). They can happen as standalone transactions, as part of a primary round, or through dedicated secondary funds and platforms like Forge, CartaX, or Nasdaq Private Market.
In Practice
An early Stripe employee has 500,000 shares worth $50 each on paper ($25M). He needs cash to buy a house but doesn't want to leave Stripe. He arranges a secondary sale of 100,000 shares ($5M) to a secondary fund. Stripe approves the transaction, the employee gets liquidity, and the secondary fund now has a Stripe stake.
Why It Matters
Secondary sales solve one of the most difficult problems in venture-backed companies: how do founders and employees who've created significant value on paper access that value before a company goes public or gets acquired? The availability (or unavailability) of secondary liquidity significantly affects retention and morale at late-stage companies.