Secondary Sale
A secondary sale is when you sell your existing shares to another party — often an investor or through a company-organized tender offer — before the company has an official exit. It's a way to get liquidity without waiting for an IPO or acquisition.
Secondary sales let existing shareholders (like employees, founders, or early investors) sell their already-issued shares to someone else, instead of the company creating new shares. This is often how startup employees get real cash from their equity before an IPO or acquisition.
In a typical scenario, once some or all of your options have vested and the company has raised later-stage funding (often Series B or beyond), you may be able to sell a portion of your vested equity:
- In a tender offer, the company coordinates a process where employees can sell a capped percentage of their vested shares to new or existing investors at (or near) the latest valuation.
- In a direct secondary sale, you find a buyer (like a secondary fund) who purchases your shares, often at a discount to the company’s last valuation.
Example
You have options for 0.5% of a startup that just raised a Series B at a $100M valuation. You’ve vested 75% of your grant.
Scenario 1: Tender offer
- Company allows employees to sell up to 20% of vested shares.
- You’ve vested 75% of your 0.5% grant, so you can sell 20% of that vested portion = 15% of your total grant.
- At a $100M valuation, your 0.5% is worth $500K.
- Selling 15% of that = $75K in gross proceeds.
- After exercise costs and taxes, you might net around $40K.
Scenario 2: Direct secondary sale
- A secondary fund offers to buy at a 30% discount to the $100M valuation (effective valuation $70M).
- Your 0.5% at a $70M valuation is worth $350K.
- You sell 25% of your vested stake, which yields roughly $65K in proceeds.
- You get liquidity, but at a discount to the last round price.
What to Watch Out For
- Right of first refusal (ROFR): The company often has the right to match your sale and buy the shares itself instead of letting you sell to an outside buyer. This can deter external buyers.
- You must exercise before selling: Options aren’t shares. You usually need to exercise (pay the strike price) to turn options into common stock, which can trigger taxes and require upfront cash.
- Company/board approval: Most equity plans restrict transfers and require company or board consent for any sale. You generally cannot freely sell to anyone you want.
- Timing risk: Selling early gives you guaranteed cash now but may mean giving up upside if the company’s value grows significantly later. If the company fails, selling earlier was a win; if it 3x’s after your sale, you left money on the table.