Secondary Sale

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.