Exit & liquidity
Secondary sale
Also called Secondary transaction, Direct secondary
The sale of existing shares by a shareholder to a new buyer, as distinct from the company issuing new shares — the main route to liquidity before a company exits.
In plain English
In a primary transaction the company issues new shares and receives the money. In a secondary, an existing holder sells their shares and pockets the proceeds; the company receives nothing and its share count does not change. For an investor sitting in year eight of a company that is growing well but has no exit in sight, secondaries are the only realistic route to cash.
They happen in several forms. Alongside a financing, where an incoming investor buys a block from founders or early holders as part of the round — the most common and easiest form. Through a company-run tender offer, where the company organises a process at a set price and eligible holders may participate. Or bilaterally, where a holder finds a buyer independently, which is much harder.
Every route runs into the transfer restrictions: rights of first refusal, co-sale rights and board consent. Bilateral sales are also constrained by information asymmetry — a buyer of private shares wants financials the seller may not be permitted to share, and the company is under no obligation to help.
Pricing is typically at a discount to the last round, often 20% to 40%, reflecting illiquidity, the absence of the preferred rights that the round price paid for, and the buyer's limited information.
What it means for your cheque
Selling part of a position is a legitimate and underused decision. An angel who has held a position for eight years, has watched it mark up ten times, and has no idea when an exit might come is not being disloyal by taking some money off the table. Partial sales — selling half and keeping half — are the usual compromise and require no strong view about the future.
The practical constraint is that you rarely choose the timing. The realistic opportunities are the ones the company creates: a tender offer, or a round with a secondary component. Making it known to the founders, calmly and early, that you would consider selling a portion in any future secondary is how angels actually get included.
Do the arithmetic
Selling half a position in a company that has not exited
You invested $25,000 at a $5m cap for 0.5%. Eight years later the company is valued at $400m in its Series D, and there is a secondary component at a 25% discount to the round price.
| Your position after dilution | about 0.22% |
|---|---|
| Value at the Series D price | about $880,000 |
| Secondary price at a 25% discount | about $660,000 for the whole position |
| You sell half | about $330,000 in cash |
| Return on the original $25,000, from the half sold | 13× — realised |
| Remaining position if the company exits at $2bn | about $2.2m |
| Remaining position if the company fails | $0 — but you have already banked $330,000 |
Selling half at a 25% discount locked in a 13× return and preserved the entire upside case on the other half. The discount was the price of removing the possibility of a zero.
At the table
What to negotiate
- Tell the founders early and calmly that you would consider selling a portion in any future secondary. Inclusion is usually a matter of being on their list.
- Read the transfer restrictions before you need them — ROFR, co-sale and board consent all apply.
- Expect a discount of 20% to 40% to the last round price and treat it as the cost of liquidity.
- Consider selling partially rather than entirely; it removes the need to have a view on the outcome.
- Take tax advice before selling — a secondary can forfeit holding-period reliefs such as QSBS in the US or affect UK EIS treatment.
Around the world
How this differs by market
Tender offers at later-stage companies are well established, and dedicated secondary platforms are active. QSBS requires a five-year holding period, so timing a sale has real tax consequences.
LATAMThin secondary market. Most liquidity comes through secondary components in large rounds led by international investors.
EULess developed but growing. UK EIS relief can be withdrawn if shares are disposed of within three years, so check the holding period before selling.
APACEstablished in Singapore, Australia and India for later-stage companies; thin elsewhere.
Secondary sale: common questions
Can I sell my startup shares whenever I want?
Why do secondaries price at a discount?
Does selling in a secondary affect my tax relief?
Keep reading