Latest / The Startup Exit Podcast with Fexingo: IPOs, Acquisitions, and Founder Liquidity Events / The Secondary Block Trade Boom Reshaping Founder Liquidity
Transcript
- Lucas: If these conversations are useful for what you're building or running, stick around — we'll get into something that's quietly reshaping how founders cash out before an IPO. Luna: I've been seeing more chatter about secondary block trades. Is that what we're digging into today? Lucas: Exactly. There's a specific mechanism gaining traction: the pre ipo block trade — basically a large, negotiated sale of shares from existing holders to institutional buyers, often at a discount to the most recent round price. And it's not just a trickle anymore. Luna: So this is separate from a tender offer? More like a one-off private placement of existing shares? Lucas: Right. A tender offer is typically company-led, open to multiple sellers and buyers. A block trade is usually a single seller — a founder, an early VC — negotiating directly with a buyer or a syndicate. And it's happening more frequently because late-stage companies are staying private longer. Luna: And we've got a live example from today's news. Odyssey, the world model maker, just closed a round at a one point four five billion valuation, with Amazon as a backer. Lucas: That's the one. According to TechCrunch, that round included a secondary component — meaning some existing shareholders sold shares to new investors. It's a classic block trade structure baked into a larger financing. The primary part funds the company; the secondary part gives liquidity to early backers and employees. Luna: And I'm guessing the secondary shares were priced at a discount to the primary? That's typical, right? Lucas: Usually, yes. The secondary discount can be anywhere from ten to thirty percent below the primary round price, depending on demand and the seller's urgency. In Odyssey's case, we don't have the exact split, but the fact that Amazon led the primary signals strong validation, which would narrow the discount. Luna: So who's buying these blocks? Is it mostly crossover funds, sovereign wealth, family offices? Lucas: All of the above. Lately, we've seen a surge from mutual fund giants like Fidelity and T. Rowe Price, also sovereign funds like Singapore's GIC. They get a discounted entry into a high-growth company without the volatility of an IPO pop, and they get a large enough position to matter. Luna: And for the founder, the upside is obvious: they can diversify their personal net worth without waiting for an IPO that might be years away. But what's the downside? Lucas: Signaling risk is the big one. If the market sees a founder selling at a discount, it can be interpreted as a lack of confidence. To mitigate that, sellers often combine the block with a lockup — they agree not to sell more shares for a set period, usually six to twelve months. Luna: That's where Rule 144 comes in. The SEC's rule that governs restricted stock sales — it imposes holding periods and volume limits. But a block trade can be structured as a private placement under Rule 144A, which bypasses some of those limits for qualified institutional buyers. Lucas: Exactly. Rule 144A is the legal backbone for most secondary block trades. It allows the buyer to receive unregistered shares, which they can then resell among other institutions. That liquidity for the buyer makes them more willing to pay a higher price — or accept a smaller discount. Luna: So the whole ecosystem depends on a sophisticated buyer base. That makes sense given the numbers we're seeing in the market. Look at Airbnb — up almost nine percent in the last five days. Palantir up two and a half. When stocks like that run, the secondary market for private companies heats up too. Lucas: There's a direct correlation. Public comps rising makes private companies look cheaper by comparison, so institutional buyers get more aggressive in secondary blocks. And founders see that window and decide to take some chips off the table. Luna: We should also mention that not all block trades are pre ipo. Some happen post ipo when lockups expire and large holders want to exit without crashing the stock. But the pre ipo version is the one founders are most interested in. Lucas: Right. post ipo block trades are a different beast — they're usually at a discount to the market price, and they can spook retail investors. But pre ipo blocks happen in the dark, with no public price to anchor expectations. That opacity is both a feature and a bug. Luna: A bug because the founder might leave money on the table if the company's valuation jumps before the IPO. But a feature because they get certainty — cash in hand, no lockup clock ticking. Lucas: Exactly. And the market is getting more standardized. There are now platforms like Forge Global and EquityZen that facilitate these trades, though the big blocks still happen off-exchange, negotiated by investment banks. Goldman Sachs and Morgan Stanley have dedicated secondary advisory teams. Luna: So for a founder listening today, what's the takeaway? If you're sitting on a large stake in a late-stage private company, and you're thinking about liquidity, a block trade might be worth exploring — but you need to weigh the discount against the peace of mind. Lucas: And you need to talk to a lawyer who knows Rule 144A inside out. Because the structure matters — whether you sell as a primary or secondary, the tax treatment, the lockup commitments, the impact on your control. It's not a DIY move. Luna: Speaking of practical moves — a couple of dollars a month is genuinely what keeps these conversations going. Buy me a coffee dot com slash fexingo, if you've gotten something out of them. Lucas: Yeah, it's the listener support that lets us keep this ad-free and focused on the mechanics that actually matter. No pressure, just grateful. Luna: Alright, back to the block trade boom. One trend I'm watching is the rise of 'staple' transactions — where a primary round is stapled to a secondary block, like we saw with Odyssey. That structure seems to be becoming the norm for big rounds. Lucas: It is. And it's a smart way for companies to refresh their cap table while letting early investors exit. The company gets new capital, the founder gets liquidity, and the new investors get a seat at the table — all in one coordinated deal. Luna: It also reduces the friction of a separate secondary process. The lead investor in the primary round often coordinates the block, matching buyers and sellers. That's a lot more efficient than a founder trying to find a buyer on their own. Lucas: Efficiency is the name of the game. And we're seeing more creative structures too — like forward contracts where a founder agrees to sell shares at a future date at a fixed price, giving them cash today. Those are essentially derivatives on the block trade. Luna: That's getting into hedge territory. But it shows how sophisticated the market has become. Ten years ago, a founder's options were basically 'wait for the IPO or sell on the secondary market at a huge discount.' Now there's a whole menu. Lucas: And the menu keeps expanding. With the IPO market still choppy — we've seen some high-profile direct listings and SPACs, but the traditional IPO window hasn't fully reopened — founders are voting with their feet. Block trades are one way to get liquidity without betting on the public market's timing. Luna: So what should we watch for in the next six months? Any signals that the block trade market might tighten? Lucas: Watch the public comps. If the NASDAQ or the S&P 500 dips, the discount on block trades will widen, and some sellers might pull back. But if the market stays strong — and with stocks like NVIDIA up one percent in the last five days, Meta up one point two — the appetite for private shares should remain healthy. Luna: And watch the regulatory angle. The SEC has been looking at private market transparency. If they require more disclosure around block trades, that could change the calculus for both buyers and sellers. Lucas: Good point. For now, though, the secondary block trade is a powerful tool in the founder liquidity toolkit. It's not for everyone, but for those with a large stake and a desire for early cash, it's worth a serious look. Luna: And it's one more sign that the startup exit playbook is no longer just 'grow fast, IPO, and pray.' Founders have more control than ever. Lucas: That's the theme we keep coming back to on this show. More options, more nuance, and more need for good advice. Thanks for listening.