Latest / The Startup Exit Podcast with Fexingo: IPOs, Acquisitions, and Founder Liquidity Events / How Founders Use Secondary Sales to De-Risk Before Exits
Transcript
- Lucas: Luna, I want to talk about something that more and more founders are doing well before any IPO or acquisition happens: selling their own shares in the private market. Not because they're leaving the company, but precisely because they're staying. Luna: You're talking about secondary sales. And I've noticed it's not just a trickle anymore—it's becoming almost standard for high-growth startups. Lucas: Exactly. Let's use a concrete example: Ramp, the corporate card and spend management company. In April of this year, they closed a $150 million secondary round at a $12 billion valuation. That's not new capital for the company—that's old shares being sold by early investors and employees. Luna: Right, the company itself didn't get the cash. But the founders and early team members got liquidity. What's interesting is that Ramp last raised primary capital in 2023 at $8.1 billion, so this secondary round effectively marked up the stock. Lucas: And that's the part that surprises people. Secondary sales often happen at a premium to the last primary round, because the buyers—typically big institutional investors like T. Rowe Price or Coatue—are betting the company will eventually go public at an even higher valuation. They get access to a private company that might be years from an IPO. Luna: That dynamic is feeding a bigger trend. According to Forge Global, which tracks the secondary market, total volumes hit $12 billion in the first quarter of 2026. That's up 30 percent from the same period last year. And it's not just mega-companies like Ramp—it's mid-stage startups too. Lucas: Thirty percent year-over-year is significant. And I think a big driver is that founders are watching what happened in 2021 and 2022—companies that went public at huge valuations only to see their stocks crash. The lesson was: don't wait for the IPO to de-risk your personal finances. Luna: That psychological shift is real. I've spoken to founders who say they used to think selling any shares before the exit signaled a lack of confidence. Now they see it as prudent financial planning. One told me, 'I can't be the only one not diversified.' Lucas: And they're right. The classic advice was to hold until the exit to avoid tax complications. But the tax code actually offers some favorable treatment if you structure it right. Section 83 elections for early employees, for instance. And if you hold for over a year, you get long-term capital gains rates. Luna: But there's a trade-off. If you sell in a secondary, you lock in a price. If the company later goes public at three times that, you left serious money on the table. How do founders think about that? Lucas: They're treating it like any portfolio construction—sell enough to de-risk, keep enough to have upside. I've seen founders sell 10 to 20 percent of their stake in secondary rounds. Enough to buy a house, cover taxes, maybe start a family office. The rest stays. Luna: And the companies themselves are facilitating it more. Ramp, for example, ran a formal tender offer. They set the price, the window, the caps. That makes it orderly and fair, rather than having employees sell on random platforms at wildly different prices. Lucas: Tender offers are a tool we've seen used by companies like Stripe and SpaceX before their big secondary rounds. The company controls the narrative. And it's also a retention tool—if employees can cash out some shares, they're less likely to leave for another startup that offers immediate liquidity. Luna: Speaking of that, I want to bring in a market signal. Look at the ARK Innovation ETF, ticker ARKK. It's up 7.3 percent in the last five days. ARKG, the genomics ETF, is up almost 13 percent. Those are risk-on signals. When investors feel bullish, they're more willing to buy private shares at premiums. Luna: And it's not just founders who benefit. Early employees at companies that haven't had a liquidity event in years finally get some cash. That's a huge morale boost. I've talked to engineers at late-stage startups who say the tender offer made them feel like their equity actually matters. Lucas: That's the human side that often gets overlooked. Equity compensation is only motivating if it feels real. When you can turn some of those paper millions into actual dollars, it changes how people think about their work. They stop worrying about the exit and focus on building. Luna: So what's the catch? There must be a downside for the company or the founders beyond just dilution. Lucas: The main catch is complexity and cost. Running a tender offer requires lawyers, accountants, a platform like Forge or Carta. Companies spend hundreds of thousands of dollars. And if the secondary market dries up—say, if we enter a recession—those planned liquidity events could collapse. Luna: Also, there's the signal issue. If a founder sells too much, too early, investors might wonder if they've lost conviction. There's a delicate balance. I've heard of VCs actually encouraging secondary sales because it aligns incentives—founders with cash in the bank take fewer crazy risks. Lucas: That's a nuanced view. And I think it's becoming the dominant one. The old mantra was 'founders should eat what they cook.' The new mantra might be 'founders should cook, but also have a diversified pantry.' Luna: I like that. So for a founder listening who's thinking about this, what's the first step? Lucas: First, talk to the board and your legal team. Not all companies allow secondary sales. Some have right of first refusal. Others prohibit them entirely until a liquidity event. Second, understand your tax situation—if you exercise options and sell quickly, you might trigger disqualifying dispositions. Luna: And third, look at the secondary market platforms. There are now multiple options: Forge Global, EquityZen, Carta Secondary. They each have different fees and investor networks. It's worth shopping around. Lucas: Yeah, the days of needing to know a guy who knows a guy are over. The market is institutionalized. And that transparency is probably why volumes are growing so fast. Luna: One thing I find fascinating is how this connects to the broader theme of startup exits. We've done episodes on direct listings, SPACs, traditional IPOs. Now secondaries are becoming a kind of mini-exit along the way. Lucas: Exactly. The exit is no longer a single day event. It's a process that starts years earlier, with strategic partial liquidity. If today's conversation was useful for what you're building or running, and if it was worth a coffee to you, you know where to find that—buy me a coffee dot com slash fexingo. No pressure, just a way to keep this ad-free and focused on the details that matter. Luna: Agreed. It's the small stuff that adds up. So back to secondaries—one more angle I want to explore: how the rise of AI startups is affecting this market. Companies like Anthropic and OpenAI have seen their secondary valuations soar. Lucas: That's a great segue. AI companies are attracting enormous institutional demand, even in private markets. For example, Anthropic's secondary trades earlier this year valued the company at over $60 billion, well above its last primary round. That's partly because supply is limited—founders and employees aren't selling much. Luna: Right, because they believe the upside is still huge. But that creates a tension: the secondary price signals a high valuation, but if the company hasn't figured out profitability, it could be a bubble. Lucas: That's the risk. But for now, the trend is clear: secondary sales are a permanent fixture of the startup ecosystem. They give founders and employees optionality, and they let institutions get exposure to high-growth private companies. It's a win-win, as long as everyone knows what they're buying. Luna: And as long as the market stays liquid. If public markets turn, secondary volumes could drop sharply. But for now, founders have a powerful tool to manage their own financial futures. Lucas: Well said. That's our take on secondaries as a de-risking strategy. Next time, we'll look at how the IPO pipeline is shaping up for the second half of 2026. Until then, keep building.