Latest / The Startup Exit Podcast with Fexingo: IPOs, Acquisitions, and Founder Liquidity Events / How Founders Use Private Secondary Sales Before an Exit
Transcript
- Lucas: In the world of startup exits, there's this persistent myth that founders only get one shot at liquidity — either the company gets acquired or it goes public, and then you get your payout. But increasingly, founders are finding ways to get cash years before any of that happens. Luna: You're talking about private secondary sales — selling shares while the company is still private. We've seen a surge in those this year, especially as the IPO window stays mostly closed. Lucas: Exactly. And look, we should be upfront about something here. This show exists because a few thousand of you listen regularly, and a small group of listeners chip in through buy me a coffee dot com slash fexingo. That's what keeps this ad-free and allows us to dig into these specific, often wonky, mechanics. So if you find these conversations useful, that's the channel. Now, back to secondaries. Luna: And it's a perfect topic for right now. Just today, the news broke that Travis Kalanick's robotics company raised one point seven billion dollars led by a16z. That's a huge round, but it's also a great example of how founders are using secondary sales inside a fundraise. Lucas: Right. In many mega-rounds today, a portion of the capital goes to the company for growth, but another portion goes directly to existing shareholders — founders, early employees, sometimes even angels — who want to sell some of their equity. It's a structured secondary, baked right into the primary round. Luna: So the company gets fresh capital to hire and build, and the founder gets a personal liquidity event without giving up control. What's the typical structure? Lucas: There are two common flavors. The first is a company-run tender offer: the company sets a window—say thirty days—during which eligible shareholders can sell a percentage of their shares to a specific buyer, often a large institutional investor. The second is a direct secondary sale, where a founder negotiates a private sale of a block of shares to a fund, often at a discount to the most recent round's price. Luna: And the discount matters. Because if the most recent round valued the company at ten billion, a secondary buyer might pay nine or eight point five — a built-in risk discount for lack of liquidity. Lucas: Exactly. You're essentially paying for the privilege of getting cash today instead of waiting for an IPO or acquisition that might not happen for another three years — or might not happen at all. The typical discount I've seen in 2026 is between ten and twenty percent off the last 409A valuation or the round price. Luna: And there are tax considerations too. If you sell shares in a secondary, it's a capital gains event. But if you hold until an acquisition, you might get more favorable treatment depending on the deal structure — like stock for stock exchanges where you defer tax. Lucas: That's the trade-off. You get liquidity now, but you lose the compounding upside if the company's value doubles before exit. For many founders, though, the ability to de-risk — to buy a house, fund a child's education, diversify away from a single concentrated asset — is worth that cost. Luna: And it's not just for mega-companies. Smaller startups are doing this too. I've seen Series B companies allow employees to sell up to ten percent of vested shares in a secondary pool created as part of a new financing. Lucas: That's a smart retention tool, actually. If you're a key engineer with options that are worth a lot on paper but you can't touch them, a small secondary window can make you stay rather than jump to a public company where you can sell RSUs immediately. Luna: But there's a risk for the company too. If insiders sell, it can signal to the market that those closest to the business think the valuation has peaked. How do companies manage that? Lucas: It's managed through volume limits and communication. Most secondaries are structured so that insiders can sell only a small percentage — for founders, often no more than ten to fifteen percent of their stake. And the company frames it as part of a planned liquidity program, not a panic sale. If the CEO sells two percent of her holdings, that's a normal wealth management move. If she sells forty percent, that's a signal. Luna: Right. And there's also the rise of dedicated secondary funds. Firms like Forge Global, EquityZen, and new ones like Zanbato have platforms specifically for trading shares of private companies. They aggregate buyers and sellers and facilitate transactions. Lucas: Those platforms have grown a lot in the past two years. In 2024, total secondary transaction volume in private companies was about thirty billion dollars. In 2025, it was closer to forty-five. This year, we're pacing for maybe fifty-five to sixty billion. That's serious liquidity. Luna: So if you're a founder listening, and you're thinking about doing a secondary, what's the first step? Lucas: First, check your shareholder agreement. Many have right of first refusal clauses — the company or other investors can buy the shares before you sell them to a third party. You need to know your transfer restrictions cold. Luna: And you need board approval, typically. Most secondary sales require board consent, especially if they involve a new investor. Lucas: Right. Then you need to decide how much to sell. I generally recommend selling enough to achieve whatever personal financial goal you have, but not so much that you lose motivation or alignment with the company. There's good data that founders who sell between ten and twenty percent of their stake in secondaries are more likely to stay focused and build value. Luna: And you need to think about taxes. Selling shares triggers a taxable event. If you've held for more than a year, it's long-term capital gains — currently twenty percent at the federal level, plus state taxes depending on where you are. Lucas: One trick I've seen is to do the secondary sale in a year when your other income is low, to keep you in a lower bracket. Or to use a charitable remainder trust if you're planning to donate a portion. But that's advanced stuff. Luna: We should also mention that secondaries aren't just for founders. Early employees with vested options are increasingly asking for liquidity windows. Some companies now offer annual or bi-annual tender offers for all employees. Lucas: Yes. Companies like Stripe and SpaceX have done that. It's becoming a standard part of equity compensation design. If you're a founder building your compensation philosophy, you should consider including a planned secondary program from the start. It makes your equity more valuable to recruits. Luna: Let's bring it back to that Kalanick deal. One point seven billion is a huge round. If even a portion went to secondary purchases, that could be life-changing liquidity for some early team members. Lucas: Absolutely. And it's a reminder that exit strategy isn't just about the final event. It's about creating liquidity along the way, so that the people who built the company can enjoy the fruits of their labor without having to wait a decade. Luna: And that's a healthier ecosystem overall. When founders and employees can take some chips off the table, they take smarter risks. They're not desperate for an exit; they can wait for the right one. Lucas: Exactly. And that's the paradox — making it easier to get liquidity early actually makes companies more likely to stay private longer and build more value. The secondary market isn't a sign of weakness; it's a sign of maturity. Luna: So if you're a founder thinking about your exit timeline, don't assume you have to wait for an IPO or acquisition. Look at a structured secondary. It might be the right move. Lucas: And we'll keep covering how those mechanics work. For next time, I want to look at something a little different — how acquirers use earnouts that are tied to secondary sales for the founding team. There's a clever structure emerging where the earnout is paid in shares that can be immediately sold into a secondary market. Luna: That sounds like a perfect follow-up. For now, thanks for listening. Lucas: And if you found this useful, you know where to find us.