Latest / The Startup Exit Podcast with Fexingo: IPOs, Acquisitions, and Founder Liquidity Events / How Founders Are Using Secondary Markets for Early Liquidity
Transcript
- Lucas: So we talk a lot on this show about exits — IPOs, acquisitions, direct listings. But there's a quieter, massive trend happening right now that doesn't make the front page. Founders and early employees are cashing out years before any actual exit event. Luna: You mean via secondary markets — selling shares on platforms like Forge or EquityZen? Lucas: Exactly. And it's not just a trickle anymore. In 2025, secondary transaction volume in private companies hit roughly sixty billion dollars globally, up from about thirty billion just three years earlier. That's doubling in a period when the IPO market has been, let's say, inconsistent. Luna: Right — we've seen that IPO window open and close a few times. First half of 2026 hasn't exactly been a boom either. Lucas: No, it hasn't. So founders who don't want to wait — or can't wait — are turning to secondaries. And it's becoming a standard part of the startup compensation narrative. If you join a late-stage private company today, you're not just hoping for an IPO. You're probably expecting a liquidity event via a tender offer every twelve to eighteen months. Luna: That's a huge shift from even five years ago. I remember when secondary sales were seen as a sign of weakness — like, 'oh, the founder is cashing out, maybe the company's in trouble.' Lucas: Right, the stigma has completely flipped. Now it's seen as prudent financial planning. You've got companies like SpaceX running tender offers that let employees sell up to five hundred million dollars worth of shares at a time. They did one earlier this year at a valuation north of two hundred billion dollars. Luna: And that's not a distressed sale. That's the most valuable private company in the world giving its people a chance to diversify. Lucas: Exactly. And the mechanism is pretty straightforward. The company — or a third party like a venture firm or a secondary fund — creates a pool to buy shares from existing holders. The price is typically set by a recent funding round or a 409A valuation. Employees get cash, and the buyers get a stake in a company they believe will go public eventually. Luna: But there's a catch — or a few. The buyer usually wants a discount, right? So the employee might sell at a ten to twenty percent haircut compared to the last round price. Lucas: That's true. But for many employees, especially those with concentrated wealth in a single stock, that's an acceptable price for liquidity. And the alternative is waiting — sometimes years — for an IPO that may never happen. Luna: Or an acquisition that falls through. We've seen that story play out a lot recently. Lucas: Right. So secondaries are becoming a risk-management tool. And it's not just for employees. Founders are using them too. A founder might sell ten or fifteen percent of their stake in a secondary round to de-risk their personal finances, while still retaining control of the company. Luna: And if this is useful for what you're building or running — if today's conversation was worth a coffee to you — the link is buy me a coffee dot com slash fexingo. That's it. Keeps us ad-free and drilling into these topics. Lucas: Yeah, seriously. It's a small gesture that lets us keep the show focused on what matters — no sponsors, no fluff. So if you find value here, that's the easiest way to support it. Luna: Alright, back to it. So who are the big buyers in these secondary markets? Lucas: A mix of institutional investors — mutual funds like T. Rowe Price, sovereign wealth funds, and dedicated secondary funds like Tiger Global or Coatue. There are also specialized platforms like Forge Global and EquityZen that match buyers and sellers. Forge alone has facilitated over ten billion dollars in transactions. Luna: And they've become pretty sophisticated. I've seen them offer algorithmic pricing based on real-time supply and demand. Lucas: Yeah, it's not just a bulletin board anymore. They use auction mechanisms, set clearing prices, handle all the legal paperwork. It's become a proper asset class. And for the companies themselves, it's valuable because they can manage who their shareholders are — they can approve or deny transfers. Luna: So they don't lose control of their cap table. Lucas: Exactly. And they can also use secondaries strategically — for example, to attract and retain talent. If a startup can offer a guaranteed liquidity event every eighteen months, that's a powerful recruiting tool. Luna: Especially when you're competing with public companies that offer RSUs that vest and can be sold immediately. Lucas: Right. So the secondary market is effectively bridging the gap between private and public. And it's creating a whole new ecosystem — we now have secondary-only funds, secondary advisory firms, even secondary ETFs. Luna: Wait — ETFs that hold private company shares? How does that work with liquidity? Lucas: They're typically interval funds — you can only redeem shares quarterly or semi-annually. But yes, they exist. The Destiny Tech100 ETF, for example, holds a portfolio of private tech companies. It's a way for retail investors to get exposure to pre ipo companies. Luna: Interesting. But there are risks — valuation uncertainty, lock-up periods, the inherent opacity of private companies. Lucas: Absolutely. And that's the other side of this story. The secondary market is less regulated than public markets. There's less disclosure, less price transparency. If you buy shares on a secondary platform, you're relying on the company's last 409A valuation, which might be months old and may not reflect current conditions. Luna: Plus, some companies have been known to inflate valuations in secondary tenders to make themselves look more attractive to later investors. Lucas: It can happen. But the market is maturing. The SEC has been paying more attention — they issued guidance a couple of years ago on how secondary transactions should be reported. And platforms are now providing more data on pricing and volume. Luna: So what's the bottom line for a founder listening? Should they consider setting up a secondary program? Lucas: I think it's worth serious consideration, especially if you've got employees who are sitting on significant paper wealth. The key is to set clear rules — how much can each person sell, how often, at what price. And you need to communicate that it's not a signal that the company is in trouble. Frame it as part of a total compensation package. Luna: And for investors? Is this a good way to get into private companies? Lucas: It can be, but you have to do your homework. The companies selling on secondaries are often the ones whose primary investors want to exit — that can be a red flag. But there are genuine opportunities, especially if you can get a discount to the last round. For example, some secondary transactions during the 2022 downturn saw discounts of thirty percent or more on companies that later recovered. Luna: So it's a bit like buying distressed debt — you need to be able to evaluate the underlying asset. Lucas: Exactly. And it's not for everyone. But as the IPO market remains choppy, the secondary market is becoming the primary way that private company investors realize returns. I think we'll see that trend continue — maybe even accelerate. Luna: Well, it's certainly a fascinating evolution. From a niche backchannel to a multi-billion dollar market. Lucas: And one that's fundamentally changing how we think about startup liquidity. The old model was: build for ten years, then IPO or sell. The new model is: build, and get partial liquidity along the way. It's healthier for founders, for employees, and arguably for the whole ecosystem. Luna: We'll be watching to see how the next downturn tests this model. Lucas: That's the million-dollar question. But for now, it's working.