Exits and alternatives
Secondaries and tender offers
Liquidity before exit for founders and employees: secondary sales, tender offers and their rules.
Venture equity is illiquid by design. You cannot open a brokerage app and sell startup shares the way you sell public stock. A secondary transaction is how someone sells existing shares to a new buyer before an IPO or acquisition — founder selling a slice in a late round, employees selling into a company-run tender, or a trade on a private marketplace.
As companies stay private longer (often a decade or more from founding to IPO), secondaries have become the main way early holders get partial cash without waiting for a full exit.
Concept
Primary capital funds the business. Secondary capital funds a shareholder's personal liquidity. Confusing the two is how people misread a "$200M raise" that was partly a founder cash-out.
| Primary | Secondary | |
|---|---|---|
| What is sold | New shares issued by the company | Existing shares held by founders, employees, or early investors |
| Who receives the cash | The company (balance sheet) | The selling shareholder |
| Dilution | Dilutes everyone | Does not dilute (ownership transfers) |
| Typical context | Seed, A, B, growth rounds | Late rounds, tenders, marketplace trades |
A single financing can mix both: the lead writes a large primary check and buys $5M of founder stock on the side. Headlines quote the primary valuation; the secondary price may match that preferred price, or trade at a discount.
| Step | Concept | What it answers |
|---|---|---|
| 1 | Founder secondaries | When do founders sell a slice in a later round? |
| 2 | Tender offers | How does a company-run employee window work? |
| 3 | Transfer restrictions | Why can't you just sell to a stranger? |
| 4 | Pricing and tax | How does the price relate to preferred and 409A, and what tax hits? |
For many employees at solid late-stage companies, selling some into a tender is the first time equity feels real. Treat it as risk management, not as a referendum on whether you "believe." Partial sales that reduce concentration while keeping upside are often the rational default.
When a tender or secondary appears, the questions that matter are the cap, price versus last round versus 409A, after-tax proceeds, and remaining concentration — not whether selling signals loyalty.
Common mistakes
- Reading a headline raise as all primary. Ask how much was secondary.
- A DIY marketplace sale that ignores ROFR. Approval is the start of paperwork, not the end.
- Selling the week after exercise and creating a short holding period.
Key takeaways
- Primary funding goes to the company; secondary proceeds go to the seller and do not dilute.
- Tenders are the scalable, company-controlled path for employee liquidity — expect caps and proration.
- ROFR, consent rights and securities rules block most casual share sales.
- Model after-tax proceeds and remaining concentration before you click accept.
Further learning
Bill Gurley on why companies stay private longer:
Related
Control terms
Board seats, vetoes, drag-along, pro-rata and ROFR — who can force a sale, block a raise, or fire a CEO.
Employee equity
Options vs RSUs, strike prices and 409A, vesting and exercise windows, and how to evaluate a startup offer with ownership math.
IPOs and going public
The map of listing — traditional IPOs, lockups, preferred conversion, direct listings and why companies stay private longer.