Liquidity & Exits Intermediate

Secondary Sale

Selling your private company shares to another investor, providing liquidity before an exit.

Definition

A secondary sale is when an existing shareholder sells their shares to another buyer, rather than the company issuing new shares. The company receives no new capital from secondary sales. Buyers are typically other investors, funds that specialize in secondary transactions, or high-net-worth individuals. Secondary sales are subject to company approval, ROFR, and transfer restrictions in most cases.

Why it matters

Secondary sales are your main option for liquidity at a private company outside of tender offers. However, you will likely face restrictions: ROFR, board approval, minimum holding requirements, and potentially lower prices than the last round.

Example

A former employee wants to sell 10,000 shares with a $50 last-round price. A secondary buyer offers $35/share (a 30% discount for illiquidity). After the company waives its ROFR, the seller receives $350,000 before taxes.

Related terms

Secondary Market
A marketplace where private company shares are bought and sold between investors.
Secondary Buyer
An investor or fund that purchases private company shares from existing shareholders.
Right of First Refusal (ROFR)
The company's or investors' right to buy shares before they can be sold to an outside party.
Transfer Restriction
Rules that limit or prohibit shareholders from selling or transferring their private company shares.
Tender Offer
A company-organized opportunity for employees to sell some of their vested shares to a buyer.
ROFR (in Secondary Context)
The company's contractual right to buy your shares at the offered price before any outside sale.

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This definition is an educational summary. It is not legal, tax, or investment advice. Specific terms in your equity grant or company documents may differ.