Secondary sales, explained.
A secondary sale is the sale of existing shares by a shareholder. The company raises no money: shares change hands, from a seller to a buyer.
Why shareholders sell
- Founders and early employees who have built paper wealth for years and want some of it in cash, without leaving the company.
- Business angels who want to recycle their capital into new startups.
- Funds nearing the end of their life, which must return money to their own investors.
- Departing co-founders, who keep shares in a company they no longer run.
Who buys
New investors who want to enter a company without waiting for its next round, existing shareholders who want to increase their stake, corporates in the same sector, family offices with patient capital, and specialised secondary funds.
How the price is set
There is no market price for a private startup. The reference is usually the last funding round, adjusted for what has happened since: growth, profitability, the market, and the rights attached to the shares sold. Ordinary shares often sell below the price of the preferred shares issued in the last round, because they carry fewer rights. For sought-after companies, buyers sometimes pay more.
How it works, step by step
- Check your shareholders' agreement: pre-emption, approval, lock-up, tag-along. See Shareholders' agreements.
- Find a buyer, often through an adviser.
- Agree on price and terms.
- Offer the shares to those with a right of first refusal, where the agreement requires it.
- Obtain the required approvals, from the board or the shareholders.
- Sign and register the transfer.
Depending on the company and the agreement, the process takes from a few weeks to several months.
Where Uback fits
Uback shows where investor demand already exists, company by company and sector by sector. If you hold shares in a company Backers want, a licensed local partner can take your sale forward, privately. Uback buys nothing and holds no mandate.
Uback provides no legal, tax or investment advice. Each situation depends on your shareholders' agreement and on applicable law: check them with your own advisers.
More for shareholders: Sell your shares Shareholders' agreements Departing co-founders