When Should Founders Consider a Secondary Sale?

For many startup founders, the ultimate goal is often framed as a single, high-profile exit, an acquisition or IPO that rewards years of hard work. However, in today’s evolving venture capital landscape, founder secondary sale has become an increasingly common and strategic option. Rather than waiting for a full exit, founders are now asking a different question: when should founders consider a secondary sale?

A secondary sale allows founders or early shareholders to sell some of their existing shares to new investors before a company exits. Done at the right time and for the right reasons, it can strengthen both the founder and the business. Done too early or for the wrong reasons, it can raise red flags.

This article explores what a secondary sale is, when it makes sense, key benefits and risks, and how founders can approach it strategically.

What Is a Secondary Sale?

A secondary sale occurs when existing shareholders, typically founders, early employees, or angel investors, sell their shares to another investor. Unlike a primary round, where new capital goes into the company’s balance sheet, secondary transactions provide liquidity directly to shareholders.

Secondary sales often happen during:

• Late-stage venture funding rounds (Series B, C, or later)
• Growth equity rounds
• Pre-IPO rounds
• Strategic investor buy-ins

Why Are Secondary Sales Becoming More Common?

One of the main drivers behind the rise of secondary sales is the length of time startups now remain private. Many venture-backed companies operate for a decade or more before reaching an exit, even as they grow into large, profitable businesses.

During this extended period, founders often keep most of their net worth tied up in illiquid shares. Secondary sales have emerged as a solution to this imbalance, offering founders a way to realise some value without forcing a premature exit or sale of the company.

As a result, secondary liquidity has become a normal part of later-stage venture rounds rather than an exception.

When Should Founders Consider a Secondary Sale?

1. When the Company Has Reached Meaningful Scale

One of the most important factors is company maturity. A secondary sale makes the most sense when:

• Product-market fit is well established
• Revenue is predictable or growing rapidly
• The business has clear long-term upside
• Key risks have been reduced

Early-stage secondary sales can worry investors, who may interpret them as a lack of confidence. Later-stage sales, however, are often seen as normal and responsible.

2. When Founders Have Significant Personal Financial Risk

Many founders invest years of low salary, personal savings, and emotional energy into their startup. Over time, this can create financial pressure that affects decision-making.

A partial secondary sale can:

• Reduce personal stress
• Allow founders to diversify their finances
• Enable long-term focus without “exit anxiety”

Importantly, most investors prefer founders who are financially secure enough to think long-term, rather than desperate for a fast exit.

3. When Investors Support the Decision

Investor alignment is critical. Founders should consider a secondary sale when:

• The board understands the rationale
• New investors are open to secondary liquidity
• The transaction is structured transparently

Many venture capital firms now expect some level of founder liquidity in later rounds, particularly if the company has strong momentum.

However, founders should be prepared to explain:

• Why they are selling
• How much they plan to sell
• Why they remain committed

4. When Selling a Small Portion (Not a Full Exit)

A key rule of thumb: secondary sales should be partial, not total.

Founders typically sell:

• 5%–15% of their holdings
• Enough to de-risk personally, but not signal disengagement

Selling too much can raise concerns about motivation and alignment. A well-structured secondary keeps founders heavily invested, financially and emotionally, in the company’s future.

Strategic Benefits of a Founder Secondary Sale

Improved Focus and Performance

Founders who are less financially constrained are often better leaders. With personal pressure reduced, they can focus on thoughtful decision-making, long-term strategy, and sustainable growth rather than short-term exit scenarios. This clarity can translate into stronger performance across the organisation.

Stronger Talent Retention

Secondary sales can also benefit early employees and executives who have helped build the company. Providing opportunities for liquidity can improve morale and retention, especially in companies that expect to remain private for many years. This reinforces loyalty and rewards long-term commitment without forcing a premature exit.

Alignment With Long-Term Company Vision

By removing the pressure to exit quickly, secondary liquidity can help align founders, investors, and employees around a shared long-term vision—whether that’s building a category leader or preparing for a future IPO.

Potential Risks and Downsides to Consider

Negative Investor Perception

Poorly timed or poorly communicated secondary sales can still raise concerns. If investors believe a founder is disengaging or losing confidence, trust can erode quickly. This risk can usually be mitigated through clear communication, conservative sizing, and strong ongoing involvement in the business.

Valuation and Structural Complexity

Secondary transactions introduce additional legal, tax, and cap table considerations. Without proper planning, they can create friction in future fundraising rounds or complicate ownership structures. Experienced legal and financial advisors are essential to ensure the transaction supports, rather than hinders, long-term growth.

How to Approach a Secondary Sale Strategically

Transparency is the foundation of any successful secondary sale. Founders should engage investors early, frame the transaction around long-term commitment, and ensure expectations are aligned across all stakeholders.

Equally important is choosing the right buyer. Secondary investors should share the company’s vision and understand the risks and time horizon involved. A misaligned shareholder can create challenges long after the transaction is complete.

Finally, founders should plan carefully for tax and regulatory implications to avoid surprises and maximise the value of the sale.

Final Thoughts: Is a Secondary Sale Right for You?

So, when should founders consider a secondary sale? The answer depends on timing, company maturity, personal circumstances, and investor alignment.

A well-executed secondary sale isn’t about “cashing out.” It’s about building long-term resilience, for both the founder and the company. When approached thoughtfully, it can be a powerful tool that supports growth, focus, and sustainable leadership.

As startups continue to stay private longer, secondary sales are no longer an exception, they’re becoming a strategic norm.

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