INSUBCONTINENT EXCLUSIVE:
Ryan Conner is a corporate attorney at Atrium part of the General Counsel Group representing early-stage startups. The increase in activity
in the pre-IPO secondary market means that founders, early employees, and investors are receiving liquidity much sooner in a company’s
lifecycle than ever before
For most startups and privately-held companies, liquidity is often an issue for stockholders, as no market exists for selling shares and/or
transfer restrictions can prevent their sale
Secondary stock transactions, however, are a way to work around this problem.Here’s a quick look at how they work and what to keep in
mind, especially if you’re going through the process for the first time
(If you’re not familiar, secondaries are transactions in which an existing stockholder sells their stock for cash to third parties or back
to the company itself before the company undergoes an exit; traditionally, an exit refers to an M-A or an IPO.)Offering secondary
transactions to founders is a tool VCs have been using to win deals
For example, if a VC promises that the founders will receive $1,000,000 in cash through a secondary sale from a $15,000,000 venture
financing round, the founders will likely prefer that VC’s term sheet to a term sheet from a VC that does not offer that deal.
