INSUBCONTINENT EXCLUSIVE:
Ryan Conner
Contributor
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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 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 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 term sheet to a term sheet from a VC that does not offer that deal.
Why would a
founder consider a secondary sale of their equity?
