Secondary Sale (Secondary Share Transaction)
A transaction where existing shareholders sell their equity to new investors, providing liquidity without new capital to the company.
Definition
A secondary sale involves the transfer of existing shares from current shareholders (founders, employees, early investors) to new buyers. Unlike primary rounds that raise new capital for the company, secondary sales provide liquidity to existing shareholders while the company receives no new funding.
Why Secondary Sales Happen
Founder Liquidity: Founders cash out portion of equity for personal financial goals
Employee Retention: Early employees gain liquidity while staying with company
Investor Exit: Early investors partially exit while maintaining exposure
Estate Planning: Diversification for risk management purposes
Example
Growth Stage Startup: During Series C round, founder sells $2M of personal shares to new lead investor while company raises $20M in primary capital. Founder gets liquidity for mortgage and diversification while maintaining majority of equity and control.