Startup Funding Espresso – What Are Secondaries

What Are Secondaries

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

Secondaries stands for secondary sales which refers to selling privately held stock in startups to other buyers.

This arises from several sources such as investors who want to get into the deal after the fundraise is complete or employees who want to sell some of their shares.

Secondary sales are on the rise since companies are staying private much longer. 

Investors often want to apply some of their startup capital into companies in the three years before an anticipated IPO as investing in the first three years of the startup’s life translates into a long holding time.

There are many sources of secondary shares including:

Employees at companies doing well.

Websites that match investors to startups.

Venture funds that focus on secondary sales.

A secondary sale is different from a fundraise as the latter involves issuing more stock thus diluting the existing shareholders.

A secondary sale is a transfer of ownership and therefore there’s no dilution to the current investors. 

Most secondary sales come with a three-day lockup before re-selling the shares.

 

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.

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