Jun 29, 2023
How Do Secondary Sales Work?
Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.
Secondary sales typically occur with later-stage startups.
Investors who want shares in a company will buy the shares from founders, employees, or other investors.
The price is typically at a discount to the last priced round such as 15 to 30%.
The seller must find a buyer for the stock.
This could be existing investors in the company who want a larger position or new investors.
Oftentimes investors who could not get into the investment round will buy shares through the secondary market.
The company itself may know of potential buyers of the stock.
There are websites that match investors to sellers of the stock.
There are venture funds that focus on buying secondary shares as well.
Investors use SPV or special purpose vehicles to structure the purchase.
The purchased stock has a lock-up period and cannot be sold for a period of time.
Those who sell the stock will need to take taxes into account.
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