Secondaries: how founders and early investors can sell shares before the liquidity event of the startup

Secondaries: how founders and early investors can sell shares before the liquidity event of the startup

VCs and angels invest in companies early stage with the plan of getting to an IPO or M&A event exiting their investment at a much higher valuation than the one they invested at. You win some and lose some, but net net you make money. At least that’s the plan for venture capital and angel investing.

In the past few years it has become possible for founders and early investors to sell some or all of their position prior to the definitive liquidity event of the company. Smart investors should take advantage of this or at a minimum understand this and possibly sell some of their position when there is a huge uptick in the valuation of the startup they invested in.

If Peter Thiel sold some of his shares in Facebook prior to the IPO I think you can get in line and do the same.

Experienced investors have invested into deals and watched their unrealized gain go up and up and up, but before the actual exit the valuation collapses. There are actually a million ways to lose everything. For some investors selling something prior to the big exit makes sense. This is simply experience talking to you.

Understanding secondaries is a part of the puzzle every angel and VC should understand.

I used to operate in this space and I have a vast amount of experience in the ever changing secondary market for tech venture capital. My experience in this area drives some of the strategy at Rubicon Venture Capital.

With the permission of McGraw Hill, publisher of my first book, I can share with you my chapter on this topic. Beyond books, we are organizing three events bringing together the major players in the secondary space in Silicon Valley, New York and London.

Feel free to meet us at these events.

New York City May 17th: LIQUIDITY.

San Francisco May 24th: LIQUIDITY

Save the date to join us in London the evening of September 27th: LIQUIDITY.

Here’s a glimpse of my chapter and a link to the full chapter.

There has been a transformational culture shift in the Silicon Valley that is now spreading across the globe. In the past, if a founder or even an early investor sold any stock before the IPO or definitive M&A liquidity event, the market considered that a negative signal. If Bill Gates is selling any of his stock in Microsoft, then he must know something we don’t and MSFT is overvalued. Everyone sell in a panic! But maybe Bill Gates just wants to buy a boat or donate some cash to charity. Secondary transactions are here to stay. This is another part of the game everyone should understand. A secondary market has emerged for entrepreneurs and investors to sell some or all of their equity in advance of a classic liquidity event. It’s a win-win-win for all parties.

Download chapter here: “Ladder to Liquidity: The Secondary Market”.


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