Money Talk with Malik | Financial Planning for Builders

Key Takeaways

Secondary sales let founders sell existing shares to investors without the company going public or being acquired
Tender offers are company-facilitated buybacks that typically happen at late-stage rounds, often led by a new investor
Tax treatment depends on how long you've held the shares and how they're structured — QSBS exclusion may apply
Most secondary transactions require board or investor approval, and some early term sheets restrict them
Taking some liquidity early is not a signal of low conviction. It's smart risk management.

Most of the founders I work with have most of their net worth sitting in one place: their company equity. Everything is in that one basket. If the exit happens, great. If it doesn't, or gets delayed by five years, or comes in at a lower valuation than expected, they're stuck.

Here's what a lot of founders don't realize. You don't always have to wait for the IPO or acquisition to see any money. Secondary markets and tender offers exist for exactly this reason.

What Is a Secondary Sale?

In a primary transaction, the company sells new shares and raises money. The money goes to the company.

In a secondary transaction, an existing shareholder (like a founder) sells shares they already own to a buyer. The money goes to the seller, not the company.

Secondary sales have been a real market for venture-backed company equity for over a decade. Firms like Forge Global, Nasdaq Private Market, and CartaX facilitate secondary transactions for shares in private companies. Dedicated funds like Industry Ventures, Greenspring Associates, and several others specifically buy founder and employee shares before an exit.

Realistically, secondary markets have expanded a lot as the average time from seed to exit has stretched past a decade for many companies. There's demand on both sides.

What Is a Tender Offer?

A tender offer is a more structured version. When a late-stage investor comes in, they'll sometimes offer to buy shares from existing shareholders at the same price they're paying for new shares. The company facilitates it. Shareholders get a defined window to sell a portion of their holdings.

This is most common at Series D and beyond, or right before a pre-IPO round. Sequoia, Andreessen Horowitz, and other major firms have structured tender offer programs for portfolio companies. The new investor gets a larger stake. Existing shareholders get some liquidity. Everyone gets aligned going into the next phase.

If a tender offer comes up for your company, it's worth paying attention.

Why Founders Hesitate (And Why That's Worth Questioning)

There's a cultural thing in startups where taking any secondary liquidity is seen as low conviction. Like you're signaling that you don't believe in the company.

That's a narrative, not a financial principle.

You got to be smart about how you think about concentration risk. If 90 percent of your net worth is in one illiquid asset, that's not conviction. That's just risk. A surgeon who holds all of their savings in their hospital's stock isn't a believer. They're just undiversified.

Taking 10 to 20 percent off the table through a secondary transaction doesn't change your ownership meaningfully. It just means you have real money in other places while you keep building.

Restrictions to Know Before You Try to Sell

Secondary sales in private companies are not as simple as selling stock in a public company. There are real constraints.

Most cap tables have a right of first refusal (ROFR). Before you can sell to a third party, the company and other investors have the right to buy those shares at the same price. This gives them control over who ends up on the cap table.

Many term sheets also include co-sale rights, transfer restrictions, and in some cases outright lockups that prevent secondary sales for a period of time after each round.

You need to read your shareholder agreement and get a lawyer involved before approaching any secondary buyer. Selling shares without following the right process can trigger legal problems with your investors and void rights you don't want to lose.

Tax Treatment: The Part That Matters a Lot

How your secondary sale is taxed depends on a few things.

If your shares qualify under Section 1202 (QSBS rules), you may be able to exclude a significant portion of the gain from federal taxes, up to $10 million or 10 times your basis, whichever is larger. But QSBS exclusion typically requires a five-year holding period. If you're selling before you hit five years, you lose the exclusion.

Shares held more than one year get long-term capital gains treatment, which is generally 15 to 20 percent federal depending on your income. Shares held under a year are taxed at ordinary income rates.

83(b) elections matter here too. If you made an 83(b) election when your shares were granted, your holding period started at grant, not at vesting. That can significantly change your tax situation on a secondary sale.

This is not stuff you should figure out on your own. A CPA who works with founders should be reviewing this with you before you sell anything.

When a Secondary Sale Makes Sense

Not every founder should run out and try to sell shares. But there are situations where it makes a lot of sense:

You've been working on the company for five or more years with no liquidity event in sight
Your exit timeline has slipped significantly from the original projection
Your personal financial situation changed (house, kids, aging parents, health)
A new round is being raised at a meaningful markup and a tender offer might be structured alongside it
You want to diversify before a potential down round or macro shift

This is about personal financial planning, not about how much you believe in your company.

How to Approach It

If you're thinking about a secondary sale, here's a realistic starting sequence.

First, read your shareholder agreement. Understand your ROFR and transfer restrictions. Second, talk to a lawyer who does startup equity transactions. Third, talk to a tax advisor about your holding periods and QSBS status. Only then should you start conversations with potential buyers or bring it to the board.

Coming to your board or lead investor with "I'm thinking about some secondary liquidity" is a normal conversation at the right stage. Coming with a buyer lined up who signed a term sheet without following your ROFR is not a normal conversation.

Summary

Secondary sales and tender offers are legitimate tools that let founders access liquidity before a traditional exit. The boring stuff here is getting the legal and tax structure right before you move. The emotional stuff is letting go of the "zero until exit" mentality when it stops making financial sense.

Realistically, a little diversification while you keep the majority of your upside is just smart planning. It's not a lack of conviction. It's treating your equity like what it is: an asset, not a religion.

Malik Amine is a financial advisor working with tech founders and physicians. This is general education, not personalized financial or tax advice. Talk to your attorney and CPA before any equity transaction.