Secondary share sales: Creating liquidity without going public

It’s becoming more common – and more necessary – for private companies to offer early shareholders a way to realise some value without raising new capital, going public, or changing direction.

These transactions are known as private secondary share sales, or simply “secondaries.”

Secondaries used to be an exception to the rule. Now, they’re increasingly baked into the plan for startups committed to remaining private for the long term. The payoff?

• Employees get to turn equity into cash, without waiting for an exit.
• Founders ease personal financial pressure, without waiting for an exit.
• Investors demonstrate returns, also without waiting for an exit.

And the company keeps moving forward on its own terms.

So why exactly are secondaries becoming so popular? And what should you be thinking about if your company’s nearing that point?

Let’s break it all down.

A brief overview of secondary sales

Private secondary share sales involve current shareholders selling their shares directly to new investors. No new shares are created, and the company doesn't receive any money.

There are two main types of secondary sales:

1. Individual secondaries

A shareholder independently finds a buyer for their shares and negotiates a price. The process typically involves:

• Shareholder identifies potential buyer and negotiates price
• Company approval based on transfer restrictions in articles/shareholder agreements
• Existing shareholders exercise preemption rights – they get first opportunity to buy the shares at the agreed price before any new investors can step in
• If existing shareholders don't want to buy, the sale can proceed to the new investor
• Documentation updated once transfer completes.

Individual secondaries give shareholders maximum control over timing and pricing, but require them to do the legwork of finding buyers and navigating approval processes independently.

2. Company-facilitated secondaries

The company coordinates a structured process, often alongside primary fundraising. This typically involves:

• Company establishes valuation framework (often linked to primary round pricing)
• Multiple shareholders can participate simultaneously
• Company facilitates matching of buyers and sellers
• Existing shareholder rights (including preemption rights for other shareholders) still apply
• If sell demand exceeds buy demand, selling shareholders typically get equal allocation opportunities.

Both types create liquidity for shareholders without requiring an exit, but the coordination and control dynamics are quite different. 

Secondary sales create multiple benefits simultaneously:

• Early investors gain returns without waiting for an exit
• Employees turn paper wealth into actual cash
• And companies establish clear valuation benchmarks without pursuing traditional exits.

The UK Government's proposed PISCES framework aims to streamline secondaries for UK companies.

Why secondary sales have become essential

Private companies are staying private longer than ever. What used to be a 4–5 year journey to exit now often stretches beyond a decade, leaving shareholders sitting on valuable, but illiquid equity.

That extended timeline is fuelling the explosive growth in secondary share sales, with the majority of private tech companies now planning to run a secondary within the next year.

With this, secondary transaction volume is ramping up nearly 60% year-on-year, reaching $68 billion in the first half of 2024 alone. Here’s a closer look at the key drivers:

1. Early investors want to realise gains

Shareholders from the seed or Series A stage may not want to wait ten years for an IPO or acquisition. A secondary lets them take some money off the table, without diluting others or changing the company’s direction.

2. Equity needs to deliver real-world outcomes

Share schemes only work if they eventually convert into something tangible. Secondaries give employees a chance to turn long-held options or shares into cash – whether that’s for a mortgage deposit, family support, or just peace of mind.

3. A powerful tool for retention and morale

Liquidity events illustrate that equity is not merely a theoretical concept. They help retain key hires, reward long-term contributors, and give newer team members confidence that their options will mean something.

4. Bring in strategic investors without raising

Secondaries can be used to introduce aligned investors to the cap table – those who bring experience, networks, or long-term value – without issuing new shares or fresh capital.

5. Tidy up the cap table

Over time, your shareholder base can become fragmented. A secondary sale offers a chance to consolidate small holdings, clean up legacy positions, and simplify governance ahead of future fundraising or an eventual exit.

6. Signal a credible valuation benchmark

While not a formal priced round, a well-structured secondary, especially one involving institutional buyers, can help establish a real-world sense of company value.

When secondaries are most beneficial 

Of course, despite the benefits of secondary sales, not every company should rush into one. The best are carefully timed and tightly structured – designed to support the next phase of growth, not just release cash.

Specifically, secondaries tend to work best in these three scenarios:

1. The business has real momentum

If shareholders cash out too early, they risk missing out on future gains. Leave it too late, however, and new investors might not see much room for growth. Secondaries work best when the company has traction, strong growth ahead, and a compelling story. 

2. Valuation makes sense for both sides

Buyers want upside, sellers want fairness. The right moment tends to sit between proving the model and pricing pressures from maturity. The deal needs to be attractive enough to entice buyers without undervaluing the company.

3. You’re selective about participation

Great secondaries are structured, not scattergun. Many companies limit access to certain shareholders, often long-term employees, option-holders nearing vesting, or early investors. That keeps things aligned, fair, and simple to manage.

Get the timing and structure right, and a secondary can reward loyalty, retain top talent, and bring on valuable investors – all without raising a penny or giving up control.

Secondary sales in action: Real examples

Here’s how a few big names pulled off some particularly large secondaries:

1. OpenAI

OpenAI's $1.6 billion SoftBank deal let 400 current and former employees cash out up to $10 million each. The transaction valued the AI company at $157 billion, doubling its valuation in just one year.

Current OpenAI employees received preference over former ones in the oversubscribed deal, though all eligible former staff were guaranteed at least $2 million in liquidity – huge numbers for a massively competitive industry. 

2. Revolut

Revolut hit $45 billion in their August 2024 secondary while letting early investors get returns without an IPO. 

The clever part? Avoiding unnecessary primary capital that would have diluted founder control. This valuation represented a massive jump and cemented Revolut's status as one of Europe's most valuable startups. 

Nik Storonsky, CEO of Revolut, announced in their company blog: “We’re delighted to provide the opportunity to our employees to realise the benefits of the company's collective success.”

3. Monzo

When Monzo's valuation hit £4.5 billion, they used the opportunity to reward long-standing team members for all their hard work. 

Monzo specifically structured the sale around its team members, who, after years of building the business, turned some equity into cash without needing to leave, very possibly to a competitor. 

4. Moneybox

Investment app Moneybox took a different route with their £70 million secondary. 

Rather than limiting the opportunity to large investors, they included their entire 35,000-person shareholder community, letting even small crowdfunding backers sell 10% of their holdings. 

This innovative secondary created loyalty for their core support, turning early believers into even stronger advocates while bringing on board new institutional investors.

5. GoCardless

Payment platform GoCardless orchestrated a £100 million+ secondary that delivered substantial cash to employees. The company, valued at around $2 billion in 2022, offered a massive windfall to some employees. 

The timing was optimal amid the ‘fintech wars’ at the time. Sometimes, the best defence against poaching is letting your people unlock their equity value while staying put.

As we can see, secondaries are flexible, strategic events that solve problems while paving the way for growth. 

How to run a successful secondary sale

Getting a secondary sale right means balancing structure, timing, and communication.

First, be clear on your objectives. Are you prioritising employee liquidity? Looking to bring in new strategic investors? Cleaning up your cap table? Your goal will influence the structure.

Next, define who can sell and how much. Will it be open to all shareholders, or just a specific group like long-standing employees? Matching buyers to sellers usually involves:

• Tender offer – Buyers offer to purchase shares at a fixed price (for larger secondaries like those outlined above).
• Facilitated match – The company pairs sellers with selected investors (works for smaller deals).
• Direct transfers – Shareholders arrange their own sales (also works for smaller deals).

Tax and legality are hugely important in any secondary. Consult a tax professional or seek legal advice if you're unsure.

Employees need clarity on how proceeds will be taxed (often as capital gains), and your articles of association, shareholder agreements, and option plans must permit transfers or be updated to do so.

And finally, communicate intently! Clear guidance builds trust. People need to know what they can sell, when, and how it affects their ownership.

Secondaries and your share schemes

Secondary sales require one thing above all else: absolute clarity about who owns what in your company.

If your cap table is a mess, your share certificates are missing, or your option agreements contain contradictory transfer clauses, you're asking for trouble. 

On the upside, companies that nail the basics find secondaries far easier to execute:

• Their cap table clearly shows who owns what percentage of the business
• All shareholders have properly executed share certificates
• Transfer rights and restrictions are clearly documented
• Vesting schedules and exercise terms for options are unambiguous

This matters even more when employees are participating.

Nothing kills morale faster than confusion about who can sell what during a secondary. Employees need to know exactly what they own, what it's worth, and how much they can liquidate.

Before you even think about a secondary sale, sort out these fundamentals. It's much easier to fix these issues now than in the heat of a transaction when millions might be on the line.

Putting secondary sales to work for your startup

Secondary sales are a fantastic tool for turning equity into outcomes without rushing toward an IPO or raising money you don't need.

They give private companies a way to create liquidity for shareholders, reward long-term contributors, and bring fresh investors on board – all while maintaining a tight grip over the company's direction.

Whatever the future holds, be prepared! Spring clean your cap table, get your investment docs together and manage equity safely with Vestd.

Get booked in

-

Our team, content and app can help you make informed decisions. However, any guidance and support should not be considered as 'legal, tax or financial advice.'