Founders Can Sell a Share of Their Equity Without Stepping Away
Secondary share sales offer startup founders a way to gain some liquidity without leaving their company or waiting for an IPO.
Starting a company is exciting, but it’s also a long and uncertain journey. Founders often spend years building a business, taking on personal and financial risks—usually without seeing financial returns unless the company is sold or goes public.
But big exits are taking longer. IPOs are rare. Acquisitions can take more than a decade. Meanwhile, life doesn’t pause—mortgages, family expenses, and day-to-day costs continue, and founder salaries are often below market rates.
That’s why more founders are now exploring secondary share sales. These allow founders to sell a share of their personal stock before a full exit. It usually happens alongside a new funding round and can give founders some financial relief without stepping away from their role.
Why Secondary Share Sales Make Sense
Selling a share of personal equity doesn’t mean a founder is giving up. It’s a way to access part of the value they’ve built while staying focused on growing the company. It reduces financial pressure and allows them to continue leading with clarity and motivation.
When done right, a secondary sale is a smart move that supports both personal and business goals. But there are risks and rules to consider.
What Founders Should Know
Founders usually can’t sell shares freely. Legal agreements often include rules that limit when and how a share can be sold. Board approval is typically required, and investors may have rights to buy those shares first.
Buyers—whether new or existing investors—will also want detailed information about the company. Founders need to be careful not to disclose confidential details that could create legal or competitive issues.
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Think About Taxes
There are important tax rules around selling equity. If a founder is selling qualified small business stock or exercising options, it may trigger taxes for both the seller and the company. Rules like IRS 409A and SEC Rule 701 also apply. That’s why it’s essential to get legal and tax advice before moving forward with any share sale.
Timing and Communication Matter
Secondary sales should be planned around key milestones—like a new product launch or a strong funding round. Selling 5% to 10% of a founder’s share of equity is usually seen as reasonable. Selling much more can raise concerns among investors or employees.
Clear communication is critical. If the sale isn’t explained properly, it could send the wrong message and affect morale or investor confidence. Founders must also retain enough equity to show they’re still committed.
A Strategic Tool for Long-Term Success
Used thoughtfully, a secondary share sale is not a cash-out. It’s a way to stay in the game. Relieving financial stress can help founders focus, make better decisions, and build with a long-term vision.
Legal advisors play a key role in ensuring these deals are done correctly and align with the company’s goals.
A secondary sale isn’t a shortcut—it’s a tool for sustainability. It helps founders manage risk and keep pushing forward to build something lasting.