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Mike’s a CPF® at Secfi. He specializes in helping clients make the most of their stock options and integrate equity compensation into their broader financial plans.
If you own shares in a startup as part of your equity compensation, you may be wondering whether you can turn some of that equity into cash before your company goes public.
For some shareholders, the answer may be yes.
In some cases, you may be able to sell private company shares through a secondary sale. But it’s usually not as simple as finding a buyer and cashing out. So we’ll discuss two alternatives to secondary markets as well, non-recourse financing and tender offers.
We’ll cover:
Secfi helps startup employees and executives understand their equity, evaluate liquidity options, and, when eligible, access secondary markets or non-recourse financing. Evaluate your options for free with our private AI equity assistant Maeve.
If you own pre-IPO shares, you have a few options:
Each option has different tradeoffs, especially around taxes and how much future upside you can access. But selling shares on a secondary market is often the first thought for someone needing liquidity, so let’s talk about it.
Secondary markets are platforms where you can buy and sell private company shares in the private market. They’re best if you want liquidity or cash now, or if you think your company's value has peaked. However, if you sell on a secondary market, you give up any future upside potential to your shares (and you’ll have to pay taxes).
Non-recourse financing is an alternative if you want to keep your potential upside, or simply need help financing the cost of exercising your options (especially on a deadline).
In venture capital (VC) and investor jargon, the stock options and shares you own, as an employee are primary: the company created them specifically for you.
It's the same when a VC firm invests in a startup, or the company raises money in an IPO: new shares are created specifically for these transactions, so they're called primary transactions.
But when you sell your shares to an outside investor, no new shares are created. It's a secondary transaction.
Basically, you can think of it as secondhand shares rather than brand new ones.
The main advantage of selling your shares on a secondary market is that it can potentially maximize the amount of cash you can get right now for your shares.
That’s perfect if you don’t want to wait for an exit and want as much liquidity as you can get as soon as possible.
But selling on secondary markets may have its drawbacks:
The biggest challenge with selling pre-IPO shares is that you first need to find a buyer. nlike public stocks, there's no open marketplace where you can sell your shares instantly. Buyers are typically institutional investors or accredited individuals looking for stakes in specific private companies. For most startups, there simply isn't much demand.
Even if you do find an interested buyer, the sale still has to go through your company's approval process. That means negotiations, legal paperwork, and potentially waiting weeks or even months for the transaction to close.
If you're trying to raise cash by a specific deadline, such as exercising stock options before they expire, there's no guarantee you'll be able to complete a secondary sale in time.
While selling on a secondary market gets you cash when you need it (if you find a buyer), you could be giving up any chance to experience additional gains following an exit.
If you don’t feel optimistic about your company’s future — or you think an IPO or exit won’t move the needle on your shares’ value — then secondary markets are perfect.
But Stanford researchers found that for companies that IPO'd within a year, employees who sold their shares in advance of that IPO received 47% less than the IPO value (on average – see study).
In other words, these employees would've earned an additional 47% if they'd waited for the IPO.
And that's without considering taxes, because another drawback of selling pre-IPO is...
Selling your equity almost always comes with a tax bill. But how much you'll owe depends on what you're selling.
If you're selling unexercised stock options, part or all of your proceeds may be taxed as ordinary income, the highest federal tax rate.
If you've already exercised your options and are selling shares, you may qualify for the lower long-term capital gains tax rate if you've held the shares long enough. Otherwise, you'll still owe taxes, but the exact rate depends on your situation.
Because the tax rules for equity compensation are complex, it's worth speaking with a tax professional before completing a secondary sale.
Most companies (82%, according to Stanford) don’t allow the selling of pre-IPO shares on secondary markets at all.
And almost every company that does allow it will require you to get approval from the board of directors in order to sell.
Since it’s not always in a company’s best interest to let its private shares be sold, many refuse secondary market sales.
Employee equity is almost always common stock, while investors typically buy preferred stock with additional rights and protections.
That means buyers generally value your shares less than the preferred share price from the company's most recent funding round. The size of the discount depends on factors like investor demand, company restrictions, and the company's prospects, but you should expect to sell for less than the headline valuation might suggest.
(And remember: the preferred share price isn't necessarily what your shares would be worth in an IPO. As discussed earlier, employees typically realize much less than the eventual IPO price on average.)
Most secondary market platforms such as Forge Global and Hiive have a minimum amount of shares you’re required to sell. It’s usually around $100,000 worth of shares, though it can be higher.
Some platforms will allow you to pool shares with other shareholders; others don’t.
Most private companies have a right of first refusal (ROFR), which means they can choose to buy your shares themselves before allowing them to be sold to a third-party buyer.
That means even after you've found a buyer and agreed on a price, there's another approval step before the sale can close. Your company typically has a set period of time to decide whether to exercise its ROFR.
While you'll still receive the agreed purchase price if your company exercises its ROFR, the extra step can slow down the process and create uncertainty. Some buyers may be reluctant to spend time negotiating a deal that the company could ultimately step in and take over.
Because of the company approval process, closing a deal on a secondary market can drag on for weeks and sometimes months.
If you’re on a deadline to exercise your stock options, there’s no guarantee you’ll close the deal on time.
With all that considered, here’s when selling on a secondary market might be a good fit for you:
Also keep in mind that private companies are not always listed on these platforms. It’s mostly late-stage, successful startups.
If there’s no demand for your company’s pre-IPO stock, secondary markets won’t do you any good.
If any of these scenarios are applicable to you, then secondary markets probably aren’t a good fit:
If you do want to sell your pre-IPO shares on a secondary market, the simplified process works like this:
If your company’s shares are in high demand, the whole process can go pretty quickly.
But, in many cases, it can take up to weeks or months.
Two of the best-known secondary markets are Forge Global (formerly Sharespost) and EquityZen (see our head-to-head comparison here).
Many secondary platforms are not available to the general public. However, through Secfi Secondaries, we can reach out to a larger vetted network of buyers to find you the best deal, as well as negotiate the price.
If selling your shares on a secondary market doesn’t feel like the best choice, there may be other options other than the default “wait and see.”
If you want to tap into the liquidity of your shares, but don’t want to lose out on the upside, there’s another alternative: non-recourse financing (sometimes known as exercise financing).
Non-recourse financing is essentially a cash advance that can usually cover:
You only pay the financing amount back when there’s a successful exit.
If there’s no exit, or your company goes bankrupt, you don’t owe anything.
And since your shares act as collateral for the amount financed, none of your personal assets are on the line.
That opens the door for a number of advantages over selling on a secondary market:
Because the financing company isn’t buying or selling your shares, you get to keep all rights and ownership of those shares.
If the value of your company’s shares goes up and the company goes on to have a killer IPO, you get to participate in that.
When financing your exercise, you can also get a cash advance on top of your exercise costs.
That way you won’t have to wait for an IPO to make use of the value of your equity.
We call this liquidity financing.
It’s not as much as you would get by selling now on a secondary market, but it lets you keep ownership of your shares.
The single biggest surprise most employees face when they exercise is the size of their AMT (alternative minimum tax) liability.
For many employees at rapid-growth startups, that amount can easily soar past $100K or even $1M (yes, really).
And the higher your company’s valuation — and the longer you wait to exercise — the more AMT you’ll have to pay.
The AMT burden alone can put the cost of exercising out of reach for many employees.
Financing can cover the total cost of exercising before that amount gets any higher.
If you’ve left your company and are facing a 90-day window to exercise, there’s no guarantee that you’ll close a deal on a secondary market on time.
For most companies, we can provide financing in a matter of days (because we've helped some of their employees before). For other companies we still need to do a risk assessment, which takes more time.
Just let us know you're on a deadline, and we'll either let you know upfront that we can't make your deadline, or we'll work hard to get it done in time.
The other alternative to getting cash right away from your pre-IPO shares is a tender offer.
Tender offers are when a company offers to buy pre-IPO stock options or shares back from its employees. Or, alternatively, when a company lines up outside investors to buy employee equity in an organized fashion.
It's basically a secondary sale, but organized and sanctioned by your employer.
Some well-known companies, such as SpaceX, OpenAI, and Stripe, allow their employees to do this from time to time.
While they come with their own restrictions, the main advantage of tender offers is that you get the full value of your shares according to the latest preferred price (as opposed to selling them for ~80% on a secondary market).
And, of course, a tender is by definition company-approved. So you won’t have to worry about that.
The problem? Very few companies offer them.
You’ll have to check with your company’s HR or financing department to see if it’s an option for you.
Secfi helps startup executives and employees figure out their equity every day. We know the feeling of waiting indefinitely to get some liquidity from your shares.
In fact, that’s why our founders started Secfi. Because they wished there was a place to get their questions answered, access non-recourse financing, and be able to sell their shares through a secondary market.
Our team of strategists understands the world of private equity and all the complications that come along with it. They can help you think through how selling or holding your shares may affect your broader financial plan, including taxes, diversification, home buying, retirement planning, or other major financial goals.
Here’s why people at companies like DoorDash, Databricks, and Stripe choose Secfi to help with their equity.
We developed Maeve, our AI equity assistant, so that you can freely ask any question you have about equity all in one place. Maeve brings together live data from secondary markets, 409A updates, and fund marks to provide a current view of your portfolio's potential value.
In fact, you can use your financial information directly from Carta (or upload the information manually if you prefer) to get specific answers and scenarios based on your current situation. That includes asking Maeve to model the pros and cons of each pre-IPO option.
Maeve is based on years of developing specialized equity calculators, so its answers are more nuanced than generic financial guidance from ChatGPT or an internet search. You can check its assumptions and see where each scenario comes from before deciding what to do next.
For illustrative purposes only. Actual results may vary and there is no guarantee of any particular outcome.
Secondary sales aren’t the only way to get liquidity from your pre-IPO stocks. We’ve already shared the many reasons non-recourse financing can make sense. You keep ownership of your shares and potential upside, no minimums, company approval isn’t required, and a likely reduction in AMT liability.
Non-recourse financing is one of our specialties at Secfi because we’ve seen the benefits ourselves. If your company has a successful exit, you repay the amount financed plus a fee. If your company doesn’t exit or the shares become worthless, your personal assets are safe.
Since our return is directly tied to your success, we only win when you do.
If you want to learn more about how we make that happen, read How Secfi financing works – our business model explained.
If selling your private company shares is your preferred choice, Secfi can help you explore a secondary sale.
We have market data for more than 1,800 late-stage private companies, so you can make a more informed decision about pricing and timing. Our team can help you reach out to investors, evaluate buyer interest, compare potential offers, and even negotiate on your behalf.
You remain in control, while we take care of the more complicated elements like legal paperwork for your secondary sale.
Victor, an engineering leader at a successful pre-IPO company, was trying to decide what to do with his stock options.
He’d saved enough money to exercise his ISOs out of pocket, but once he factored in the potential AMT bill, it didn’t feel like an attractive option. Victor also didn’t want to lock up a large amount of personal savings in company stock, or take on a traditional loan that could put his other assets at risk.
“I’m reasonably conservative; I try to keep my personal finances safe,” Victor said. Secfi “felt like the safest option. There is upside, maybe a little less than the other possibility, but there is almost no downside…while still participating in my company’s exit.”
Working with Secfi’s team and tools, Victor was able to weigh his options and decide on what felt best for his comfort level. He decided to use non-recourse financing to cover the cost of exercising his pre-IPO stock options and the potential AMT bill, without selling his shares.
“From my first email to having financing in place to cover my option exercise and the potential AMT bill, the whole process took about two months. Looking back, I’m like, ‘Yep, this was a good decision.’”
Read the full case study: Why this engineering leader chose Secfi to finance his stock options.
Testimonials are specific to an individual Client’s experience and may not be representative of all Clients. Unless otherwise indicated, Clients offering a Testimonial do not receive compensation and their statement does not present a conflict of interest
Selling pre-IPO shares can be a way to access cash, but it’s not a decision you can easily undo. If your company approves secondary market sales, you still might be giving up future upside on those shares and have to deal with major tax considerations.
Tender offers can also be an alternative if you need cash, but it’s rare for companies to offer them.
That’s why non-recourse financing is often a better deal for employees and executives with equity.
No matter what you choose, Secfi can support you along the way.
To figure out what scenario makes the most sense for you, try modeling your options with our AI equity assistant Maeve. And if you prefer to speak directly with our team, get in touch.
Yes, pre-IPO shares can sometimes be sold before a company goes public, usually through a secondary market or a company-approved tender offer. However, whether you can sell depends on your company’s rules, transfer restrictions, buyer demand, and whether your company approves the sale.
Selling pre-IPO shares can help you access liquidity before an IPO or acquisition, but it also means giving up any future upside on the shares you sell. Before making a decision, it’s worth comparing selling with other options, such as holding your shares or using non-recourse financing.
Secfi can help eligible shareholders explore secondary sale opportunities, compare potential buyers, and use Maeve, Secfi’s AI equity planning assistant, to model different outcomes before deciding whether to sell.
To sell pre-IPO stock, you usually need to find a qualified buyer, confirm your company allows secondary sales, get any required company approvals, agree on a price, complete legal paperwork, and close the transaction. In many cases, your company may have a right of first refusal, which means it can choose to buy the shares itself or approve another buyer.
Because private company stock is not traded on a public exchange, pricing and buyer access can be more complicated than selling public stock. You may also sell at a discount, especially if the buyer is taking on risk by purchasing private shares before an IPO.
Secfi helps eligible shareholders understand what their private company shares may be worth, access secondary market buyers, and compare selling with alternatives. You can also use Maeve to model how selling, holding, or financing could affect your equity outcome.
In some cases, yes, but many employees and insiders cannot sell IPO shares immediately because of a lock-up period. A lock-up period is a set amount of time after an IPO, often around 180 days, when certain shareholders are restricted from selling their shares.
Whether you can sell immediately depends on your equity type, your company’s rules, your employment status, and whether you are subject to insider trading restrictions. Even after a lock-up expires, it’s worth thinking through taxes, diversification, and whether selling all at once or gradually may make more sense.
Secfi’s team can help startup employees think through post-IPO planning, including taxes, concentrated stock risk, and when selling may fit into a broader financial plan. Secfi’s AI equity assistant Maeve can also help you understand your equity and explore different planning scenarios before a liquidity event.
If you own pre-IPO shares, you generally have a few options. You can hold them until a future IPO or acquisition, sell them through a secondary market if your company allows it, participate in a tender offer if one becomes available, or explore financing if you want liquidity without selling your shares.
Each option has tradeoffs. Holding may preserve future upside, but it can leave your wealth tied up in one private company. Selling can give you liquidity now, but you give up future gains on the shares you sell. Financing may help you access liquidity or exercise options while keeping ownership, but it comes with eligibility requirements.
Secfi helps startup employees and shareholders compare these options in one place. With our AI equity assistant Maeve, you can model different equity outcomes, and Secfi’s team can help you explore secondary sales, non-recourse financing, and broader equity planning.
The main alternatives to selling pre-IPO shares on a secondary market are holding your shares until an IPO or acquisition, participating in a company tender offer, or using non-recourse financing.
A tender offer may let you sell shares through a company-approved liquidity event, but tender offers are not always available. Holding may make sense if you believe the company’s value could continue to grow, but it means waiting for liquidity. Non-recourse financing may be an alternative if you want to access liquidity or exercise stock options without selling your shares.
Secfi can help you compare secondary market sales with other paths, including non-recourse financing. Maeve can also help you model different outcomes, so you can better understand what selling, holding, or financing could mean for your equity.
The tool shown here uses artificial intelligence and is for illustrative purposes only and not necessarily indicative of future results and there is no guarantee that similar results can be achieved. The information provided by the tool is not professional advice and is not intended by Secfi, Inc., its affiliates, and Secfi representatives, to be deemed as investment, legal, tax or other professional advice or recommendations of any kind, or to form the basis of any decision to do or to refrain from doing anything. Secfi does not review the accuracy or completeness of the information provided to us within the tool.