How to Sell Your Startup Shares Before an IPO: A Guide to Secondary Sales

Startup equity can be worth a lot on paper and almost nothing in your bank account. Companies stay private far longer than they used to, so employees and early investors may wait ten years or more for an IPO or acquisition. That's why secondary sales, selling existing shares to another buyer before a public listing, have become an important part of private markets. They can provide real cash, but they come with restrictions, costs and risks that many people don't understand until they try.

This guide explains the main ways to sell private company shares, how the process works, what affects price, and the pitfalls to avoid. It's general information. Tax treatment differs significantly by country and situation, so speak to a tax adviser before you sell.

Primary vs secondary: what's the difference?

• Primary sale: the company issues new shares and receives the money. That's what happens in a normal funding round.
• Secondary sale: an existing shareholder sells shares they already own to a new buyer. The money goes to the seller, not the company.

Secondary sales are increasingly common as part of funding rounds. Clio's US$900 million Series F included a large secondary component for existing investors and employees. Wealthsimple's 2025 round included up to C$200 million of secondary shares. Vena's 2021 Series C was reported to be mostly secondary.

Who sells, and why

• Employees who want to buy a home, pay off debt, diversify, or cover the cost and tax of exercising options.
• Former employees who left but still hold shares.
• Founders who want some personal financial security after years of low salary.
• Early investors such as angels or seed funds that want to return capital to their own investors.

The main ways to sell

1. Company-run tender offers

The company, or a group of investors working with it, offers to buy shares from eligible shareholders at a set price, usually within a set window. Tender offers are the cleanest option for employees: the price is known, the process is organised, and the company handles the paperwork.

Tender offers often happen alongside a funding round, with new investors buying some existing shares in addition to new ones. Eligibility is usually limited, for example to current employees with a minimum tenure, and there may be a cap on how much each person can sell.

2. Secondary component of a funding round

When a new investor wants to own more of the company than the primary round allows, they may buy shares directly from existing holders. These sales are typically offered to founders, early investors and sometimes senior employees.

3. Company-approved individual sales

You find a buyer, often another investor, and ask the company to approve the transfer. This takes longer and is less predictable. The company will apply its transfer restrictions, described below.

4. Secondary marketplaces and brokers

Several platforms and brokers connect sellers of private company shares with institutional buyers, mainly in the US. They can help find buyers for shares in well-known, late-stage companies, but they still need the company's cooperation to complete a transfer, and fees can be significant.

5. Forward contracts and loans against shares

Some providers offer cash now in exchange for a share of future proceeds when the company exits, or lend against your shares. These can avoid transfer restrictions but are complex and can be expensive. Read the terms carefully and get independent advice.

Why you can't just sell: transfer restrictions

Private company shares almost always come with restrictions on who you can sell to and when. Common ones:

Read your shareholder agreement, option plan and company bylaws before you start. Many companies now limit secondary sales to organised programs so they can control who ends up on the cap table.

Options vs shares

If you hold stock options, you generally can't sell the options themselves. You first need to exercise them, paying the strike price and possibly tax, to own actual shares. Some tender offers let employees exercise and sell in one step, which avoids needing cash upfront. See our guide on employee option pools for how options work.

How shares are priced

Secondary prices often differ from the latest funding round price. Factors include:

• Share class: investors' preferred shares carry liquidation preferences and other rights. Common shares, which employees typically hold, usually sell at a discount to preferred.
• Company momentum: hot companies can trade at or above the last round price. Struggling ones trade at deep discounts.
• Time since the last round: a valuation from 2021 may not reflect today's market. See down rounds explained.
• Size and simplicity of the sale: large, clean blocks attract better prices.
• Information available: buyers pay less when they can't see recent financials.

Tax considerations

Tax treatment varies widely. Some general points to discuss with an adviser:

• Selling shares typically produces a capital gain or loss, but how options were exercised and how long you held the shares can change the treatment.
• In Canada, options granted by Canadian-controlled private corporations have historically had special rules, including deferral of the employment benefit until sale in many cases.
• In the US, holding periods and the type of option (ISO or NSO) affect taxes significantly.
• A tender offer price can sometimes affect future valuations for option grants and tax purposes.

Get advice before you sign anything. The after-tax amount can be very different from the headline number.

Should you sell?

Reasons to sell some shares:

• Most of your net worth is in one private company.
• You need cash for a major life decision.
• You've left the company and won't influence its outcome.
• The price is fair and the sale is simple.

Reasons to hold:

• You believe the company will be worth much more and can afford to wait.
• The offered price reflects a steep discount.
• Selling would trigger a large tax bill you can't easily plan around.

Many people sell a portion, often 10% to 25% of what they hold, to reduce risk while keeping upside.

Pitfalls to avoid

• Selling without company approval. Unauthorised transfers can be void and breach your agreements.
• Ignoring fees. Broker and platform fees, legal costs and transfer fees can add up.
• Complex forward contracts you don't fully understand.
• Sharing confidential information with potential buyers in breach of your obligations.
• Forgetting tax until after the money arrives.

For founders: offering liquidity to your team

If you run a company, an occasional organised tender offer can be a powerful retention tool. It rewards long-tenured staff, reduces pressure for an early exit and keeps control over who joins your cap table. Many companies combine a tender with a funding round, letting new investors buy additional ownership from employees. Talk to your lawyers about securities rules, tax implications and the effect on future option pricing.

A quick checklist before you try to sell

1. Read your option plan, shareholder agreement and any transfer restrictions.
2. Confirm how many shares or options you hold, what's vested and your strike price.
3. Ask the company whether a tender offer or approved secondary program is planned.
4. Get tax advice on exercising and selling, including timing.
5. Compare any offer against the latest round price and your own view of the company's prospects.