Secondary sale

A sale of existing shares by a current holder, such as a founder or early investor, to a new buyer, with the money going to the seller rather than the company.

Example

A founder selling 1,500,000 of shares to an investor during a funding round.

Important

It gives the seller liquidity but does not fund the company.

Related terms

• Secondary market — Where an existing investor sells a position to another investor rather than back to the issuer or the fund.
• Liquidity Event — The point at which a private company's equity can actually be converted into cash - most often an acquisition or an initial public offering, occasionally a documented secondary sale.

Lessons that explain it

• Check what a founder stands to gain, and what else competes for their time — Founder incentives shape behaviour. Diligence looks at remaining ownership, salary, secondary sales, other roles and personal financial pressure to judge whether founders are motivated for the long journey ahead. (10 min)

All 578 terms in the Investing glossary