SeedBlink Blog

Equity compensation—be it stock options or restricted shares—has become the currency of the startup world. For employees, it’s the promise of owning a slice of the dream they’re building. For founders, it’s the reward for taking on the immense risk of starting a business. But what happens when those options are locked up, illiquid, and seemingly out of reach? Enter the secondary market.

The rise of secondary transactions has redefined how employees and founders can unlock the value of their equity without waiting for an IPO or acquisition. Here’s how to approach the market strategically, weigh your options, and make the most of your shares.

Why liquidity matters

Equity compensation often forms a significant part of total pay at startups, particularly in the tech sector. But holding stock or options can feel like sitting on a treasure chest you can’t open. This is where the secondary market becomes crucial—providing a way to monetize equity without affecting the startup's operations or ownership structure.

In 2023, nearly 45% of secondary transactions globally were motivated by employees and founders seeking liquidity. With startups delaying IPOs due to market uncertainty, this trend is expected to grow.

Your options with options

1. Selling Through Secondary Markets

Secondary sales involve selling some or all of your vested shares to a third-party buyer. Platforms like SeedBlink facilitate these transactions, connecting sellers with institutional and individual investors looking for mature startup equity.

• Pros: Potential for fast liquidity and flexibility to manage personal finances.
• Cons: Shares are typically sold at a discount to their perceived value, this type of events being usually planned between rounds.

2. Exercising and selling

For employees holding stock options, you must first exercise your options (buying the shares at their strike price) before selling them on the secondary market. This route requires upfront cash but can offer significant returns if your company is performing well.

• Pros: Realize the full value of your equity and avoid further dilution risks.
• Cons: Exercising can trigger tax obligations, including income and capital gains taxes.

3. Negotiating direct buyouts

In some cases, companies or existing investors may offer to buy back shares from employees or founders. This often happens during new funding rounds or as part of a company’s liquidity program.

• Pros: Streamlined process with less risk of external buyer negotiations.
• Cons: Limited pricing power—buyers often dictate terms.

4. Holding out

Sometimes, the best option is to wait—especially if your company’s valuation is likely to grow or if IPO plans are on the horizon. The trade-off? Illiquidity and the risk of changes in company performance.

• Pros: Potential for higher returns if the company performs well.
• Cons: Opportunity cost of locked-up capital.

Factors to consider before selling

1. Tax Implications

Exercising options and selling shares can trigger significant tax obligations, from income tax on exercised options to capital gains tax on the sale itself. It’s essential to consult a tax advisor to understand your liability and optimize your strategy.

2. Discounts on Secondaries

Shares sold on the secondary market often trade at a discount, with the size of the discount depending on factors like company performance, market conditions, and buyer demand. For example, in 2023, early-stage startups saw discounts of up to 30%, while late-stage companies averaged 10%.

3. Company policies

Some startups impose restrictions on secondary sales, including approval requirements or transfer limitations. Always check with your company’s legal team or equity administrator before initiating a transaction.

4. Market timing

The broader market environment can impact secondary pricing. For instance, rising interest rates in 2023 led to a slowdown in IPO activity but increased demand for secondary shares of mature startups with solid fundamentals.

Example: The power of Secondaries for employees

In 2024, a European fintech unicorn allowed employees to sell up to 20% of their vested shares through a structured secondary sale during a $500M funding round. For employees, this meant significant payouts without waiting for an IPO. For new investors, it provided access to a thriving startup at a fair valuation. And for the company, it meant retaining top talent while bringing in strategic backers.

At SeedBlink, our Secondaries platform offers structured solutions for employees, founders, and investors alike. Whether you’re exploring liquidity or considering a strategic stake, we’re here to help you make informed decisions.

Explore SeedBlink’s Secondaries platform for tailored liquidity solutions.

See active Secondaries opportunities.