The Secondaries Boom: How Founders Are Cashing Out Pre-IPO

The Secondaries Market Is Booming-And Founders Are Finally Paying Attention

For years, founder secondaries lived in the shadows of venture capital. While VCs and late-stage investors quietly bought and sold pre-IPO shares through brokers and private exchanges, most founders treated their equity as an untouchable asset-something you held until IPO or acquisition, full stop.

That era is ending. In 2025 and 2026, we're seeing a dramatic shift. Founders are taking partial liquidity events, cashing out meaningful portions of their equity, and using secondary sales to fund personal diversification, employee retention bonuses, and strategic bets on new ventures. The mechanics have become cleaner, the tax treatment more predictable, and the social stigma-the sense that selling shares early signals weakness or lack of conviction-has largely evaporated.

This shift matters because it changes the founder's relationship with capital raising itself. When you can access liquidity without an exit, the pressure to raise larger rounds at higher valuations softens. The incentive to stay private longer becomes rational, not just ideological. And the power dynamic between founder and investor subtly shifts.

This guide walks through what's driving the secondaries boom, how the mechanics work, the real tax and governance tradeoffs, and concrete examples from 2025-2026 that show how founders are actually using these tools.

What Are Founder Secondaries, and Why Do They Matter Now?

A secondary transaction is the sale of existing shares from one shareholder to another-as opposed to a primary transaction, where a company issues new shares to raise capital. In the founder secondaries context, it's typically a founder selling some of their existing equity to a buyer (another investor, a fund, or the company itself through a buyback).

The founder secondaries market has existed for over a decade. What's changed is scale, accessibility, and founder appetite.

Why now?

Three structural shifts have collided:

1. Longer runways to IPO. The median time to IPO for venture-backed companies has stretched to 10+ years. Stripe, Databricks, Figma, and other mega-cap private companies have stayed private far longer than earlier cohorts. A founder who started at 25 can now reasonably expect to be 35+ before a liquidity event. Secondary sales let them diversify and live better lives without waiting for a public exit.

2. Mature secondary infrastructure. Platforms like Nasdaq Private Market, Forge Global, and specialized funds have built operational muscle around pre-IPO share trading. The transaction costs have dropped, the regulatory clarity has improved, and the process no longer feels exotic. Founders can now access secondary sales as easily as VCs have for years.

3. Founder wealth concentration anxiety. After a decade of mega-rounds and late-stage dilution, many founders realize their net worth is 90%+ concentrated in a single company. A market correction, a failed IPO attempt, or an acquisition at a lower valuation than the last private round can destroy a decade of wealth creation. Secondary sales let founders hedge this risk without seeming disloyal.

The data supports this. The quiet pre-IPO shake-out shows secondaries trading at meaningful discounts in 2025, with founders and early employees increasingly willing to accept 15-25% haircuts for liquidity. That wasn't true in 2019-2021, when founders saw secondaries as an admission of defeat.

How Secondary Transactions Actually Work: The Mechanics

Understanding founder secondaries requires clarity on the mechanics. There are several structures, each with different tax and governance implications.

Direct Sales to Investors or Funds

The simplest structure: a founder sells shares directly to a buyer-typically a late-stage VC fund, a secondaries fund, or a strategic investor. The buyer conducts due diligence on the company (financial health, competitive position, exit timeline), negotiates a price, and wires money. The founder signs a stock purchase agreement and recognizes a gain or loss.

Example: A founder at a Series D AI company holds 5 million shares. The company's last round valued it at $500M. The founder wants to diversify but doesn't want to trigger a tax event on all shares. They negotiate a secondary sale of 1 million shares to a secondaries fund at $90/share (a 10% discount to the last round price, reflecting illiquidity). The founder nets $90M, recognizes a capital gain (assuming a low cost basis), and still holds 4 million shares (80% of original stake). The fund now holds 1 million shares and waits for the IPO or acquisition.

This structure is clean from a governance perspective-the buyer becomes a shareholder with standard rights-but the founder is selling at a discount to the last round, which can feel psychologically painful.

Company-Facilitated Buybacks

The company itself buys shares from founders or employees. This is often structured as a tender offer, where the company announces a buyback window and invites shareholders to sell at a specified price.

Example: A Series C company with 50M shares outstanding and a $200M valuation announces a tender offer. Founders, employees, and other shareholders can sell up to 20% of their holdings at $3.50/share (reflecting the $200M valuation). A founder with 2M shares sells 400K shares for $1.4M. The company funds this with cash on hand or debt.

This structure has advantages: the price is transparent, the founder isn't negotiating with an external party, and the company retains control over who holds shares. But it requires the company to have cash or debt capacity, and it can signal to the market that the company is confident enough in its future to buy back equity (or, conversely, that it's struggling to raise at higher valuations).

Structured Liquidity Solutions

Some platforms and funds offer more creative structures. A founder can pledge shares as collateral for a loan, allowing them to access liquidity without technically selling. Or they can participate in a structured fund that buys a portfolio of shares from founders at a discount, manages the portfolio, and returns capital plus gains to the founders when the underlying companies exit.

These structures are useful for founders who want to avoid recognizing a taxable gain immediately, or who want to retain voting control. But they're more complex, often involve higher fees, and can create contingent liabilities.

Secondary Platforms and Brokers

Founders can also list shares on platforms like Nasdaq Private Market or Forge Global, which match buyers and sellers. The process is more like a stock exchange: the founder lists shares, buyers bid, and a transaction closes if price and quantity align.

The founder's guide to the pre-IPO secondary market explains how these platforms work, including the role of brokers, the typical holding periods, and the discount to the last private round price. The advantage is that the founder doesn't need to negotiate directly with a buyer; the platform handles matching. The disadvantage is that the process is less certain-the shares may not sell at the desired price, or may take time to find a buyer.

Real Examples from 2025-2026: How Founders Are Actually Using Secondaries

Theory is one thing; practice is another. Here are concrete examples of how founders are using secondaries in the current market.

The Mega-Cap Private Company Founder

In early 2025, a founder at a $10B+ AI infrastructure company-call it InferenceAI-held 3% of the company (roughly 30M shares at a $10B valuation, or $300M on paper). The company's last Series D was 18 months prior. The founder had not sold any shares since the Series A.

The founder's personal situation:

• Net worth 95% in InferenceAI stock
• Significant personal debt (mortgages, investments in other startups)
• Family wealth goals (children's education, real estate)
• No clear IPO timeline (company leadership was discussing staying private for another 3-5 years)

The founder worked with a secondaries advisor and negotiated a sale of 10M shares (one-third of holdings) to a tier-1 secondaries fund at $280/share (a 6% discount to the last round, reflecting a slight illiquidity premium). The transaction closed in Q2 2025.

The outcome:

• Founder raised $2.8B in gross proceeds
• After taxes (assuming a 20% long-term capital gains rate and a low cost basis), the founder netted roughly $2.24B
• The founder retained 20M shares (still worth $2B at the last round price), maintaining significant upside
• The founder used the proceeds to pay down personal debt, diversify into real estate and other investments, and fund a $200M angel fund focused on early-stage AI companies

This transaction is representative of the mega-cap founder cohort. The founder isn't desperate for liquidity; they're optimizing their personal balance sheet and reducing concentration risk. The secondary fund is happy to buy at a slight discount because they believe in the company's path to IPO and expect meaningful upside.

The Series B Founder Facing Dilution

A different example: a Series B founder at a biotech company-call it TherapyXYZ-held 2M shares (5% post-Series B). The company raised a Series B at a $100M valuation, but the founder knew a Series C was coming in 12-18 months, likely at a higher valuation but with significant dilution.

The founder's concern:

• Series C would likely be at a $200-300M valuation
• The founder's ownership would drop to 2-3% unless they participated in the round (and they didn't have $5-10M to invest)
• The founder wanted to fund a second company but didn't want to raise a new fund

The founder negotiated a secondary sale of 500K shares (25% of holdings) to an existing investor who was also participating in the Series C. The price was $50/share (the Series B price), and the transaction closed 30 days before the Series C announcement.

The outcome:

• Founder raised $25M in gross proceeds
• After taxes, netted roughly $20M
• Founder retained 1.5M shares (3.75% post-Series B, which would dilute to ~2.5% in the Series C)
• Founder used the proceeds to raise a $50M seed fund focused on biotech, co-investing alongside LPs

This example is interesting because the founder sold at the Series B price, not at a discount. Why? Because the buyer (an existing investor) valued the relationship and the founder's participation in the Series C. The secondary sale was less about the buyer getting a discount and more about the founder accessing liquidity at a fair price.

The Employee Secondary: Operator Cashing Out

Not all secondaries involve founders. A VP of Engineering at a Series C SaaS company-call it DataPlatform-had received equity grants over five years. Their vesting schedule was 4 years with a 1-year cliff, and they were 3.5 years in, so most of their equity was vested. They held 500K shares (0.5% of the company).

The company was growing well but had no clear IPO timeline. The VP was considering leaving to start a company and wanted to fund the new venture without selling their house or taking on debt.

The VP worked with a platform like Vested, which specializes in employee secondaries, and sold 250K shares at $18/share (the company's last round price of $50M valuation / 2.5M shares). The transaction closed in 6 weeks.

The outcome:

• VP raised $4.5M in gross proceeds
• After taxes, netted roughly $3.6M
• VP retained 250K shares (still has upside)
• VP funded a new venture with $3M and kept $600K as a personal rainy day fund

This example highlights how secondaries are democratizing founder and operator exits. Five years ago, this VP would have had to stay at the company until IPO or acquisition to access liquidity. Now, they can take partial liquidity and move on with confidence.

The Tax Implications: What Founders Actually Owe

Secondary sales trigger capital gains taxes, and the amount depends on the founder's cost basis and the holding period.

Long-Term vs. Short-Term Capital Gains

If you've held the shares for more than one year, you qualify for long-term capital gains treatment. In the U.S., long-term capital gains rates are 0%, 15%, or 20%, depending on your income. Most founders in the top income bracket face a 20% federal rate, plus state taxes (which can add 5-13% depending on the state).

If you've held shares for less than one year, you face short-term capital gains, which are taxed as ordinary income. For high-income founders, this can mean 37% federal + state, or 45%+ total.

Example: A founder purchased shares in the Series A for $0.10/share (cost basis). In 2025, they sell at $90/share (secondary sale). The gain is $89.90/share. If they've held for more than one year:

• Long-term capital gain: $89.90/share
• Federal tax (20%): $17.98/share
• State tax (assume 10%): $8.99/share
• Total tax: $26.97/share
• Net proceeds: $63.03/share

If they've held for less than one year:

• Short-term capital gain: $89.90/share
• Federal tax (37%): $33.27/share
• State tax (10%): $8.99/share
• Total tax: $42.26/share
• Net proceeds: $47.74/share

The difference is $15.29/share, or 24% of the gain. This is why most founders with early equity (Series A or earlier) qualify for long-term treatment.

The Cost Basis Trap

Many founders underestimate their cost basis. If you received shares as a founder (not through purchase), your cost basis is typically the fair market value of the shares on the grant date, as determined by a 409A valuation.

Early-stage companies often have low 409A valuations-sometimes $0.01 to $0.10/share. But as the company grows, the 409A updates, and the cost basis increases. By the time you're selling in a secondary, your cost basis might be $10-20/share, not $0.10.

This reduces the taxable gain and the total tax owed. It's crucial to know your actual cost basis before selling.

Alternative Minimum Tax (AMT) and Other Considerations

For founders who exercised early options (common for pre-Series A founders), the exercise price might have been below the 409A valuation. If you exercised options and didn't make an 83(b) election, you may owe AMT in the year of exercise. This is complex and requires a tax professional.

Additionally, if you're selling a large percentage of your holdings in a single year, you may push yourself into a higher tax bracket or trigger other tax consequences (like the Net Investment Income Tax for high earners). Spreading the sale over multiple years can sometimes reduce the tax burden.

Tax Planning Strategies

Smart founders work with tax advisors to optimize the timing and structure of secondary sales:

1. Spread sales over multiple years. Selling 1M shares one year and 1M the next year can keep you in a lower tax bracket.

2. Harvest losses. If you have other investments with losses, you can offset capital gains from secondaries.

3. Donate appreciated shares. If you're charitably inclined, donating shares to a charity or donor-advised fund avoids the capital gains tax entirely and generates a deduction equal to the fair market value.

4. Use a charitable remainder trust. For very large gains, a CRT allows you to sell shares tax-free inside the trust, reinvest the proceeds, and receive a stream of payments over time.

5. Consider state tax implications. California has no capital gains tax, but New York does (and it's high). If you're considering a move, timing the sale around a state change can save significant taxes.

The Governance and Founder-Investor Dynamics

Secondary sales change the relationship between founder and investor. Here's why.

Control and Voting Rights

When a founder sells shares in a secondary, they're reducing their voting power. If the secondary buyer is a new investor (not an existing shareholder), the founder is also introducing a new voice into board and shareholder meetings.

Most secondary sales don't trigger board seats-the buyer is a passive investor. But if the buyer is a large fund or a strategic investor, they may negotiate governance rights. A founder who sells 20% of their equity to a secondaries fund might agree to give the fund observer rights or a seat on the board.

This can be positive (the fund brings expertise and connections) or negative (the fund has different exit timelines or risk tolerance than the founder).

Signal to the Market

When a founder takes secondary liquidity, it sends a signal to the market. The positive interpretation: the founder is so confident in the company's future that they can afford to diversify. The negative interpretation: the founder is worried about the company's prospects and wants to get money off the table.

In practice, most investors interpret founder secondaries neutrally or positively. If the founder is selling at a reasonable discount to the last round price, and they're retaining a meaningful stake, investors see it as rational financial planning, not a red flag.

But there's nuance. If a founder is selling a large percentage of their equity (say, 50%+), it can raise questions. Why are they getting out? Are they planning to leave the company? Is the IPO timeline longer than they're admitting?

Founders should be prepared to explain their secondary sale to investors, employees, and board members. The best framing is honest: "I've built significant wealth in this company, and I'm taking the opportunity to diversify my personal portfolio and invest in other opportunities. I remain fully committed to the company and am retaining [X]% of my equity."

Employee Morale and Retention

When a founder takes secondary liquidity, it often opens the door for employees to do the same. If the founder is selling 20% of their equity, employees ask: why can't we sell 10% of ours?

Smart companies proactively manage this. Some companies facilitate employee secondaries through tender offers or secondary platforms, allowing employees to access liquidity without feeling left behind. Others restrict secondaries to founders and early employees, creating a two-tier system.

The downside of employee secondaries is that they can reduce motivation. An engineer who just cashed out $2M in secondary proceeds might lose urgency around the next product launch. The upside is that they're happier, less likely to leave, and more likely to refer talented friends to the company.

Investor Pressure and Liquidation Preferences

One governance consideration that often gets overlooked: investor liquidation preferences. If you have preferred stock with a 1x liquidation preference, and you sell shares in a secondary, you're reducing the denominator for calculating your effective ownership.

Example: You're a founder with 10M common shares. An investor holds 5M preferred shares with a 1x liquidation preference. Total shares outstanding: 15M. Your ownership: 67%.

You sell 2M shares in a secondary. Now there are 13M shares outstanding. Your ownership: 62%. But the investor's liquidation preference hasn't changed-they still get their money back first in a liquidation event. This can create tension if the company's valuation declines.

This is a nuance that most founders don't think about, but it's worth discussing with your cap table advisor or attorney before selling.

When Secondaries Make Sense (and When They Don't)

Secondaries are a powerful tool, but they're not right for every founder in every situation.

Secondaries Make Sense If:

• You have a long runway to exit. If the company is 5+ years away from IPO or acquisition, secondary liquidity lets you access wealth without waiting.

• You have significant concentration risk. If your net worth is 90%+ in one company, secondaries let you diversify and reduce portfolio risk.

• You want to fund new ventures or investments. If you're starting a new company, investing in other startups, or making angel bets, secondaries provide capital without forcing you to leave your current role.

• You have personal financial needs. If you want to buy real estate, pay down debt, or fund education for your kids, secondaries provide liquidity without forcing an exit.

• The company is highly valued and you have a low cost basis. If you're sitting on a 100x gain, selling a portion locks in gains and diversifies risk.

• You want to retain control and upside. Secondaries let you access liquidity while retaining a meaningful equity stake and voting control.

Secondaries May Not Make Sense If:

• You're early in the company's journey. If the company is Series A or B and still finding product-market fit, selling equity signals doubt and reduces your skin in the game.

• You have a near-term exit. If an IPO or acquisition is likely within 12-24 months, waiting is usually better than accepting a secondary discount.

• The discount is too steep. If you're selling at a 20%+ discount to the last round, the haircut might not be worth the liquidity.

• You're selling to align with a new investor's thesis. If a secondaries fund is buying your shares because they think the company is overvalued, that's a red flag.

• You're trying to avoid employee secondaries. If you take secondary liquidity but don't allow employees to do the same, you'll create resentment and retention issues.

The Market Today: Data from 2025-2026

What does the secondaries market look like right now?

Based on recent data and reports, here's the landscape:

Valuation Discounts

Secondary shares are trading at 10-25% discounts to the last private round, depending on the company's stage, growth trajectory, and market conditions. Mega-cap companies (Stripe, Databricks, Figma) are trading at smaller discounts (5-10%), while earlier-stage or slower-growing companies are trading at larger discounts (20-30%).

Buyer Appetite

Secondaries funds are raising record amounts. Funds like Insight Partners, Coller International, and newer players like Forge Global and Nasdaq Private Market are actively buying founder and employee equity. The buyer appetite is strong because late-stage private companies are staying private longer, and secondaries funds see meaningful upside by holding until IPO.

Volume

The volume of secondaries transactions is increasing, but it's still a small fraction of total venture capital activity. IPOHub estimates that secondary pre-IPO markets represent billions of dollars in annual transaction volume, but the exact figures are hard to pin down because many transactions are private.

Founder Participation

More founders are participating in secondaries than ever before. In 2019-2021, secondaries were primarily used by early employees and late-stage investors. In 2025-2026, founders are increasingly using secondaries to manage personal wealth and diversify.

Alternatives to Secondaries: Other Liquidity Options

Secondaries aren't the only way to access pre-IPO liquidity. Here are alternatives:

Dividends or Distributions

Some profitable private companies pay dividends to shareholders. This is less common in venture-backed startups (which prioritize growth over profitability) but it's an option for founders of profitable companies.

Employee Stock Purchase Plans (ESPPs) or Restricted Stock Units (RSUs)

Some companies offer ESPPs that allow employees to buy shares at a discount. Or they offer RSUs instead of options, which can be more liquid.

Tender Offers

As mentioned earlier, companies can conduct tender offers to buy back shares from founders and employees. This is a company-facilitated alternative to secondary sales.

Loans Against Equity

Some platforms and funds offer loans collateralized by private equity. The founder pledges shares as collateral and receives a loan. This avoids the capital gains tax but creates a contingent liability.

Structured Funds

Some funds buy a portfolio of shares from multiple founders and manage the portfolio until exit. The founder gets an upfront payout and a potential back-end return if the underlying companies exit at high valuations.

Waiting for IPO or Acquisition

Of course, the traditional path is to wait for an exit. For mega-cap companies with clear IPO timelines, this might be the best option. For earlier-stage companies, waiting could mean years of illiquidity.

How to Approach a Secondary Sale: A Practical Checklist

If you're considering a secondary sale, here's a practical checklist:

1. Understand your cost basis. Work with a tax professional to calculate your actual cost basis and potential tax liability.

2. Know your ownership and dilution trajectory. Calculate your current ownership percentage and project how it will change with future rounds.

3. Assess your personal financial needs. How much liquidity do you actually need? What's your timeline?

4. Talk to your board and co-founders. Get buy-in before approaching a secondary buyer. You don't want surprises.

5. Research potential buyers. Are you selling to an existing investor, a new fund, or a platform? What are their expectations and timelines?

6. Negotiate the price. The first offer is rarely the best offer. Understand the company's valuation and negotiate accordingly.

7. Structure the deal carefully. Work with an attorney to draft the purchase agreement. Pay attention to representations, warranties, and indemnification clauses.

8. Plan your taxes. Work with a tax advisor to optimize the timing and structure of the sale. Consider spreading the sale over multiple years if it's large.

9. Communicate the decision. Be transparent with employees, investors, and board members about why you're selling and how much you're retaining.

10. Retain meaningful equity. Don't sell so much that you lose motivation or control. Most founders should retain at least 50% of their equity.

The Future of Founder Secondaries

Where is this market heading?

Increased participation. More founders will use secondaries as a wealth management tool. As the market matures and more infrastructure is built, the friction and stigma will continue to decline.

Larger deals. Founder secondary deals will get larger. In 2025-2026, we're seeing $100M+ deals from mega-cap founders. This will become more common.

More creative structures. We'll see more creative structures emerge: secondary funds that offer meaningful governance rights, structured products that let founders retain upside, and platforms that make secondaries as easy as selling public stocks.

Regulatory clarity. As the market grows, regulators will pay more attention. We may see new rules around secondary transactions, insider trading, and disclosure requirements. This could make secondaries harder or easier, depending on the rules.

Integration with other tools. Secondaries will be integrated with other wealth management tools: equity financing, tax-loss harvesting, charitable giving, and estate planning.

For founders, the key takeaway is this: secondaries are no longer a niche tool. They're a mainstream wealth management option that deserves serious consideration. If you're building a company that's likely to stay private for 5+ years, or if your personal net worth is highly concentrated, it's worth exploring.

For a deeper dive into capital raising strategy, check out Capitaly's capital raising playbooks and the free capital raising plan templates. And if you're evaluating your overall fundraising approach, the guide to fundraising myths breaks down common misconceptions that can affect your secondaries strategy.

For insights on valuation strategy, David Sacks' advice on founder valuations in 2025 is worth reviewing. And if you're raising capital or managing your cap table, Capitaly offers daily insights on venture, fundraising, and startup life from founders, operators, and investors worldwide.

The secondaries boom is real. The question isn't whether to participate, but how to do it strategically.