Most founders first hear about secondary as an easy way to turn equity into cash. All they need to do is sell a small portion of shares, take some liquidity off the table, and keep building the company.
But secondary usually comes with pricing discounts, tax consequences, investor approvals, and a process that takes far more time and attention than founders expect. For some founders, that tradeoff makes sense, but for others, it’s the reason they start looking for alternatives.
In this guide, we lay out how secondary works in practice and the other paths founders consider when managing liquidity and risk.
A secondary sale is when a founder or early employee sells existing shares in a private company to a new buyer before an IPO or acquisition.
It should not be confused with issuing new shares or raising capital for the company. It's actually a personal liquidity transaction. You are converting part of your equity into cash while the company remains private.
Secondary sales usually happen after a company has raised at least one institutional round and has an externally priced valuation. It’s at this point that founders realize the gap between their paper wealth and their personal liquidity. For example, their company could be worth tens or hundreds of millions on paper, but the founder’s day-to-day finances are still constrained.
For many founders, secondary is the first liquidity option they discover. In some cases, it is the right move. But founders usually find out about the real cost of secondary at the same time they discover the option itself.
The transaction is typically taxable. Approvals and legal processes can add friction and delay. And access to real buyers is uneven, depending on company, round, and market conditions.
Because of these tradeoffs, secondary is best understood as one liquidity tool, not the default or only option. Many founders use it, but many others look for alternatives once they fully understand what secondary actually entails.
Founders don’t pursue secondary liquidity because they want to “cash out.” They use secondary because their financial reality lags far behind their company’s valuation.
For instance, a founder might own 60–80% of a startup valued at $100 million on paper, yet still be paying themselves a modest salary while the company burns venture capital. Their equity is illiquid, the business is unprofitable, and nearly all of their net worth is tied up in one asset they cannot sell freely. On paper, they are wealthy. In practice, they have limited cash and little financial flexibility.
Secondary liquidity typically becomes relevant when founders want to:
While founders are the most common users of secondary liquidity, early employees and angel investors sometimes pursue it for similar reasons. The difference is scale. Founders usually hold the largest stakes and feel the liquidity constraint most acutely.
Secondary is used to align personal finances with value already created, while continuing to build the company for the long term.
A secondary transaction allows a founder or early employee to sell a portion of their existing shares in a private company to a new buyer. That buyer is typically a secondary fund, a private-market platform, or a strategic investor seeking exposure to late-stage private companies.
In practice, a secondary transaction usually unfolds in the following steps:
This process feels straightforward and is why founders often consider secondary. But it’s actually much slower and more expensive than it appears, as there are additional discounts, taxes, approvals, and legal work that slow the process and increase the costs.
Secondary is often the most visible and straightforward liquidity option available to founders. It can be effective, but it comes with clear tradeoffs that are easy to underestimate at first glance. Below, we list some pros and cons worth considering.
Once founders realize secondary isn’t the only path to liquidity, they can consider other alternatives based on what they value most. There are various options available, depending on whether a founder cares more about speed, taxes and fees, or reducing risk.
The options below are not ranked. Each one solves a different problem, and understanding why it exists is more useful than memorizing how it works.
Equity-backed loans allow founders to borrow cash using their startup shares as collateral. The founder does not sell equity outright. Instead, a lender underwrites the value of the shares and provides a loan that must be repaid over time, usually with interest and covenants.
Because private company equity is illiquid and risky from a lender’s perspective, these loans are typically conservative. Founders are often required to pledge significantly more equity value than the cash they receive. If repayment obligations are not met, the lender can seize the pledged shares.
A structured tender offer is a company-led liquidity program that gives founders and employees a controlled opportunity to sell a portion of their shares. Instead of individual shareholders sourcing buyers on their own, the company coordinates the process by selecting approved buyers, setting a price or pricing range, and defining eligibility rules and sale limits.
The offer runs during a fixed window and typically requires board and investor approval. For founders, tender offers provide access to liquidity within an established framework, but participation is optional, and timing is entirely driven by the company’s priorities rather than individual needs.
Exchange fund structures allow founders to convert a portion of their concentrated equity into a mix of immediate liquidity and diversified exposure without selling shares at a discount.
So instead of selling equity outright, the founder contributes shares to a fund at the valuation from the most recent funding round. In return, part of the value is paid out in cash, while the remainder is delivered as ownership in a diversified portfolio of other venture-backed companies.
For example, a founder could contribute 10% of their company, receive cash equal to 5% of the company’s value, and hold the remaining 5% as ownership in the diversified fund.
This approach can avoid triggering an immediate taxable sale because there is no fixed-price equity transfer at the time of the exchange. Founders get near-term liquidity, reduce single-company risk, and gain exposure to a broader venture portfolio. These structures also create a community in which participants are aligned with one another’s outcomes.
Funds like Accumulator focus on this model specifically for later-stage startups, which is why these structures are usually limited to companies with valuations above $100M and recent institutional rounds.
A tax-optimized forward structure uses a variable-price forward contract instead of a traditional equity sale. This path requires the founder to agree to transfer economic exposure to a portion of their equity. The exact number of shares is typically determined later.
This is an alternative to selling shares at a fixed price today, and it typically occurs during a liquidity event, such as an acquisition or an IPO. And since the price per share is not fixed at the time of the agreement, the transaction can be structured to avoid triggering capital gains taxes upfront.
This structure allows founders to reduce concentration risk and gain diversification exposure without selling shares at a discount or creating a taxable event today.
Doing nothing means the founder keeps their equity unchanged and delays any liquidity decision. There is no transaction, no documentation, and no immediate cost.
This option is often chosen implicitly rather than intentionally, especially when liquidity is not urgent and complexity feels overwhelming. However, time is not neutral. As rounds age, valuations become stale, investor appetite changes, and eligibility for certain structures can quietly disappear.
Secondary is commonly one of the first liquidity paths founders consider, largely because it’s the easiest to explain and execute. But once founders look more closely and account for discounts, taxes, approvals, and time, they realize there might be better alternatives out there worth considering.
The alternatives don't necessarily present a perfect structure. Instead, they offer founders options based on which constraint matters most.
For instance, equity-backed loans prioritize speed and familiarity but introduce leverage and downside risk. On the other hand, tax-optimized forward structures reduce tax friction and concentration risk but require founders to engage with legal complexity. Exchange funds are another option that allows founders to access cash without selling equity outright while also reducing risk, fees, and taxes. But exchange funds are usually only available to later-stage companies with valuations of $100M or more.
If you do nothing, you choose the most straightforward path, but exposure remains unchanged, while company-led tender offers provide coordination at the cost of individual control.
The right choice depends on what the founder is optimizing for at the moment. What matters most is understanding the full cost of each option before defaulting to the one that feels easiest. Liquidity decisions tend to be made under pressure, but the best outcomes usually come from slowing down long enough to evaluate the real tradeoffs involved.