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Selling private shares / options on the secondary market is near impossible if the company isn’t on something like SecondMarket. Right of First Refusal, Co-sale
by andrew311 7y ago
Selling private shares / options on the secondary market is near impossible if the company isn’t on something like SecondMarket. Right of First Refusal, Co-sale Agreements, and the challenges of sharing information with a 3rd party make this difficult. That said, has anyone succeeded and written about their experience?
- djannzjkzxn 7y agoIt’s hard in theory, easy in practice if your options are worth millions. I have friends who did it. I don’t know too many of the details but they made some kind of contract with a financial firm to sell the upside from the stock without actually “selling” the stock. The fees are not terrible, like single digit percentages. These firms don’t want to talk to you if you have a small amount of equity because it isn’t worth the overhead to make a transaction.
- tempsy 7y agoNo it’s not. If that were true none of these marketplaces would exist.
- andrew311 7y agoI should clarify that it is certainly doable for widely recognized companies, but it’s very difficult for the majority of startups that no one has heard of even if they have some success. Also, getting on these marketplaces also goes much better with company cooperation and many startups don’t have the time or willingness.
- spurdoman77 7y agoIf company is valuable enough smart investors will flock around the shareholders who even have very minor ownership. I was sceptical at first but then saw it happening with a profitable company I was following. I thought people were stuck with their shares, but since the company was profitable it attracted investors looking for better returns than public stocks.
- ska 7y agoPeople show up when the risk gets low enough.
- CalChris 7y agoDe-risking is something a company will go through progressively. 1. An idea? Risky. 2. + funding? Less risky. 3. + proof of concept? More less risky. 4. + an MVP? Less risky still. 5. + paying customers and metrics? Less risky again.
- ska 7y agoRight. And when there is a bunch of illiquid stock around but the risk has reduced enough people will sniff around for (or create) a secondary market. Usually well past your #5 though. If the risk is too high they are all happy to let you carry it for a while.
- CalChris 7y agoIf the risk is low then the rewards will be low as well. I think the problem that VCs face in seed is the deluge of pitches. In A rounds, things have settled down.
- ska 7y agoWe are specifically talking about secondary markets, though. They only really happen I think when the risk is fairly low but people are illiquid, or occasionally when the hype is insane. This is a separate thing from the natural evolution of risk over startup life. That happens to every one. Viable secondary markets letting you take some money out early don't happen in most cases.
- CalChris 7y agoYes, you're right and I wasn't following that. I haven't had experience with secondary markets. I had to wait a few years for an IPO and then there's the lockup.