Issuers

Investors

Sellers

Insights

Sign In

Sign Up

Sign in

    HomeGuides

    A dive into VC secondaries

A dive into VC secondaries

VC Secondaries

Quickstart

What are VC Secondary Transactions?

If you are a current or former employee of a highly valued startup or unicorn and you’ve decided you can’t wait any longer for an IPO to sell your shares, you’ve probably by now heard the term “secondary transaction” or “secondary sale.” 

A VC secondary transaction is when a shareholder of a pre-IPO, venture capital-backed company sells their shares to someone else. 

This is different from a primary transaction, where an investor purchases newly-issued shares from the company directly. When companies announce funding rounds, this is a primary fundraise. This is why private VC-backed companies are often referred to as the “issuer.” They sell, or “issue” new shares to investors to raise money to fund their business.  

Participants in the VC Secondary Market and their objectives

In a traditional VC secondary transaction, there are three stakeholders: the seller, the buyer, and the company. 

Sellers

Sellers in the VC secondary market include venture capital firms, angel investors, and current or former employees. 

Amongst venture capital firms and angel investors, the most likely sellers are those who invested at a very early stage in the company’s life, such as at the pre-seed, seed or series A stage. These investors may have invested at a lower valuation, like $10 to $50 million, and the company is now worth $500 million, $1 billion or even more. These investors are sitting on a very large paper gain. As the average VC-backed company is staying private longer than in decades past, these investors may not be able to wait until the company goes public to generate a return. The VC secondary market is a potential opportunity for them to cash in some gains and show their investors a return.  

By far, the largest group of sellers in the secondary market are founders, executives, and current and former employees of venture capital funded companies who are typically granted equity as a form of compensation.

Buyers

Buyers in the secondary market can be investment firms or high-net-worth individuals (also known as accredited investors). There are several different types of institutions that are active in the secondary market, including VC funds, so-called secondary funds, hedge funds, family offices, and growth equity firms. Buyers in the VC secondary market can be current or new investors in the target company.

New entrants include wealth management firms and registered investment advisors who view direct investing into venture capital as a potentially attractive way to diversify clients’ portfolios into higher return alternatives to public equities and bonds. 

Issuers (companies)

The issuer needs to approve the transfer of shares from the seller to the buyer. The company could also become the buyer by exercising its right of first refusal (ROFR) to buy the shares at the proposed transfer price. In a future post, we’ll dive into more detail on the company approval process, the ROFR, and why some pre-IPO companies have a negative view towards VC secondary transactions.  

If you’re a current or former employee or an existing investor of a pre-IPO company, we encourage you to sign-up for the Hiive platform here. Alternatively, feel free to contact [email protected] for more information.

Stay on top of the private markets.
Subscribe to our newsletter to stay on top of the latest trends in pre-IPO.

Trusted by:

Yahoo! FinanceBloombergAxios

Please read this important legal notice and disclosures

The information presented in this media is provided for your informational purposes only and does not constitute an offer by Hiive to buy or sell, or a solicitation of an offer, or a recommendation, to buy or sell, any security. Hiive is not, by this media, providing financial, business, investment, legal, tax or other professional advice nor should this media be the basis for making any decision that may affect your financial or other interests. This media does not constitute a prediction of future events or performance. This media is not a research report and commentary contained herein should not be considered to be research. The information in this media, some of which may have been obtained from third-party sources, is provided on an “as is” basis. Hiive does not guarantee the accuracy or completeness of information in this media and does not assume any liability for reliance on the information provided herein. © The Hiive Company Limited 2024. All rights reserved. Reproduction prohibited.

Find Hiive on BrokerCheck. Before you work with Hiive you should review the Form CRS and these important disclosures. Any references to “Hiive” are to The Hiive Company Limited and Hiive Markets Limited.

Related guides

Trade private stock now.*

Sign Up

* Investing in private unregistered securities is highly speculative and entails a high degree of risk. These securities are inherently illiquid and there is no guarantee that a market will be available for them. Accordingly, investment in these securities is appropriate only for those investors who can tolerate a high degree of risk, can withstand a total loss of investment, and do not require liquidity of their investment.

The marketplace for private stock.

Contact

Guides

Privacy

Disclosures

Terms of Use

Careers (We're hiring!)

*Securities are offered by Hiive Markets Limited, member of FINRA / SIPC and registered exempt market dealer in Ontario and British Columbia. Brokerage fees may apply. Find Hiive on BrokerCheck.

ⁱBased on Republic's list of tier-1 venture capital firms.

ᵅSecurity Specialists are registered representatives of Hiive Markets Limited and have no specialized expertise in the evaluation or recommendation of investments. Hiive does not provide investment advice and Hiive customers should obtain independent advice prior to buying or selling on Hiive.

© The Hiive Company Limited 2024. By using this site, you accept our Terms of Use and Privacy Policy. Before engaging with this broker-dealer, review these important Disclosures and the Form CRS (US) and Relationship Disclosure (Canada).

LinkedIn logoInstagram logoX logo