Secondary
Founder secondary in a funding round
Founder secondary is the sale of a portion of a founder's existing shares to an investor, usually alongside a priced round. It gives founders partial liquidity without an exit. It is not dilutive — no new shares are created for that portion — but it is a governance and signalling decision the board and lead investor will have views on.
Prepared by Perseids · Published · Updated
How it is normally structured
- Sized as a modest percentage of the founder's holding, often single-digit, and commonly capped as a share of the round.
- Priced at or below the primary round price; a discount is common because secondary shares are usually ordinary rather than preferred.
- Bought by the incoming lead, an existing investor, or a dedicated secondary buyer.
- Approved by the board and cleared through transfer restrictions and ROFR.
Why investors sometimes encourage it
A founder under personal financial pressure optimises for a nearer, smaller exit. A small amount of liquidity removes that pressure and aligns the founder with a longer horizon. Investors typically want it to be small enough to preserve that alignment.
Practical considerations
- Tax treatment varies by jurisdiction and can be material — take advice before agreeing terms.
- A secondary price below the round price can affect option pricing discussions.
- Other shareholders may have co-sale rights that let them participate.
- The cap table must reflect the transfer at settlement, not at agreement.
Prepared by Perseids for general information. It is not legal, tax or investment advice — confirm your specific situation with your advisers.
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