Secondary sales and tender offers

After Northwind’s Series B, Ada sells 500,000 of her shares to a fund for $1.72M. Nobody else on the cap table owns a smaller percentage after the sale. A month later, Northwind issues 500,000 new shares, and every current holder owns a little less. The difference between these two sales is the subject of this lesson.

Primary and secondary

A sale of stock is either primary or secondary:

In a primary sale, the company issues new primary shares and sells them. The cash goes to the company. All rounds in this module so far were primary sales.
In a secondary sale, a current holder sells shares that it already owns. The cash goes to the seller, and the company gets nothing.

	Primary sale	Secondary sale
Who sells	The company	A current holder
New shares	Yes	No
Who gets the cash	The company	The seller
Holders that the sale dilutes	Every current holder	Nobody

A secondary sale moves ownership from one holder to a different holder. The total number of shares stays the same, so every other percentage stays the same.

Predict first

Ada owns 13.47% of Northwind after the Series B. She sells 500,000 of her 5,000,000 shares in a secondary sale. Northwind has 37,123,439 shares. What does Ada own after the sale?

Type a guess before you continue. A guess first, even a wrong one, makes the answer easier to remember.

Price    = 85% × $4.0406           = $3.4345
Proceeds = 500,000 × $3.4345       = $1,717,250 before tax
Ada      = 4,500,000 ÷ 37,123,439  = 12.12% (13.47% before)

Now sell the same shares in the two ways. Watch which rows change in the table, and who gets the cash.

Compare

A primary sale or a secondary sale

Northwind after its Series B, at $4.0406 a share. Sell the same shares two ways and watch who gets the cash and whose ownership decreases.

Kind of sale

Shares in the sale500,000

Discount to the Series B price15%

The buyer pays $3.4345 a share.

The cash goes to: Ada
Cash: $1.72M; 500,000 × $3.4345
Total shares: 37,123,439; No change
Ada owns: 12.12%; 13.47% before

Northwind before and after a secondary sale of 500,000 shares
Holder	Before	After	Change, points	Shares after
Ada (founder)	13.47%	12.12%	−1.35	4,500,000
Ben (founder)	13.47%	13.47%	0	5,000,000
Employees	8.08%	8.08%	0	3,000,000
Unissued pool	10%	10%	0	3,712,344
Pre-seed SAFEs	6.73%	6.73%	0	2,500,000
Seed investors	9.9%	9.9%	0	3,676,471
Bridge SAFE	3.54%	3.54%	0	1,313,025
Series A investors	14.81%	14.81%	0	5,496,911
Series B investors	20%	20%	0	7,424,688
New buyer	—	1.35%	+1.35	500,000
Total	100%	100%		37,123,439

Ada sells 500,000 of her own shares at $3.4345, 15% less than the Series B price. She gets $1.72M before tax, and Northwind gets nothing.

No new shares exist, so the total stays at 37,123,439. Only Ada and the buyer change. Every other holder keeps the same percentage: the Series B investors stay at 20%.

The price of a secondary

A secondary buyer often pays less than the last round price. The reasons are simple. Founders and employees usually sell common stock, which has no liquidation preference. The buyer also cannot sell the shares easily, because no public market exists for them. The discount is usually bigger when the last round was long ago.

The last line is important for most founders. A few very large private companies have an active secondary market. For a typical seed or Series A company, few buyers exist.

Work it out

A founder sells 200,000 shares at $12. The last preferred price was $15. What is the discount to the last round price?

Founder secondaries

In a founder secondary, a founder sells some of the shares that the founder holds. Practitioner guides (not data) give these patterns:

At the Series A, founder sales are not frequent. Sometimes a founder negotiates a sale of $100K to $250K.
At the Series B, sales of 5% to 15% of a founder’s holdings occur.
At the Series C and later, the guides give 10% to 25% of a founder’s holdings.

The guides give discounts of 10% to 30%, or 20% to 40%, to the round price. Small founder sales at the Series B and later are routine at this time. Large sales, or sales at the Series A, still cause questions from investors. Before you sell, speak to a tax professional about the tax on the proceeds.

Tender offers

A tender offer is an organized secondary sale. The company or an investor offers to buy shares from many holders at the same time, at one price, for a set period. Companies use tender offers to give employees and early investors cash before an exit.

US rules set a minimum period. Under SEC Rule 14e-1, a tender offer must stay open for at least 20 business days. If the buyer changes the price, the offer must stay open for at least 10 more business days after the notice of the change.

A typical structure has limits. For example, an investor offers to buy up to $50M of employee and founder shares at $20 each. Each employee can sell up to 20% of the vested shares.

Employees who hold options often exercise them and sell in the same step. The money of the sale pays the strike price, which is the fixed price of each option:

Employee: 20,000 vested options, strike price $0.40
Tender price: $8.00
Gross proceeds = 20,000 × ($8.00 − $0.40) = $152,000 before tax

This income is usually ordinary income, the same as salary. The reason is that the sale is not a qualifying disposition. A qualifying disposition comes only after a longer holding period. The tax rules for options are complex. Speak to a tax professional before you sell in a tender offer. Holders of private-company double-trigger RSUs generally cannot sell them in tender offers (Goodwin). The employee equity module explains these rules.

Work it out

An employee has 20,000 vested options with a $0.40 strike price. She sells all of them in a tender offer at $8.00 a share, and the sale money pays the strike price. What are her gross proceeds before tax?

Why the board controls each sale

A founder cannot sell private shares freely. Several rules give the company and its investors control:

Transfer restrictions. The charter, the bylaws, or the stock agreements make company consent necessary before a holder sells shares. These are transfer restrictions.
The right of first refusal. In the NVCA model, this right applies to a founder or employee with 1% or more of the common stock. That holder must offer the shares first to the company, and then to the investors, at the same price and terms. This is the ROFR.
The co-sale right. If the company and the investors do not buy, the investors can sell some of their own shares in the same sale. This is the co-sale right, and it can decrease the number of shares that the founder sells.
Sales without consent. Some sales through an SPV try to bypass the transfer restrictions. In August 2025, OpenAI warned buyers that such a sale “will not be recognized and carry no economic value to you” (TechCrunch).

The co-sale right has a simple formula in the NVCA model. Each investor that joins sells its shares ÷ (the shares of all investors that join + all the seller’s shares) of the shares in the sale:

Founder holds 3,000,000 shares and agrees to sell 500,000
Investors with 2,000,000 shares join the sale
Investors' part = 2,000,000 ÷ (2,000,000 + 3,000,000) = 40%
Investors sell  = 40% × 500,000 = 200,000
Founder sells   = 500,000 − 200,000 = 300,000

The buyer still gets 500,000 shares. But the founder sells only 300,000 of them and gets less cash. Try each right on Ada’s sale:

Rights in a sale

Ada sells shares to an outside buyer

The buyer agrees to pay $3.4345 a share, 15% less than the Series B price. Choose who uses a right.

Shares that Ada wants to sell500,000

Who uses a right

Investors who join the sale

Ada sells: 238,165; of 500,000 offered
Ada gets: $817.98K; before tax
Ada owns after: 12.83%; 13.47% before
Buyer gets: 500,000; shares

Northwind before and after Ada's sale of 500,000 shares
Holder	Before	After	Change, points	Shares after
Ada (founder)	13.47%	12.83%	−0.64	4,761,835
Ben (founder)	13.47%	13.47%	0	5,000,000
Employees	8.08%	8.08%	0	3,000,000
Unissued pool	10%	10%	0	3,712,344
Pre-seed SAFEs	6.73%	6.73%	0	2,500,000
Seed investors	9.9%	9.9%	0	3,676,471
Bridge SAFE	3.54%	3.54%	0	1,313,025
Series A investors	14.81%	14.1%	−0.71	5,235,076
Series B investors	20%	20%	0	7,424,688
Outside buyer	—	1.35%	+1.35	500,000
Total	100%	100%		37,123,439

Investors with 5,496,911 shares join the sale. Their part is 5,496,911 ÷ (5,496,911 + 5,000,000) = 52.37% of the 500,000 shares. Thus Ada sells only 238,165 shares and gets $817.98K. The buyer still gets 500,000 shares.

The lesson on control terms shows where these rights come from. The lesson on how startups exit shows how holders get cash at a sale or an IPO.

Quiz · question 1 of 5

Test what you learned

A founder sells 500,000 of her shares to a fund in a secondary sale. What occurs to the percentages of the other shareholders?