Secondary sale

A secondary sale is a share transfer between an existing shareholder (the seller) and a new buyer, with no new capital entering the company itself. This distinguishes it from a primary transaction — a funding round — where the company issues new shares and receives the investment proceeds. In a secondary sale, money moves only between the seller and buyer.

Who uses secondary sales spans several categories. Early investors (angels or seed-stage VCs) approaching the end of their fund life may sell to later-stage investors seeking exposure to a proven company without waiting for an IPO. Founders use secondary sales to achieve founder liquidity — converting a portion of their equity into personal cash without waiting years for a full exit, often as a rider alongside a primary funding round. Employee shareholders with vested ESOPs also participate when a company facilitates secondary transactions.

Pricing and valuation in secondary sales is negotiated between buyer and seller, often referencing the company's most recent primary round valuation. Buyers may apply a discount to the primary-round price (reflecting illiquidity and lack of new information rights) or, in high-demand cases, pay a premium. Existing shareholders typically have a right of first refusal (ROFR) — the right to purchase shares on the same terms before the seller can sell to a third party — so any secondary transaction must clear ROFR provisions in the shareholders' agreement.

In India, secondary transactions involving foreign buyers or offshore holding structures must comply with FEMA pricing guidelines, which require that shares not be sold below a fair market value floor determined by a SEBI-registered valuer. This regulatory layer adds time and documentation to cross-border secondary deals.