Definition
Secondary Sale
A secondary sale is the sale of existing startup shares from one shareholder to another, rather than the company issuing new shares.
In a secondary, an early investor, founder or employee sells their shares to a new investor; the money goes to the seller, not the company, and no new shares are created, so there is no dilution. Secondaries let early backers or employees get liquidity before an IPO, and let new investors build a position.
Secondary transactions have grown in India as a way for funds to return capital to LPs and for ESOP-holding employees to cash out. They are distinct from a primary round, where the company raises fresh capital.
Related terms
- ESOP PoolAn ESOP pool is the block of equity a startup sets aside to grant as stock options to employees.
- Exit (Startup/PE)An exit is the event through which investors realise the value of their stake — typically an IPO, acquisition or secondary sale.
- Primary RoundA primary round is a funding round in which the company issues new shares and receives the proceeds itself.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.