How Do I Get Cash Out Of My Startup? Founder Secondaries In A Nutshell

By Kimberly Klayman / GUEST  &  Jessica Laderman Origlio / GUEST

You just found a lead investor for your Series C financing and looked at the pro forma cap table to find that you will own 30% of a company valued at $240 million immediately following the closing of the financing. You have more money (on paper) than you could have imagined when you first started the business, but none of it is available to you in cash.

So what do you do? You are not ready to sell your entire stake in your business (in fact, your investors won’t let you because you are too integral to the continued success of the company), but you would like to take some money off the table to alleviate some of the financial pressure that has come with taking a below-market salary the last six years.

This exact set of facts often leads founders — and, sometimes, other early-stage investors — to sell a portion of their capital stake in the company to a lead investor who is interested in financing that company. The sale of the founder stock to a new investor is often called a “secondary” and it has become an increasingly popular deal point in financings for later-stage startups.