Ten years ago, there were few, if any direct purchases of shares or securities in venture capital (VC)-backed technology companies. These secondary sales (as opposed to the traditional VC or “primary” investments directly into companies) by founders or employees were rarely permitted by VC investors or the company’s board of directors as investors in the company wanted the founders and executives to share the same long-term commitment. Today, secondary transactions have become more and more frequent, and are expected to remain prevalent.
Founders Equity Partners’ recent white paper, “Venture Secondary 101: A how-to guide for companies & investors,” developed in conjunction with O’Melveny and Deloitte, explores the growth in direct purchases of shares or securities in venture capital-backed technology companies and the emerging need for a structured process to provide employees with partial liquidity. Other issues and challenges discussed in the paper include how companies should select a direct secondary partner, and the impact of any secondary transaction on a company’s 409A valuation.
Access the white paper here.