Why it happens · Employees & founders
Employee & founder liquidity
The most common driver. Equity compensation vests over years, but a company staying private for a decade or more means that value stays on paper the whole time. Employees sell a portion of vested shares — through a company tender offer or a private sale — to cover taxes, buy a home, or simply diversify a net worth that's overexposed to one employer's stock.
Worked example
A worked example of a tender-offer sale (illustrative figures, not tied to a specific real deal):
- An early employee holds 40,000 fully vested shares. The company's last primary round priced stock at $18/share, so the paper value of the full position is $720,000.
- The company runs a tender offer priced at a 12% discount to the last round — $15.84/share — and caps participation at 25% of each holder's vested position, to keep enough equity retention across the workforce.
- The employee sells 10,000 shares (25% of the position) at $15.84, for $158,400 gross. The remaining 30,000 shares stay illiquid until the next tender window, IPO, or acquisition.
- Tax withholding on the spread between the option strike price and the sale price is typically due immediately, which is why employees often need to plan a tender sale around their broader tax picture, not just the headline price.
Where this goes wrong
The recurring error is treating a tender price as the value of the whole position. Participation caps, proration and tax withholding all reduce what actually arrives, and the shares that remain stay illiquid until the next window. The second error is planning a sale without modelling the tax first — the bill on exercising options can arrive whether or not the sale completes.
Frequently asked
Should I sell some of my equity if I can?
Diversification arguments apply with force when a single company represents most of your net worth and also pays your salary. How much to sell is personal; the case for selling something is stronger than most holders assume.
Can I sell before an IPO if my company does not run a tender?
Sometimes, through a private transfer, but only with company consent and subject to any right of first refusal. Attempting a transfer without those steps can void the sale and breach your equity agreement.
See every reason a secondary sale happens, or go back tohow a deal actually works step by step.