Glossary · Equity and dilution · Updated
A secondary sale is the sale of existing shares by one shareholder to another, with no new shares issued and no money going to the company. It lets a founder or an early investor take some cash off the table before an exit.
The distinction from primary matters and is often blurred in funding announcements. In a primary round the company issues new shares and receives the money, which funds the business. In a secondary, a shareholder sells shares they already own and pockets the proceeds: the company receives nothing.
Allowing founder secondaries has become common from Series B, and the argument is serious. A founder whose entire net worth is locked in the company makes decisions under personal financial pressure: they become tempted to accept a mediocre acquisition offer because they need liquidity. Letting them secure some of it aligns interests for the long run.
The amount must stay measured, and funds make sure of it. A limited secondary, a few percent of the founder's holding, reads as common sense. A large one reads as the beginning of disengagement and immediately cools the investors in the round.
Example: a founder secondary at Series B
A €15M primary Series B, with a secondary window for the two founders.
| Primary amount raised | €15,000,000, received by the company |
|---|---|
| Secondary allowed for founders | €1,000,000, received personally |
| Post-money valuation | €60,000,000 |
| Share of the company sold in secondary | about 1.7% |
| Money received by the company on the secondary | €0 |
| Usual cap accepted by funds | 5% to 10% of the founder's holding |
| Tax | capital gains, borne by the founder |
| Common condition | reserved for operating founders committed to staying |
One million euros inside a round announced as €16M: the press release says €16M raised, while the company banks €15M. Investors in the next round check that distinction every time.
Primary or secondary: the comparison
The two often happen in the same round and are announced together, yet they have neither the same effect on the company nor the same beneficiary.
| Criterion | Primary | Secondary |
|---|---|---|
| Where the shares come from | The company issues new shares | Existing shares change hands |
| Who receives the money | The company | The selling shareholder, personally |
| Effect on company cash | Increased by the amount raised | Unchanged |
| Effect on share count | Increased | Unchanged |
| Effect on founders | Their percentage is diluted | No dilution, a simple transfer |
| Tax | No tax event triggered | Capital gains tax for the seller |
| Usual timing | At every funding round | From Series B, rarely before |
| What funds growth | The entire amount | Nothing |
When a round is announced, the only useful question is how much of it is primary. That is the figure telling you what the company actually has to grow with.
The common mistake
Presenting a mixed round as fully primary. The gap shows up immediately in the next round's due diligence, and it damages trust on matters far more important than the amount itself.
Frequently asked questions
What is the difference between primary and secondary?+
In a primary, the company issues new shares and receives the money, which funds the business. In a secondary, a shareholder sells existing shares and personally receives the price: the share count does not change and the company gets nothing.
How much secondary can a founder take?+
Usually 5% to 10% of their holding, from Series B and rarely before. Beyond that, investors read it as disengagement, which weighs on the negotiation more than the cash taken is worth.
Related terms
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