There's many ways for private stockholders to liquidate shares:
- Founders can often sell shares during fundraising events, either through a pre-allocated block of shares called Series FF, or by having the company use a portion of the raised capital to buy back some of their shares at the same price.
- Any private stockholder can simply sell shares on the secondary market. However, most often, the company has the "right of first refusal." That means that the sale must be presented to the company before going through, and the company has the option to buy back those shares at the same price instead of letting the sale happen.
- Stockholders can also cash out by building derivative contracts where they "sell the upside" on their shares at a specific price. Think of it kind of like selling a stock option. ESO & Equidate are examples of companies / funds that facilitate this.
As a shareholder who would very much like to liquidate some shares in 3 different private companies, I'll say this has not been my experience. Maybe if your company is 99th percentile you can pull these tricks, but for the remaining 99% unregistered shares are completely illiquid due to a combination of SEC regulations and lack of ability to obtain/share the key data any potential buyer would require.
One of the biggest problems with bootstrapping startups is even after there's revenue, growth, and value, there's just no liquidity.
Email me (find it in my profile), I'd love to chat about your situation. I'm pretty involved in the field, so I'm curious if I could hook you up with any avenues to liquidate.
How common are mid-stage small software companies with co-founders looking to sell some shares? I'm not talking about anything near large enough to warrant registration. It doesn't seem like a lot written about this topic, because the focus is always on acquisition.
Obviously there's strong pressure from many directions to keep the cap table simple, keep the shares closely held, etc. But after many years of bootstrapping it can't be that uncommon to want to capture some of that value.
- Founders can often sell shares during fundraising events, either through a pre-allocated block of shares called Series FF, or by having the company use a portion of the raised capital to buy back some of their shares at the same price.
- Any private stockholder can simply sell shares on the secondary market. However, most often, the company has the "right of first refusal." That means that the sale must be presented to the company before going through, and the company has the option to buy back those shares at the same price instead of letting the sale happen.
- Stockholders can also cash out by building derivative contracts where they "sell the upside" on their shares at a specific price. Think of it kind of like selling a stock option. ESO & Equidate are examples of companies / funds that facilitate this.