In the startup world, trying to cash out can sometimes feel like an act of betrayal.
With public exits on pause, more early-stage investors and founders are quietly turning to the secondary market to liquidate part of their long-held shares. But even selling a small slice can backfire — from upsetting company boards or founders to signaling to the market that a once-promising startup might be losing steam.
In today’s high-stakes environment, secondaries have become an essential, yet delicate, art.
“For seed funds, secondaries are a must these days. Anyone not doing it is falling behind,”
— Itamar Novick, founder of Recursive Ventures
Novick, who wrote a pre-seed check into Deel in 2019, has gradually sold portions of his shares to other investors interested in increasing their stake. Deel — now valued at $12 billion — has seen significant secondary activity, including a $300 million deal earlier this year. (Novick notes all of his transactions occurred before Deel’s legal battle with Rippling began in March.)
Despite strong demand for liquidity, secondaries must be approached with extreme caution. Timing, pricing, and optics are everything — one misstep can send the wrong message.
“If a Series A lead wants to sell shares at a $5 billion valuation, it sends a bad signal,”
— Deedy Das, principal at Menlo Ventures
“Why would growth-stage investors want in if earlier backers are heading for the door?”
Das explains that this kind of “secondary etiquette” sits at the core of VC’s liquidity dilemma. Founders often view secondaries as a lack of faith. Boards may block founder sales entirely. And late-stage investors generally can’t sell at all without creating market panic.
As IPOs stall, secondaries surge
With IPOs and M&As slowing down, secondaries have become VCs’ plan B. According to PitchBook, the market for VC-led secondaries rose to $60 billion in early 2025, up from $50 billion in late 2024. These deals have targeted elite companies like OpenAI, Stripe, SpaceX, and Databricks.
But most of the volume is concentrated at the top. On the Hiive platform, the top 20 startups represented 83% of all secondary activity in Q1.
As Das explains, founders of high-performing companies are often less concerned when early investors seek liquidity — there’s no shortage of buyers. Problems arise in startups with slower growth, often valued in the low billions. These are still strong outcomes, but not part of venture’s top 1%.
“You’ll hear founders say, ‘We’re going to be a $100 billion company. You don’t believe in us?’”
— Deedy Das, Menlo Ventures
Founders take it personally
Daniel Perez, cofounder and CEO of Hinge Health, describes how emotional it can get.
“This is our baby, our life’s work. Even if an early investor wants to sell a little, you’re thinking,
‘This is going to be the worst trade of your life — because the stock’s only going up,’”
— Daniel Perez, Hinge Health
Still, Perez eventually came to understand the pressures early investors face. Some are individual angels or family offices who expected liquidity in 7-10 years — not 12-15. Personal life expenses, college tuition, or health issues make cashing out a necessity.
Hinge Health facilitated a $200 million secondary as part of its 2021 Series E, providing liquidity to early investors, employees, and founders. In 2022, it attempted another investor-led secondary, but pricing disagreements led to its cancellation.
Who can sell — and how much?
Typically, only early-stage investors can sell a portion of their shares without disrupting the market. Novick and Slow Ventures’ Yoni Rechtman agree that selling up to 30% of one’s stake is standard practice. In some cases, up to 50% may be acceptable — particularly for smaller funds.
More than that raises eyebrows.
“Selling half your position is big. More than that, and you’re sending signals,”
— Itamar Novick, Recursive Ventures
Secondary sales are most effective when paired with a primary fundraising round. This makes it easier to manage cap tables and avoids unwanted speculation.
Rechtman explains that the startup might charge legal or administrative fees to process an out-of-cycle secondary — often covered by the buyer or seller.
Founders and employees: a different game
Founder sales are especially sensitive. If a founder offloads more than 10% of their shares, boards are likely to step in. More importantly, it could trigger a rush of other shareholders trying to sell too.
“When founders sell, hunting season starts,”
— Itamar Novick
Founders may be allowed to sell small amounts for personal reasons — say, to buy a house — but large cash-outs are usually blocked. Rechtman notes:
“Six-figure sales don’t bother me — it’s like reclaiming years of deferred salary.
But if they’re walking away generationally wealthy before an exit? That’s a problem.”
Employees, meanwhile, are often locked out of the process entirely. While some later-stage companies organize tenders to let staff sell shares, employees usually have no say in when or how that happens.
“The whole point of joining a startup is that you work hard and eventually get paid out.
Now? Employees aren’t getting anything,”
— Daniel Perez, Hinge Health
Cultural shift underway
For years, selling on the secondary market carried a stigma. But that’s beginning to change.
“It used to feel wrong to do secondaries. Now, as norms evolve, culture will follow,”
— Yoni Rechtman, Slow Ventures
As private markets mature, and exits remain scarce, secondaries are no longer a taboo. Done right, they offer founders, investors — and hopefully one day, employees — a smarter, quieter path to liquidity.
