

Understanding Secondary Market Transactions with Becki DeGraw | Wilson Sonsini Startup Legal Basics
4 snips Jul 13, 2023
Becki DeGraw, a partner at Wilson Sonsini specializing in startup legalities, joins to shed light on secondary market transactions. She discusses how the stigma around founders selling shares has evolved, particularly as companies stay private longer. Becki explains the Pari-Passu concept, outlines who gets to sell pre-IPO, and the intricacies of tender offers. She also delves into Qualified Small Business (QSBS) stock and its tax benefits, emphasizing the importance of transparency among stakeholders for successful transactions.
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Rise of Secondary Transactions
- Secondary transactions were rare 20 years ago, but became common around 5 years ago, especially in later-stage companies.
- From 2020-2022, secondaries increased, even at Series A, driven by a funding frenzy and soaring valuations.
Founder Liquidity Limits
- Limit founder secondary sales to 5% or less of total holdings, especially as company value increases.
- Avoid large sales that could demotivate founders from further company growth.
$200M Secondary Sale
- In one instance, a founder sold $200M in secondary, and the company is now worth less than that amount.
- This raises concerns about using proceeds for company growth vs. personal gain.