You have lots of private-company stock. Should you sell it on a private secondary market?

You have a few options:

1. Wait. Until your company has some sort of tender offer or internal buy-back.
2. Wait. Until your company goes public, via an IPO or a direct listing, or gets acquired.
3. Sell your shares through a private secondary market.

Waiting sucks.

So, let’s discuss this private secondary market thing. What it is. How it works. And whether or not you should do it.

There are a lot of restrictions on selling tech-company stock in a private market, so consider yourself warned that it might not even be an option for you. But if most of your financial net worth is tied up in private-company stock, then it’s definitely worth exploring.

What Is a Private Secondary Market?

Well, a primary market occurs when a company issues new stock. An example of this is when investors in the company get stock in return for their investment.

Everything after that—when people who got new stock from the company sell it to anyone else—is a secondary market.

There are public secondary markets. If you had stock in Google or Facebook or Amazon, you’d sell it on the public secondary market. This is what we simply call “the stock market.”

But if your company isn’t public, if it is instead private, then (watch this linguistic jiu jitsu) you sell it on the private secondary market.

There isn’t just one private secondary market. There are many. The ones I’m most familiar with or have some experience with:

• SharesPost
• Forge Global
• Equity Zen

I’m sure you can look at advertisements in Bay Area BART stations and discover a few more. That’s how I first learned of SharesPost!

When you sell in the stock market, everything is public. How much the stock is selling for. How much you can buy it for. How many shares are available for purchase. Financial data from the company’s most recent quarter, etc. Everyone can see all this information and can easily buy and sell based on this globally available information.

But in a private market? Nope. None of that information is public. Which makes the process much more manual, much less efficient, and much more expensive. For example, all the platforms I’m familiar with charge a 5% commission to each of the buyer and seller. So, if you’re selling $1M worth of stock, you’re going to pay $50,000 in commissions. It’s also expensive because the marketplace is so much more opaque…you can’t be assured of getting the best price possible when you sell.

How Do You Sell on a Private Secondary Market?

Let’s start with what form of company stock you have. You will need either:

• outright stock, which you would have from having exercised options in the past, or, much less likely, from single-trigger RSUs that have vested, or
• vested options, which you can turn into stock by exercising them

If you have RSUs in your private company, and they’re the usual “double-trigger” RSUs, you can’t sell those. Sorry. You have to wait for an acquisition or going public for them to turn into shares you own.

So, if indeed you have shares that are available to sell, let me warn you that usually these private marketplaces require that you sell a lot of shares. Sometimes you might be able to sell “as little” as $100k worth of stock, but more likely the minimum requirement will be $250k or even $500k. In part because it’s simply a lot of labor to facilitate these deals, and the platforms cannot get paid enough through commissions to make it worthwhile.

But you’ll never know unless you ask. And ask you must because, again!, none of this information is public.

In my experience, you simply contact a private secondary marketplace (find some contact info on their website, that’s what I did!) and say, “Hey. Wassup. I have 10,000 shares of Airbnb that I’d like to sell. What can you tell me? Please and thank you. Quite a nice day we’re having, isn’t it?”

What you’re looking for in an answer from the private secondary marketplace person is:

1. How much they’ve seen Airbnb shares sell for recently. That’s not a guarantee of your price, but it gives you an idea.
2. Whether the amount you’re looking to sell is viable.
3. Whether the marketplace can legally sell your shares for you. Some tech companies make it hard to do this. Some outright ban it.
4. Whether there’s demand for the stock. Even if you’re allowed to sell the stock, if there are no buyers, you still can’t.
5. Other restrictions on the sale. For example, my Airbnb clients were only permitted to sell a certain percentage of their shares.

If you decide to do the sale, then there is a lot of work involved, mostly on the marketplace’s part. They might need to talk with your company to figure out if and how the shares can be sold. It’s all very interesting, but in a way, it all happens behind the scenes and you just wait for the marketplace to let you know how it’s going to happen.

The whole process can take up to 5 or 6 weeks from getting a commitment from a buyer to getting your cash money.

If You Decide to Do It

Shop Around.

When I first drafted this blog post, I suggested that you reach out to several marketplaces and see where you could get the highest price and best service.

Interestingly, when I ran this blog post by a contact of mine at one of the marketplaces, he took issue with the suggestion. On the one hand, yes, “shopping around” is good advice any time you’re doing anything financial.

On the other, reaching out to multiple marketplaces might unknowingly drive down the price you can get. How? Because it’s possible the same buyer will be approached by those same, say, 3 marketplaces, and therefore develop the misconception that there is 3x supply, and feel they can get the stock for a lower price because supply is so high.

My contact suggested that, instead, as a seller, feel out rough pricing and customer service from several marketplaces…then just go with one.

Enlist Some Professional Help.

You’re definitely going to want a CPA to understand what your tax liability will be from selling shares, or possibly exercising options in order to sell the shares. It’s good to know this ahead of time, and also after the fact so you can pay the appropriate estimated taxes.

And you want to consult a lawyer, to review all the marketplace documents and protect you as best as possible. Sometimes the private secondary marketplaces know lawyers they can refer you to, who are familiar with their process. My clients have paid attorneys a few thousand dollars for this work. Which sounds like a lot (and is!), but if you’re selling $500k of stock, it’s cheap protection.

How You Can Make the Process Go Smoothly

To make things go as smoothly as possible, there are a few “rules”:

• Make up your mind to do the transaction before officially starting the process. (Casual inquiries are fine.) Do your “due diligence” before committing to a marketplace.
• Prepare ahead of time. Ask the people at the platform to help you prepare.
• Engage your tax advisor’s help ahead of time.

One of the most common mistakes you can make is anchoring on (high) prices that you’ve heard from colleagues. If the current price isn’t high enough for you, it is okay for you to state a minimum price required, and perhaps the platform will get back to you when the price gets there. Just ask.

Also, if you need to exercise options first, be sure to take the cost of exercising into consideration when you’re calculating in your head how much you’ll make from this whole thing.

There are a ton of details about how this works. And frankly, the people at the marketplaces are better suited to explain it to you than I. You’ll find out what you need to know when you start communicating with them.

Should You Do It?

Is a lot of money (potential money, mind you) wrapped up in your company stock?

Is a lot, maybe most, of your total financial net worth made up of your company stock?

The more emphatically you say “yes” to either of those questions, the more you should consider selling some of your private-company stock.

If you had a financial net worth of $1M, and it was made up entirely of $1M in Google stock, I’d be all over you to sell your Google stock…if not all of it then a lot.

Same thing applies if your $1M net worth is made up entirely of $1M in Airbnb stock, or Palantir. And maybe even more so. I wouldn’t expect Google to become almost worthless, but the lessons of WeWork are still fresh: private companies, which haven’t yet been subjected to the rigor of public analysis, can lose a lot of value once they are. And if your private-company stock becomes worthless, so does your net worth.

I am not suggesting that everyone with substantial private-company stock go sell it all in a private secondary marketplace. After all, while diversification is the best way to preserve your wealth, it’s not the best way to grow it. Concentration is how you grow it.

That said, if you’ve been working at, say, Airbnb for several years, you’ve already experienced the benefit of that concentration: the stock value has increased many times over in the last few years.

It’s going to be up to you to determine what outcomes you’re okay with, what outcomes would make you very sad, and what outcomes make you feel the best.