Startup Funding Espresso – Challenges in Secondary Sales

Challenges in Secondary Sales Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing. There are several obstacles to overcome in completing a secondary sale. Here are some challenges to consider: Board approval -- In many cases, the company must approve any founder shares being sold. Right of First Refusal -- companies that have raised funding have Rights of First Refusal on any offers of stock sales. The company must sign off those rights to allow others to purchase the shares. Co-Sale Rights -- Investors may have Co-sale rights which require any purchasers of the company's stock to purchase an equal amount from the investors. Corporate Laws -- some states have regulations around the re-sale of the company's stock. Transfer restrictions -- some companies have restrictions on the transfer of stock and must approve any transfers. 409A valuation issues -- the company uses a 409A valuation to set the price for employee stock options. Any secondary sales of the company's stock above that 409A price may increase the 409A valuation impacting the price of employee stock options. Review these issues before pursuing a secondary sale. Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding. Let's go startup something today. _______________________________________________________ For more episodes from Investor Connect, please visit the site at: http://investorconnect.org Check out our other podcasts here: https://investorconnect.org/ For Investors check out: https://tencapital.group/investor-landing/ For Startups check out: https://tencapital.group/company-landing/ For eGuides check out: https://tencapital.group/education/ For upcoming Events, check out https://tencapital.group/events/ For Feedback please contact [email protected] Please follow, share, and leave a review. Music courtesy of Bensound.