Allowing employees to sell stock on the secondary market

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

Startups that take a long time to reach an exit should consider allowing employees to sell stock on the secondary market.

While many startups launch an exit in the five to seven-year range, many more are still running well past this timeframe.

Founders compensated employees with stock options.

Employees signed up for the startup with the expectation that it will find an exit.

Employees selling their stock in the early days will receive scrutiny from the team.

Employees cannot sell their stock without support from the company due to rights of first refusal.

Companies can help employees sell their stock through a fundraise.

The advantage here is that the fundraise provides a valuation for the stock.

Employee stock sales are typically sold at a discount of ten to fifteen percent.

Series C fundraises and beyond are often set up to allow employees to sell their shares on the secondary market.

Existing investors often purchase these secondary offerings.

Companies should facilitate these sales to provide liquidity to their employees.

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