CFO Explains: The Rise of Secondaries and the Death of the IPO Path

Summary

---

Run the Numbers – Episode Summary

Episode Title: CFO Explains: The Rise of Secondaries and the Death of the IPO Path

Host: CJ Gustafson
Date: April 6, 2026

---

Overview

This episode dives deep into the explosive rise of the secondary market for private company shares, contrasting it with the waning IPO path. CJ Gustafson outlines why secondaries have eclipsed traditional public market exits, the historical context of this shift, the mechanics and motivations behind secondary transactions, and the potential pitfalls for founders and employees. The episode also explores the new market infrastructure, including GP-led continuation vehicles, and arms CFOs with essential wisdom to successfully navigate this evolving landscape.

---

Key Discussion Points

1. The State of the Secondary Market vs. IPOs ([00:00])

• Secondaries Hit $233 Billion (2025): Up 53% YoY, outpacing IPO volume 5:1.
• IPO Market Weakness: Even major debuts like Figma, CoreWeave, and Klarna underperformed post-listing.
• Median time from founding to IPO: up from 6 years (Google era) to 14 years.
• Private markets offer more capital and greater flexibility than public markets.
• Quote: "We are living in that world, a world where as a founder and as an employee, it's actually more common to get rich off secondary transactions before going public." (A, 01:09)

2. What Is a Secondary Transaction, Really? ([02:57])

• Primary vs. Secondary:
  • Primary = New shares issued, money to company.
  • Secondary = Existing shares change hands, no impact to company's finances.
• The company's role is administrative and mostly thankless.
• Quote: "From a company perspective, there is zero financial benefit to running one. It's a complete and utter administrative pain in the neck." (A, 03:41)

3. How the Secondary Market Emerged ([04:20])

• Dot-Com Hangover:
  • Example of Ask Jeeves—options became worthless after the bubble burst.
  • "Paper wealth is not real wealth. You can't count it until you can touch it." (A, 05:19)
• Facebook and Twitter:
  • Facebook allowed freewheeling secondary trading; Twitter saw Chris Sacca build huge positions directly from employees and early investors.
  • Sparked company anxiety—led to the introduction of transfer restrictions.
• Formalizing Secondaries:
  • Mike Jung aimed to structure and legitimize the market.

4. The Shift to Private Markets and Its Consequences ([12:21])

• The tidal wave of private capital allows companies to stay private (and avoid IPO hassles) much longer.
• This creates a "social contract"—employees wait longer for liquidity, building the need for secondaries.
• Example: OpenAI raising in private rounds far larger than any IPO.

5. Who Are the Secondary Players and Why? ([13:57])

• Employees:
  • Exercise options, face massive AMT bills without liquidity, risk being "paper millionaires with zero in the bank." (A, 14:28)
• Early Investors/VCs:
  • Need to eventually return capital to LPs; the old 10-year fund lifecycle is broken.
  • Over 70% of VC liquidity in recent years came from secondaries (not IPO/M&A).
• Companies:
  • No direct financial incentive—do it to retain talent, clean up the cap table, and establish a credible “real price” for equity.
  • Example: Plaid using a secondary to set uniform share prices, benefiting recruiting and morale.

Quote:
"Employees need a way that doesn't require waiting for 14 years for an IPO that may or may not happen." (A, 14:36)

6. When and How Should a Company Run a Secondary? ([18:58])

• Timing:
  • Not about stage/series; it's about business maturity and sustainability.
  • Too-early liquidity by founders sends the wrong signal.
  • "Is this a sustainable company that could eventually be a standalone public company? If the answer is yes, founder liquidity isn't the red flag." (A, 19:47)
• Tender Offers – The Goldilocks Zone:
  • Set floors (enough cash to exercise options and cover taxes) and ceilings (limit to prevent “FU money”).
  • Typical caps: 10-25% of vested shares; tenure requirements common.
  • No special terms for execs; retention agreements (e.g., 12 months post-sale).
  • "There's an art in making people rich, but just not too rich." (B, 22:38)
• Education and Communication are Critical:
  • Over-invest in employee clarity: office hours, tax advice, cashless exercise features.

Quote:
"The right amount of liquidity for a founder doesn't distract from building, it removes a distraction." (A, 20:17)

7. Tricky Issues and Pitfalls ([27:04])

• Risks for Buyers:
  • Know what you're buying: Common vs. preferred shares have very different downside protection.
  • 2021 hot market: the usual discount for common shares disappeared, leading to risk if the company later underperformed.
• SPVs and Scams:
  • Beware “strip mall” SPV pitches—high fees, little disclosure, sometimes no real shares behind the offer.

8. Fringe Cases: Tokenized Shares and Retail Access ([29:52])

• Robinhood’s Tokenized Shares:
  • Offering derivatives on private shares to EU users; these are NOT actual equity, just financial products tracking share price.

9. Red Flags: Cautionary Tales ([31:08])

• Best Practice:
  • Stripe: Employees sell while company IPO is delayed, but core team stays and keeps building.
• Cautionary Tales:
  • Hoppin: Founder sold $100M+ before true product-market fit; company value collapsed.
  • Pipe: Founders cashed out, then departed en masse.
  • WeWork: Adam Neumann took $700M+ out before business sustainability, leading to massive governance and valuation fallout.

Quote:
"You don't want to go bankrupt. Not because founder liquidity is inherently wrong, but because $700 million in personal liquidity from a company that had never figured out how to make money was a five alarm signal that everyone chose to ignore." (A, 33:45)

10. The New Era: GP-Led Continuation Vehicles ([34:25])

• What are GP-Leds?
  • Allows private equity funds to create liquidity for LPs at the fund level, without selling portfolio companies they believe have future upside.
  • In 2025, GP-leds made up about half of the $233B secondary market.
  • "Five or six years ago, GP leds barely existed in mainstream form. Now TPG estimates that GP LED volume could grow to 300 billion or more over the next decade." (A, 35:35)
• Scale:
  • Deals once unimaginable, now routine (e.g., Yale $3B, NYC $6B).

11. Playbook for CFOs ([36:22])

• Secondaries are tools—can help or harm.
• Set clear guardrails, understand share classes, beware of scams.
• "If someone offers you a piece of a name brand company with a 10% upfront commission and no disclosure on a share class, please delete that email." (A, 36:38)

---

Notable Quotes & Memorable Moments

• On secondary volume surpassing IPOs:
  "Secondaries outpace new public offerings by more than 5 to 1. And the trend isn't reversing." (A, 00:27)

• On why companies do secondaries:
  "The company's incentive isn't financial, it's gravitational. You keep the right people in orbit long enough to actually finish what you started." (A, 18:43)

• On employee experience:
  "I've seen people stare at a bank balance of zero while being paper millionaires. It can be expensive to get rich." (A, 14:28)

• On the evolution of buyer privilege:
  "If one rogue guy could quietly accumulate a 9% stake in your company without permission, what else could happen, right?" (A, 08:15)

• On the WeWork disaster:
  "Adam Neumann... by 2019, Neumann had extracted $700 million from WeWork through a combination of stock sales and loans... The $47 billion valuation evaporated. The IPO got pulled. Neumann was forced out. And then SoftBank handed him a $1.7 billion exit package..." (A, 32:18–33:40)

• On navigating today’s market:
  "The secondary market isn't going away—it's the plumbing now. More volume than the IPO market. More innovation than most people realize. More risk than most people admit." (A, 36:50)

---

Timestamps for Key Segments

| Topic | Timestamp (MM:SS) | |-----------------------------------------------------------|-----------------------| | The Secondary/IPO Market Shift | 00:00–02:57 | | What Is a Secondary Transaction? | 02:57–04:20 | | Origins of the Secondary Market (Ask Jeeves, FB, Twitter) | 04:20–08:47 | | Private Markets Overtake IPOs; Liquidity Dilemma | 12:21–16:46 | | Players and Incentives in Secondaries | 13:57–16:46 | | Running Secondaries: Playbook and Guardrails | 18:58–23:33 | | Communication and Employee Participation | 22:43–23:33 | | Buyer Beware: Risks and Scams | 27:04–29:49 | | Fringe Cases: Robinhood Tokenized Shares | 29:52–31:08 | | Red Flags and Horror Stories (Hopin, Pipe, WeWork) | 31:08–34:23 | | GP-Led Continuation Vehicles | 34:25–36:19 | | Advice to CFOs | 36:22–end |

---

Final Takeaways

• The secondary market has fundamentally changed liquidity for private company stakeholders—now exceeding public market IPOs in volume and impact.
• Success in secondaries requires understanding both structure (who, how much, guardrails) and risks (share class, buyer/seller alignment, scams).
• New mechanisms like GP-led vehicles are institutionalizing liquidity at the fund level, not just for companies.
• For CFOs, the goal is to harness secondaries to retain talent and unlock value—without letting greed or shortcuts blow up the cap table, reputation, or employee morale.

---

(All attributions: “A” is CJ Gustafson, host; “B” is co-host/conversational partner Ben.)

---

Transcript

[A]

In 2025, the secondary market hit 233 billion in transaction volume. That was up 53% from the year before. The IPO market delivered 44 billion that year. And that's not a typo, because secondaries outpace new public offerings by more than 5 to 1. And the trend isn't reversing. In fact, it doesn't look like we'll ever go back. The sleepy, opaque how do I even get in on this corner of private finance where shares in private companies trade hands in back channel deals now moves more money than the stock exchanges are handing out in net new IPOs? We are living in that world, a world where as a founder and as an employee, it's actually more common to get rich off secondary transactions before going public than from liquidating shares on the once coveted New York Stock Exchange or nasdaq. And consider what was happening in public markets at the same time. Figma, Core weave, and Klarna, three of the most hyped IPOs in years, went public in 2025. Figma is down 80% from its first day. Pop. Klarna is down more than 60% from its debut. Coreweave has oscillated wildly, depending on what day of the week you check. And these are supposed to be proof points that public markets were back. They were not. The whole ball game has shifted. Here's a number that explains how we got here. The average time from founding to IPO used to be around six years. Google, Salesforce, the whole.com generation. Six years and you're ringing that bell. Jay Ritter, a professor at the University of Florida who tracks IPO timelines, puts the current average at 14 years. 14, which means you could join a company at like 28 years old and spend what should be your entire early career wealth building decade there and still be years away from a liquidity event. Meanwhile, you've got options, options you can't touch, taxes you didn't expect, and a down payment on a house that exists only as a number on a cap table. That's the pressure cooker that built the secondary market. Companies stay private longer because they can. The private markets are bigger, more institutional, and frankly, more forgiving than quarterly earnings calls and a stock price that moves on a Fed whisper. If you can raise 10 billion from sovereign wealth funds and growth equity firms without ever talking to Jim Cramer, a lot of founders choose that. But that choice creates a debt, a social contract with employees and early investors that basically says your upside is real. We just need more time. The secondary market is how you make good on that contract. In this video, we're going to go back to the beginning to understand the mechanics and give you the CFOs an operating manual for how this market actually works. We'll cover where secondaries came from. Spoiler. Facebook's parking lot. Why they exploded. Who wins and who gets jet skis too early. How to run one without blowing up your cap table. In the newest chapter of this story, GP LED continuation vehicles, which are becoming one of the most important financial structures in private markets. Let's go.

[B]

All right, all right, all right. Let's. Let's pump the brakes there, Mr. Finance Officer. So I am a noob here. Why don't you break down for me what a secondary actually is?

[A]

Well. Well, Ben, what a question. A secondary transaction is exactly what it sounds like. It's the second time a share changes hands. The first time is the primary. That's when a company issues new shares to raise capital. And that money goes directly onto the company's balance sheet. It funds hiring, product development, maybe even an acquisition. Primary dollars build the business. But a secondary is different. No new shares are being created. The company gets nothing. An existing shareholder, a founder, an early employee, maybe a seed stage fund that wrote the first check. They sell their shares to a new buyer. So the balance sheet doesn't move. It doesn't benefit at all. Only the cap table changes. I've administered a few of these in my day, and I'll be straight up with you. From a company perspective, there is zero financial benefit to. Running one is a complete and utter administrative pain in the neck. Hundreds of hours of coordinating between employees who want to sell, lawyers on both sides, new investors who want in, and existing investors who want more. The company is essentially acting as a matchmaker, a bookmaker, and an approver all at once and all for free.

[B]

I think I kind of get it now. I'm starting to see where the Jet Ski money is coming from. Why would you even want to do one in the first place?

[A]

We'll get to that, but first you need to understand where this whole thing came from. The dot com hangover that made everyone paranoid. To understand the secondary market, you have to start with the wreckage it was built on. Before starting Founder Circle Capital, my friend Mike Jung, fellow guest of the pod, was at a company called Ask Jeeves.

[B]

You talking about the original AI Chatbot?

[A]

Ask Jeeves that. Ask Jeeves. And the stock there it hit $190 a share.

[B]

Another Internet IPO.

[A]

Ask Jeeves. Just ask him. And he was telling me that he had options, but he was locked up. The bubble burst and the stock fell to basically a buck. He still thinks he has tax loss carryforwards from that period or over 30 years ago. That experience shaped a generation of employees and investors. Options felt more like lottery tickets than compensation. And the lesson that people took away was paper wealth is not real wealth. You can't count it until you can touch it. Or as I like to say, it ain't real until the check clear. The problem is that lesson calcified into a kind of paralysis. Companies and investors became so wary of giving employees any liquidity and that they overcorrected. If you joined a startup in 2005, you might wait 10 or 12 years for any kind of return, and by then you'd probably left anyway. Then Facebook happened and everything changed.

[B]

I'm always super excited when you mention Facebook because it's always an easy excuse to just include as many social network clips as possible.

[A]

Drop the the Just Facebook. Welcome to the Wild West. Facebook was the first company to let the secondary market run at any kind of scale, and they let it run with basically zero guardrails. Mike Jung described it well. Facebook didn't really put a lot of restrictions on who the buyers were. Hedge funds ran around trying to find any way to hoover up these shares. If you were a Facebook employee with vested shares, somebody was hitting up your phone. Who do you think was next, Ben?

[B]

A little birdie told me it might be Twitter.

[A]

Twitter was next. And that's where it got really interesting. So Chris Sacca, a vc, was already an early investor in Twitter, and through Lowercase Capital, which is probably the most hilarious name for a VT ever. He'd taken part in a $5 million financing round in late 2007 and believed in the company so completely that he couldn't understand why other investors didn't see what he saw. So when he couldn't convince them, he decided to go and get the shares himself. Chris created four separate funds for the sole purpose of buying Twitter stock, not through the company, not through a formal process. Just Saka and his phone. Calling employees, calling early investors, calling anyone who held Twitter shares and might be willing to sell. JP Morgan's Digital Growth fund committed the bulk of the capital, over a billion dollars, into Saka's new fund. And over several months, they quietly accumulated around 400 million in Twitter shares from current shareholders at prices between 16 and $21 a share. At $21, Ben, that implies a Twitter valuation of about 4.5 billion.

[B]

So who sold then?

[A]

Sacca bought 100 million from co founder Ev Williams alone, beating out General Atlantic in a bidding war for the shares. Early investors Union Square Ventures and Spark Capital made up most of the remaining 300 million. And by February of 2011, Saka's funds were the second largest shareholder of Twitter. Only Williams, the founder, held more. There was no formal tender offer. There were no company sanctioned processes. There were no disclosure requirements. Just one investor with conviction and enough capital to build a position that would eventually return 5 billion to his investors and land him at number two on the Forbes Midas list. It was quite literally the best seed portfolio in history, built on secondary shares that nobody thought to structure or regulate. But it was also the exact scenario that made every board in Silicon Valley nervous. If one rogue guy could quietly accumulate a 9% stake in your company without permission, what else could happen, right?

[B]

So what if the next buyer wasn't Chris Sacca? What if they had different intentions?

[A]

And that's why companies started putting aggressive transfer restrictions in their bylaws shortly after the Wild west was producing winners. It was also producing sheer chaos. What nobody had figured out yet was the middle path, a structured company sanctioned way to provide liquidity that worked for employees, investors and the company itself. And in 2013, Mike Jung decided to go and build it. At the time they thought the secondary market for venture might be. I don't know, let's take a swag here like a billion dollar opportunity. That's the same market that did 233 billion last year.

[B]

This is just rough math here, but for those that are keeping score at home, $233 billion is approximately 22 million Yamaha WaveRunner Jet Skis.

[A]

Hey, thanks for listening. We'll be right back after a word from our sponsors. I've seen a lot of FP&A tools and a laugh is one of the few that gave me that aha moment. Within minutes I remember watching their founder shout out to Albert, connect my netsuite data and build me a full P and L live in minutes. Aleph is now trusted by hundreds of leading companies. I've had the CFOs from Turo 8, sleep, Zapier and more on the pod and every one of them is a huge advocate. I also just published my second annual CFO Tech Stack Report and Aleph has been on the podium both years including a number one finish in the 50 to $100 million segment. This year, instead of being just another planning tool I've made, they built a real enterprise grade data foundation for finance implemented at startup speed with AI native workflows woven into its DNA. All your systems, erp, CRM, hris, ats, product usage and more powering one clean governed data layer that finance can actually trust. And with AI moving as fast as it is, they're pushing even further. Mcp, custom AI chatbots, AI powered variance analysis. And the list keeps growing. Try it with your own [e-mail] run that is G E T A L E P H.com run tell them CJ sent you. So here's a pattern I keep running into when I talk to finance leaders at fast growing companies. You've outgrown the spreadsheets. You've probably outgrown your billing tools built in revreck. But you're not quite at the point where you can throw a 20 person team at the problem either. That's exactly the danger zone right? Rev owns right. Rev is revenue recognition done right. It handles the messy stuff like high volume subscriptions, usage based contracts and mid contract upgrades. The things that break your ERP and the billing platform bolt ons. Here's the thing though. Your sales team isn't slowing down for you. They're closing ramp deals, usage commitments and mid quarter upgrades. And the longer you wait to fix the engine, the further behind you fall. So stop scrambling at month end and stitching together allocations across 3, 4, 5 spreadsheets to just have the numbers ready. Well, that's it. That, that's the whole pitch. CFO's telling me it's like a glow up for the revenue books. That sounds like where you are right now. Right Rev is worth the look. Head to right rev.com cj that's right rev.com cj check them out. Being a CFO, you know how much I love tools that actually make the lives of accounting and finance folks easier. One of my favorite tools right now is Rillet the AI native. ERP going head to head with netsuite. Yes, someone is finally doing it. I met Rylit two years ago when they were still in stealth. Since then, they've absolutely taken the finance world by storm. Their mission is to make the zero day close a reality. And they're actually doing it. Customers are literally closing their books at 1:35pm on the first day of the month. They've got everything you need to scale your business. Complex revenue recognition, native integrations, custom reporting, multi entity close management and much more. They're only a few years in and are already supporting NASDAQ publicly listed companies. Yes, seriously, if you want to scale your business on an ERP that wasn't built in the 90s. You need to check out Rilik. Book a [e-mail] CJ oh cool, that's me. That's R-I L E T.com CJ R-L-L-E-T.com CJ Tell him I sent you there. So we should probably talk about why companies even want to stay private longer. IPO was the only infrastructure for capital access at scale back then. That's really changed. As Slim Charles once said. The thing about the old days, they the old days, the Google and Salesforce Generation went public six years after founding and we established that it's about 14 on average now. So what happened was the private markets grew up. Capital available in private markets is categorically different and larger than it was 15 to 20 years ago. Founders can now raise 500 million from sovereign wealth funds, crossover investors, growth equity without filing an S1 OpenAI has now raised 50 billion and 110 billion in separate private rounds. Each of these are magnitudes larger than any IPO that has ever gone down. And if I'm being honest with you, being public is really hard. It's a completely different operating mode. You answer to a constituency that cares more about this quarter than the next decade. And you have to spend like a week on every earnings call, prep your stock, moves on news you had absolutely nothing to do with. That's why founders just say, I'd rather build in private. But it also creates this problem. When you stay private for 14 years, you're making a promise to people. An Engineer Joining at 28 becomes 42. And paper wealth has grown. Now they have a mortgage, kids in school, maybe even parents who need help. But their options are worth something on paper. And paper doesn't pay for any of that. Not to get up on my soapbox or anything, but founders took staying private as a feature. They embraced it. But employees, on the other hand, experience the same thing as a bug. And that gap is what the secondary market exists to close.

[B]

Seems like a no brainer to me. I mean, walk me through who makes up these secondary transactions.

[A]

You exercise your options, you write a check to convert them into real shares. Then Uncle Sam wakes up and says those shares of the fair market value and the spread between them, what you paid and what they're worth, that counts as income. You now owe what they call alternative minimum tax. Yes, hell has a basement on an asset that you can't sell. Two checks out the door. One to buy the shares, one to the government for something with literally no liquid market, I've seen people stare at a bank balance of zero while being paper millionaires. It can be expensive to get rich.

[B]

Sounds like a trap.

[A]

It is in many ways, because the compensation is real, but the liquidity isn't. And employees need a way that doesn't require waiting for 14 years for an IPO. That may or may not happen. And that's where the early investors also have a problem. Because VCs have their own clock. They raise a fund, they deploy it into companies, and eventually they return cash to limited partners. Those include pension funds, endowments, family offices. They all gave the money. And that cycle used to run on a 10 year timeline. Set your clock for it. But if a company stays private longer, say 20 years, the math completely breaks down. You can't go tell a firefighter's pension fund or nurses of California to wait another 12 years. They have obligations too. So over the last four years, LPs experienced a negative net cash flow environment. That means getting capital called from all their gps and getting less back. That means they can't fund new managers. They can't re up if you're not getting capital back. So I talked to Scott Voss from Harborvest, and he described it perfectly. Distribution notice in one hand, capital call notice in the other. Tomas Tongas posted that over 70% of VC liquidity in recent years came through secondaries rather than IPOs or M& A. The traditional exit playbook of build go public return capital is definitely not how most money gets home. Secondaries are the mechanism. They've become the oil in the engine. Secondaries also give investors a way to increase their stake. Founders are wary of dilution. So there are only so many dollars to go around in a primary fundraise. If a round is oversubscribed, the next best option is to shake some secondary dollars from that tree. CFOs will often reserve secondary allocation for their favorite investors, letting them creep up their fully diluted ownership via common shares. Some investors won't get out of bed in the morning if they don't have at least like a $50 million stake. So if you can't get there through primary, topping them up with secondary dollars is how you keep them on the ball. Let's talk about that third party, the company. This one. It's kind of the trickiest. The company has no financial incentive to run a secondary zero. No new shares created, no money hits the balance sheet. The company spends hundreds of hours coordinating lawyers, employees, investors, all for free. It's probably the most thankless administrative exercise in finance.

[B]

Yeah, I'm starting to see why secondaries have so much friction. I mean, it's a wonder how they even happened in the first place.

[A]

Because the alternative is worse. Employees who can't get access just quit. Or they get distracted or they go to competitors. The company loses people it spent years building with. And there's another angle too. With a fundraiser often comes pressure from investors to up level the talent at key positions. Hire a real cmo, bring in an experienced sales leader. That could be a huge ego blow for employees who helped get the company to this point. But what got you here isn't going to get you there. And allowing early employees now moving into less prominent roles the opportunity to take a couple of chips off the table. It's kind of a nice cushion. Getting leveled is never fun. It's happened to me. But it's slightly less painful when you also have a new set of jet skis. Secondaries can also serve as a cap table cleanup. Lots of startups have early angel investors and advisors who become increasingly less helpful as the years wear on. And if the price is right, a tender is a great juncture to control alt, delete them off the cap table and send them on their way fat and happy. There's a subtler reason, too. Jason Pate, chief strategy officer at Plaid, described it well when you raise a new round at a fresh valuation and tie it to a tender offer, you create something paper wealth alone can't create a 4 a real price that everyone new investors, existing employees the company agreed to on the same day, that number becomes the foundation everything else gets built on. To give you an example, Plaid raised? 575 million at a $6.1 billion valuation. That was higher than the Visa acquisition deal that fell through in years prior. They structured it so the price investors paid for new shares was the same price employees could tender at, and the same price new equity grants were issued at one number across the board. That's a fundamentally different conversation than trust us, it's worth this much on paper. Because paper doesn't hold up in a recruiting conversation against Meta's RSU calculator, a real price does. Now, the company hadn't had a fresh mark on the business in years. Getting one gave the entire org something concrete to build from. The company's incentive isn't financial, it's gravitational. You keep the right people in orbit long enough to actually finish what you started.

[B]

Now, I'm going to guess that it's probably a bad idea to run a secondary as soon as you possibly can. Like, when should a company even think about running one?

[A]

It's both simple and complicated. So it's not about what series you're in. It's about whether you have a legit and real business. I've definitely seen founders take liquidity before they've hit product market fit or before they figured out if anyone actually wants what they're building long term. And that's where it gets dangerous. Not because the founder doesn't deserve a paycheck, they certainly do. But because it sends a signal to every investor and every employee watching that if the founder is selling, what does the founder know? VCs will sometimes go along with it anyway. If early founder liquidity is the only way to win a deal or get the ownership they want on a hot company, some will hold their nose and write the check. But it's definitely risky for everyone involved.

[B]

So what do you think the right threshold is?

[A]

I don't know if it's necessarily a revenue number, though. Mike Jung told me maybe 100 million. If you've probably got a real business by then. It's more fundamental than that. It's, is this a sustainable company that could eventually be a standalone public company? If the answer is yes, founder liquidity isn't the red flag. At that point, it's pretty rational because building a company is really hard. Building a company while you're broke is even harder. One of Mike's earliest investments, a company called Axiom Legal, had founders on the literal ramen noodle diet. They were living in New York page paying themselves a zilch. And when they finally raised from J.P. morgan Partners and benchmark, part of the combo was just getting the founders enough liquidity so they could eat something other than noodles. That was the original insight behind founder Circle. The right amount of liquidity for a founder doesn't distract from building, it removes a distraction.

[B]

Okay, so some of us maybe enjoy ramen diets a little bit, but why don't we give the people what they want? How do you actually run one of these things?

[A]

A tender offer is the structured version. The company sets a price, says who can sell, how much they can sell, and who's buying. It's a controlled event, which is the whole point after the Wild west era. Now the hardest question isn't the price, it's how much do you let employees sell? I call this the Goldilocks zone. You could say there's a floor and there's a ceiling. The floor is simple. Give people enough to exercise their options and cover the tax bill. That's the minimum. If you've ever footed an AMT bill. You know the feeling. You call around convinced there's a mistake. Unfortunately, there isn't. Most CFOs go a bit higher than that. Enough to put real cash in the bank, enough for a down payment on a house or apartment. Enough so the liquidity feels like actual compensation. The ceiling is where it gets tricky. It's when you have FU money and you don't really need to work anymore. They bought multiple jet Skis. Maybe they even bought a house in Cabo. So companies set the guardrails, most notably tenure requirements. That's typically one to two years before you can participate. They also might set percentage caps, mostly on between 10% and 25% of vested shares. Greg Henry, who's run two of these secondaries in his career, used 10% when the company had already done prior offerings and 25% when it was the first one after eight plus years of working. If people have had multiple bites, you can keep each one small. If they've been waiting a decade, give them a little more room to breathe. One rule Greg was firm on is that there are no special terms for executives. Everyone plays by the same rules and that matters more than people think. Some companies add a dollar cap on top of the percentage cap, especially when the tender pool is fixed and could get oversubscribed. Brandon Sullivan at 2x suggested keeping the absolute amount at a level that isn't life changing enough to matter, but not enough to go and retire. And he's a fan of the 12 month post sale retention commitments. He want to sell, fine. But you're sticking around for at least another year. That solves the Cabo problem structurally, not just kind of philosophically.

[B]

I guess you could say there's a art in making people rich, but just not too rich.

[A]

Well, the other thing nobody warns you about is communication is just half the job. Teddy Collins at SeatGeek said to over index on education, town halls, office hours, company provided tax advisors. A lot of employees won't participate simply because they don't understand the process or or can't front the cash to exercise. A cashless exercise feature where shares are sold to cover the exercise costs can fix that secondary problem, so keep it in mind. Jason paid at Plaid, compared the whole process to buying a wedding ring. You spend months learning a skill you've never needed before. You do it once, hopefully well, and then the other CFOs start calling you every week asking how you pulled it off. He wasn't exaggerating. He gets a call every week from a late stage CEO or CFO trying to navigate RSU expirations, tender structures and equity programs built for a world that doesn't exist anymore. The one where companies went public in

[B]

6 years anyone else you've talked to about this?

[A]

Kurt Sigsteed at Clio described the employee liquidity piece is one of the most complex parts of their raise multiple jurisdictions, different tax withholding rules in the US versus Canada versus Ireland. No single platform handles it well. It's spreadsheets and lawyers and a lot of late nights. Unfortunately, nobody teaches you this in CFO school. Mostly because there is no CFO school. Hey, thanks for listening. We'll be right back after a word from our sponsors. Scaling a tech company is thrilling. It's also really, really messy. Just ask anyone who's done it or anyone who's tried. Better yet, ask ey. They've seen startups at their best and in their most fragile moments. EY knows you don't start a company to burn cycles on regulatory hoops, discounted cash flows, or the fine print of SEC Form S1. Although you probably do know I love myself a good S1. If you've listened to or read my stuff long enough, you can't ignore these things. That's how risk compounds kind of like negative interest. What you can do is work with EY from day one. They'll help you get it right early and often so you can stay in builder mode and keep the trains running on time. EY shape the future with confidence. Learn more at ey.com/tech startups that is ey.com techstartups Let me ask you something. If your board wants financials, would you be certain you're not wasting money on SaaS? Or if a major renewal hits, would you know if you're paying a fair price? Your vendors would see thousands of deals per year, but most finance and procurement teams see one deal at a time. That's a tough way to negotiate. Spendheim fixes that intelligence gap. It's one place to track all your software spend and gives you pricing benchmarks across more than 10,000 SaaS and AI vendors. And it's based on real spend data from over a thousand companies. SpendHound connects to your financial systems and shows every software dollar you're spending. Contracts, renewal dates, overlapping tools, nothing quietly auto renews and you don't pay twice for duplicate tools. Spendhound is the number one rated SaaS spend management platform on G2. It's trusted by team teams at ZoomInfo Hootsuite and kit free forever. Wow for SMB and only 10,000 per year for Enterprise with 150,000 savings guaranteed. If you want to stop negotiating blind, go to spendhound.com that is spendhound.com trusted by over 1000 finance ops and procurement teams. If you're paying for A level finance talent, they shouldn't be doing B level tasks. CFO time is expensive. Senior finance hires are wicked expensive. And yet in many companies, highly paid operators still spend hours reviewing expenses, chasing receipts and reconciling systems that should already be automated. That's where Brex comes in. Brex is an intelligent finance platform that combines corporate cards with built in expense management and AI agents that automate the repetitive work finance teams usually handle manually. Transactions are categorized automatically, receipts are matched, policies are enforced in real time. Reconciliation just runs in the background. So instead of adding admin as you grow, you increase output per finance hire. Brex is already automating hundreds of thousands of hours of manual finance work every month across 35,000 companies including Anthropic, Coinbase and DoorDash. If you want your finance team focused on performance instead of paperwork, check out brex.commetrics that is brex.commetrics.

[B]

it all seems pretty straightforward. I mean, make sure you communicate so you don't end up like in a dwarves have room.

[A]

Poor guy. Had to get another social network ref in there, didn't you? I'm coming back for everything. The secondary market is legit. It also attracted a massive number of grifters. Because here's the thing about buying shares in a private company. You need to know what you're actually buying. Common stock and preferred stock are not the same thing. If you buy common at the price of the last preferred round and the company gets acquired at or below that valuation, you're probably what they call underwater. Common sits at the bottom of the preference stack. Every class of preferred gets paid first. So say a series A investor has a liquidation preference of a dollar a share. You buy their series A shares on the secondary market at $10 a share. If the exit doesn't clear the full stack, you get a dollar back, not ten. The other nine only come home if the outcome is big enough for everyone to convert to common and ride the upside to get together. So in a normal market, common shares in a secondary trade at roughly a 20% discount to the preferred price. That discount reflects the risk of sitting lower in the stack. But in Hot Market 2021 was the poster child. That discount completely evaporates investors are paying employees the exact same price for common shares as the company's newly minted series. Whatever was preferred, they just wanted in. They didn't care what class, they didn't care about the waterfall. And if all goes well in the company IPOs, all share classes convert into the same publicly traded stock. All's well that ends well. But if the valuation falls before you get there, the common holders get hosed and they're the ones holding the bag.

[B]

What are some of the best secondary investments look like?

[A]

The best secondary investments are in the companies where the preference stack doesn't really matter, where the exit is going to be so good that everyone just converts. So if you're spending time modeling liquidation waterfalls, you're probably at and the wrong deal. That's the sophisticated end of the market. Then there's the other end. SPVs, or special purpose vehicles, have become the strip mall of secondary investing. Somebody gets access to shares in a name brand, SpaceX Stripe Databricks, and they package them into these special purpose vehicles where the pitch lands in your inbox and they say 2 and 20, plus a 2.5% annual admin fee, sometimes a 10% upfront commission. Sometimes the offering doesn't even specify what class of shares you're getting. Sometimes you don't know if there's an actual share attached to that paper at all. There's not a lot of disclosure compared to public markets. You're just not required to provide it. So a lot of this is buyer beware. Except most buyers don't even know what to be aware of. The difference between the legit version and the grift is pretty simple. The legit version is when you work directly with the company. You get their blessing. You sit on the cap table, you do the diligence on the capital structure. The Gryph version is raise an SPV off a name, charge egregious fees, and hope nobody reads the fine print.

[B]

Are there any fringe cases or any other versions here?

[A]

In 2025, Robinhood started offering tokenized shares of OpenAI and SpaceX to European users. CEO Vlad Tenevev stood in Khan holding a metal cylinder he said contained the keys to the first ever stock tokens for OpenAI. The stock surged 13% in the announcement. You'll be able to claim what we believe are the world's first OpenAI and SpaceX private stock tokens on a decentralized blockchain. However, these tokens are not equity. They're actually derivative contracts that track the price movement of private company shares. So you don't own a piece of OpenAI. You own a financial product that goes up when OpenAI's secondary price goes up. Robinhood hedges its exposure through SPVs that hold the actual shares, but doesn't guarantee a one to one hedge. OpenAI's response was pretty blunt. We did not partner with Robinhood. We were not involved in this and do not endorse it. Please be careful. Tenev admitted the tokens aren't technically equity, but he argued they still give retail investors exposure to private assets they'd otherwise never touch.

[B]

So is this democratization?

[A]

Depends who you ask. If Robinhood is tokenizing secondary shares of companies that haven't consented to the process, you're a long way from where Mike Jung was buying Ask Jeeves options in the 1990s. 90s.

[B]

All right, so what are the big stop signs? What are some of the big red flags that you want to look out for when you're running a secondary?

[A]

For every well run tender that keeps a team together, there's a cautionary tale about someone who got theirs and got out. The good is stripe employees selling in a secondary transaction while they've been noodling on an IPO for the better part of a decade. Employees got liquidity. The company keeps building. Their system seems to work pretty well. The bad the Ben, do you remember the company hoppin during COVID Ah, yeah, Buford. Their founders sold over 100 million in shares across multiple rapid fire fundraises. While founders selling during a raise isn't unusual, the pace was the company raised so frequently during COVID that he was able to sell nearly 17% of his stake before most people figured out whether the product had staying power. The valuation eventually cratered and the company was sold for pennies. And here's the ugly Pipe's management team took millions off the table in secondary sales and then essentially Group quit. The people who were supposed to be strapping back in for another tour of duty cashed out and walked away. That's the nightmare scenario every board worries about.

[B]

It can't get worse than this. I mean, are there any other ugly situations uglier than this?

[A]

Adam Neumann has entered the group chat. By 2019, Neumann had extracted 700 million from WeWork through a combination of stock sales and loans. Loans against his shares, all while the company was burning through 1.4 billion in cash with enough Runway to last until only mid November of that year. He sold 40 million in shares during one fundraise, then another 80 million. And then when SoftBank invested 4.4 billion. In 2017, Neumann unloaded 361 million more. He used the proceeds to buy five personal residencies, invest in commercial real estate, and fund other startups. The company bought him a $63 million Gulfstream. He renovated his office with a sauna and an ice bath. Meanwhile, WeWork had been profitable exactly once in its history. 2012, when it made a measly 1.7 million. When the S1 finally dropped, the public market saw what the private markets had been willing to ignore. Massive losses, bizarre governance, and a founder who had been leasing his own buildings back to the company. The $47 billion valuation evaporated. The IPO got pulled. Neumann was forced out. And then SoftBank handed him a $1.7 billion exit package, 970 million first shares, a $185 million consulting fee, and a $500 million credit line to repay his JP Morgan loans. Not bad work if you can get it, Ben.

[B]

No, not bad at all. But didn't the company file for bankruptcy recently?

[A]

Neumann became the cautionary tale that every VC now references when a founder asks to take more than 10 million off the table. You don't want to go bankrupt. Not because founder liquidity is inherently wrong, but because 700 million in personal liquidity from a company that had never figured out how to make money was a five alarm signal that everyone chose to ignore. These stories matter because they shape the rules. Every time a founder abuses secondary liquidity, boards tighten the restrictions for the next one. And every time an SPV blows up, companies add more transfer restrictions to their bylaws. The bad actors don't just hurt themselves. They make it harder for the people who actually need liquidity, like the employees, to get it.

[B]

All right, so where do we go from here? What's next?

[A]

There's one more chapter. Because everything we've talked about so far is the venture side of the story. Employees selling shares early, investors finding a way out, companies running tenders. But the biggest structural shift in the secondary market is happening one layer up at the fund level. A GP like continuation vehicle works like this. A private equity firm owns a company inside a fund. The fund is 10 years old. The company is performing. The GP doesn't want to sell it because they still think there's some more value to create. But their LPs need liquidity. The fund term is expiring. Remember, those pension funds have obligations. Those endowments need to endow. So the GP brings in a secondary buyer, someone like a harbor. Best to put together a transaction. The new buyer steps into the deal. As an economic partner, the GP keeps running the company and the original LPs get a choice. Take your money off the table at this price or roll into the new vehicle and keep riding. Scott Voss at Harbor Best described it it's a tender offer, but at the fun level, we're not selling the company. We're creating an option for new capital to step in and old capital to step out. In 2025, the total secondary market hit $233 billion in volume. Like we said, up 53% the year before. And GP LEDs accounted for roughly half of that at 116 billion, with LP led transactions at 117 billion. Five or six years ago, GP leds barely existed in mainstream form. Now TPG estimates that GP LED volume could grow to 300 billion or more over the next decade.

[B]

This isn't niche anymore.

[A]

We're not in Kansas anymore. And the scale of LP side secondaries has grown just as fast. Yale, ever heard of them? Sold a $3 billion portfolio into the secondary market. New York City did 6 billion. Ten years ago, the market couldn't have possibly absorbed a deal that size. Now it's just a normal Tuesday. And it's the reason the secondary market isn't a temporary patch. It's becoming permanent infrastructure for liquidity. And it's eclipsing the public markets. The whole game done changed.

[B]

So how do you actually navigate it without getting taken?

[A]

I think secondaries are really like any tool. You can build something great with them or you can cut your finger off with a wet saw. The market started because companies stayed private longer and employees needed a way to pay their mortgages with something other than a cap table entry. That problem was legit. The solution? Structured liquidity. Company sanctioned tenders, institutional secondary buyers. That's pretty legit too. But 233 billion in annual volume attracts everyone. The operators who care about retention and the grifters who care about fees. Living somewhere in Miami. The GP solving and genuine timing problem for their LPs and the ones marking their own homework. That's kind of weird. The firm sitting on the cap table and the ones selling SPVs out of a Gmail account. Also strange. But the CFO's job is to know the difference. So if you're running a tender, set the guardrails type. If you're buying secondary, understand the preference stack. If someone offers you a piece of a name brand company with a 10% upfront commission and no disclosure on a share class, please delete that email. The secondary market isn't going away it's the plumbing now. More volume than the IPO market. More innovation than most people realize. More risk than most people admit. Use the tool. Just watch out for your fingers. Run the Numbers is a mostly media production, yelling and intro by Fat Joe. Artwork by Meg d'. Alessandro show is executive produced by Ben Hillman. Nothing said on this podcast is intended to be business or investment advice. It's the sole opinion of me, a guy who feeds his dog way too much ice cream and has a history of net operating losses. Lol. If you like this podcast, hit subscribe and give us five stars. It will take like two seconds and our algorithm overlords love it. Drink water, call your mom and have a great day. Peace.