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# A Framework for Secondary Sales
- URL: https://www.santoshsankar.com/a-framework-for-secondary-sales/
- Published: 2025-05-08T23:36:39.000Z
- Updated: 2025-05-08T23:36:39.000Z
- Description: A practical framework for early-stage VCs to manage secondary sales: communicate early, sell 20–30% when a company becomes a fund returner, and do it off strong primary rounds.
- Author: Santosh Sankar
- Tags: Field Notes, Firm Building

Congrats! You’ve backed an outlier. On paper, your mark is eye-popping. Your LPs are thrilled. Your team is pumped. But there’s a problem, not a dollar has come back.

Welcome to the pre-seed and seed investing paradox—where you've done well on paper but are illiquid in practice. That’s why, since Fund I, we’ve taken a disciplined, transparent approach to secondary sales. It’s not about cashing out. It’s about pragmatic stewardship.

**What’s a Secondary Sale?**  
For the uninitiated, a secondary sale is when an existing investor sells their shares in a private company to another buyer—usually during a later-stage fundraise. No new capital goes to the company, but early investors or employees gain liquidity.

For us, it’s a tool. Not a signal of waning conviction. Not a betrayal of founder trust. A tool for capital efficiency, risk management, and long-term firm durability. 

# Our Framework: Three Simple Rules

**1\. Communicate Early, Often, and Without Spin**  
We tell founders every time we convene (CEO Summit, Portfolio Day, etc) that we will seek partial liquidity once they build the company to a point where it's a "fund returner" inside of our portfolio. It’s not because we stopped believing, but we explain that, practically, it's how our business model works. It's never a surprise, awkward, or stressful. CEOs often turn it into their mission to help us, similar to how we've helped them.

**2\. Fund Returner = Trigger Point**  
When a single position becomes a “fund returner”—meaning our stake is worth at least 1x the fund—we look to sell 20–30% of our position which roughly equates to 0.20x-0.30x DPI depending on liquidity events elsewhere in the portfolio. Typically, a secondary comes at a 0–20% discount to the primary round price, depending on market conditions. Even with the "liquidity discount" at play, we benefit from:

- Locking in real returns while maintaining exposure to the upside, given most of our holdings continue to ride
- Reducing fund concentration risk and honoring our fiduciary duty to LPs

**3\. Sell on the Back of a Strong Primary Round**  
Our secondary sales always happen alongside a strong primary, either the round that makes the position a fund returner or the one immediately after. We don’t force liquidity in off-cycles because it's harder to get a fair and optimal valuation for the business.

In the current environment, liquidity is hard to come by and it seems like more GPs and LPs are talking about "creative" solutions. Remember, the game isn’t just selecting winners but also stewarding a portfolio to harvest returns.

In early-stage VC, secondaries are one of the few levers you *can* pull to manage liquidity without compromising upside. Don’t waste it.