Establishing favourable deal terms and being transparent about plans to sell are some of the recommendations for smooth sales.
It is increasingly mainstream for corporate investors to sell startup ownership stakes in the secondary market, but the sales process is often complex and can take months to complete.
The VC secondary market is only expected to grow, however, amid a backlog of initial public offerings and a subdued M&A market. These conditions have led corporate investors to seek liquidity in the secondary market where an increasing number of institutional funds have sprung up to buy portfolio company holdings from VC investors seeking to generate cash.
While trading in the VC secondary market is dominated by private equity firms, corporate investors account for a growing portion. CVC transactions represent $5bn of secondary market deals in a total market size of $138bn, according to Davorin Kuchan, managing partner of FreeRun Ventures, a secondary market VC fund.
The Trump administration’s so-called Liberation Day tariffs, first announced in April 2025, which imposed levies on countries importing goods into the US, has added to the investor interest in offloading stakes in the secondary.
“Since Liberation Day, the level of interest to get liquidity has accelerated meaningfully,” says Olav Ostin, managing partner at TempoCap, a secondary market fund. “It has added to the level of volatility this has brought to the market and the uncertainty you get if you have a deadline to get cash and if you expect an IPO or M&A.”
GCV held a webinar, How to handle secondary market sales of CVC startup holdings, to share advice on how corporate investors should approach selling stakes.
Getting the timing right, making sure deal terms are in order and clearly communicating intentions to sell are some of the measures CVCs should take into account for a successful sale.
Here is a rundown of the key recommendations.
Organise a sale when the startup is raising a round
It is much easier to do a secondary sale when the startup is fundraising. Johann Boukhors, managing director of Engie New Ventures, the CVC of French utility Engie, discovered this when organising sales of the unit’s assets. Selling a stake during a funding round allows the buyer to inject money in a primary round at a lower cost. The buyer also receives a transfer of rights at a key time when the startup is pitching.
“They [the buyer] get the best of both worlds,” says Boukhors. “They have more shares at a lower cost, with a better average price than in general, and more power because we also transfer our rights.”
When the startup knows that its corporate investor is selling a stake during a fundraising, it gives the founder an opportunity to pitch to an investor seeking to buy extra shares. “The founder has that extra talking point when he or she is out there fundraising, if there are PE firms or growth stage investors that are looking to hit a certain ownership target,” says Alex Kamenetskiy, managing director at Munich Re Ventures, the investment arm of the German reinsurer.
Eliminate pre-existing clauses that will put off buyers
Red flags for buyers are term sheet clauses or obligations that could create instability in the business. One of these is a large convertible hanging over the company that can be converted into shares at any time. “It is unnerving to get into a business where there might be some major changes to the cap table. As a seller, you want to avoid that risk,” says Ostin.
Sellers should also put in place rights that prevent minority shareholders from blocking a sale of equity. Sellers can do this by adding clauses into investment agreements that allow them to transfer a portfolio of assets free of pre-emption rights.
It is also a good idea for early-stage investors to add most favoured nation (MFN) clauses into equity agreements. These clauses allow potential buyers of the equity to benefit from any more favourable terms or conditions granted to future investors. These are important clauses to add so that investors continue to invest at the early stage, says Boukhors. “Now we systematically indicate when we enter early stage that we get an MFN, so that we get the same rights as the newer investors,” he says.
Pick startups to sell that are attractive to investors
It is important to cherry pick startups to sell that are attractive to investors, says Bouhkors, who has honed a strategy for tapping the secondary market. The CVC team ideally pick startups to sell that have commercial partnerships with the company. It seeks to keep these partnerships after the sale of equity. This helps to derisk the technology and make it attractive to investors. It will also choose to sell startups that have a “robust syndicate of co-investors” to help the sale go smoothly.
Buyers of equity in startups prefer the business to be well funded, especially in today’s market where it is difficult to raise VC money. Startups that have plenty of cash can focus on building profitability rather than on raising money. “We much prefer investing in a business that is fully funded. The management team focuses on only one thing: the business. They don’t have to worry about cash or cap table,” says Ostin.
If you haven’t had time to prepare, get your documents in order
CVCs often come to the secondary market expecting to sell startup stakes straight away, especially if they need to make a quick exit, but it can take months for the buyer to do due diligence. Kuchan, of FreeRun Ventures, says documents that allow the buyer to do this due diligence and price a transaction are often not readily available, slowing the process down. “When there is a fire sale and there’s panic, you may be surprised how long these things will take and how much effort this is going to be. So start early, build it in and prepare the data as soon as possible,” says Kuchan.
Communicate your strategy from the get-go so startups don’t feel betrayed
It is good practice for CVC investors to be clear before entering an investment that they may sell their shares to external investors. Boukhors says that when his team first communicated to its portfolio companies that it intended to sell its equity, the founders felt abandoned. “It was really painful,” says Boukhors. “Now, most of them have understood that they are much better off having an investor who is there willingly, and who is not passive and not going to participate in the next funding round.”
Munich Re Ventures communicates to the startup team well before it invests that it may sell in later rounds. “It’s a lot of expectation setting,” says Kamenetskiy. “Being clear and transparent about your strategy, your intentions as early as possible and preventing those surprises is the best way to go about it.”
Co-investors also need to be in the loop about your intentions, adds Boukhors. “When you enter, you need to say to everybody, including co-investors, that you are here for a certain amount of time, and when this is not your best fit any longer, you will leave, even before a liquidity event.”
Pricing is an art rather than a science
How much you can sell startups for in the secondary depends on several factors and the overall the strategy of the buyer. CVCs can typically expect to sell at a discount to net asset value but there is no fixed price range.
In the case of TempoCap, it seeks a 3x return and is willing to wait between three and five years for that. “It is terribly unhelpful if the business is sold six months later, because there is no way we are going to make 3x on our investment,” he adds. “The alignment of shareholders on the cap table is one of the most difficult things to achieve today.”
Price transparency is often hard to come by because the deals are often bespoke. Also, startup founders tend to try to avoid heavy discounting becoming public, because it can dissuade investors from committing capital.
These are nuances in the secondary market that buyers and sellers have to navigate through, says Kuchan.
Watch the full webinar below
This webinar is part of GCV’s The Next Wave series of webinars. We run a webinar every month, alternating between advice for CVC practitioners and deep dives into specific investment areas.
