If you are still deciding whether or not to pursue selling your stock, you may find starting with this article helpful: Cashing Out Startup Shares: Calculating Potential Value and Costs
If you are ready to do so, and need guidance on which platform to use to execute on next steps, we’ve explained several specific options and their tradeoffs below.
Platforms and Marketplaces: EquityZen vs. Forge vs. SharesPost vs. CartaX
These well-known trading platforms and marketplaces for private securities allow individual and institutional investors to have access to private stock, and consequently provide secondary liquidity options to private companies and their employees. These are generally available to both companies and individual shareholders:
|Platform||Can be used by||Scale||Securities Supported||Fees to the Seller||Minimum Sale Size|
|EquityZen||Individual shareholders, private funds, individual investors||80K+ shareholders & investors, 200+ companies||Vested shares||5% upon sale charged to the seller; can be reduced for larger sales||$175K, but shares can be pooled with another shareholder of the same company should individual holdings not meet the minimum required|
|Forge||Private companies, individual shareholders, private funds, and individual investors||$2.6B+ transaction volume since inception, 200+ institutional investors||Vested shares and forward contracts||One-time commission, typically around 5%||~$100K; can’t be pooled|
|SharesPost||Private companies, individual shareholders, private funds, and individual investors||$4.5B+ transaction volume since inception, 300+ private companies traded on the platform||Vested shares and forward contracts||Baseline fee of 5% to the seller for transactions greater than $100,000; For transactions less than $100,000, SharesPost’s fee is a flat $5,000||~$100K; can’t be pooled|
|CartaX||Not available currently, to be launched in 2020|
Sale to an Insider: Board Member, Founder, Existing Investor, Fellow Employee, etc.
In some cases, though fairly uncommon, an employee may have luck selling stock privately to an individual who wishes to increase their ownership.
Available Only to Companies (Not Individual Shareholders)
- NASDAQ Private Market: Platforms provides transaction software to private companies and investment funds looking to do tender offers or share buybacks; the software helps facilitate controlled liquidity programs for pre-IPO companies looking to raise secondary capital for shareholders and investors.
- Zanbato: Marketplace for private company securities exclusively tailored to broker-dealers and institutionally sized investors/shareholders.
Private equity funds that specialize in purchasing secondary preferred and common stock to provide secondary liquidity to companies and their shareholders:
Regardless of which specific platform you use to sell, we highly recommend the following:
Work with a tax advisor to avoid tax surprises. Two key examples:
- AMT Credit: Alternative Minimum Tax is due for the year you exercise, and can be quite high, depending on the “spread” (the difference between the Fair Market Value of the stock and your exercise price). When you pay your AMT bill, that AMT credit can be used to lower your federal income tax bill if the amount you owe on taxes is more than what it would have been under the AMT.
- If you purchase and hold on to the stock for more than five years, most or all of the profit could be excluded from capital gains tax; selling too early before your stock qualifies for QSBS (Qualified Small Business Stock) could cause you to lose this benefit. In a secondary transaction the buyer would typically not be eligible given the stage of company in virtually all transactions, but still worth considering as part of a longer-term strategy.
Confirm whether company cooperation is needed for a private sale of shares; potentially work with a legal advisor if you’re not sure. Due to the right of first refusal process and other potential agreements, easiest and most time-efficient way to obtain liquidity might be to participate in a company sponsored secondary round or secure financing that complies with transfer restrictions. However, many large later stage companies have experience working with secondary marketplaces like Sharespost, EquityZen, and Forge.
- Tax Planning vs. Tax Preparation: What’s the Difference?
- Advice on Startup Liquidity Mistakes from AJ Wealth
- SPAC vs. IPO: Valuation, Lockup Period, and Employee Equity
Harness Wealth can pair you with the advisory firms you need to provide advice across your financial, tax, and legal concerns for your equity. To identify the right advisory firms for you, get started here.