Q: Dear SaaStr: When Can Angel Investors Sell Their Shares?

There’s isn’t that much “liquidity” for startup shares — but there is a lot more than there used to be.  At least, for the best startups.

There are 2 basic ways for angel investors to sell their shares before an IPO or an acquisition (a so-called liquidity event):

  • When the startup is oversubscribed in a subsequent venture round. If the startup raises VC capital and there’s more demand than shares, angels can often sell their shares to the new and sometimes the existing VCs. As a rough rule, almost every VC round at, say, an $80m+ valuation will be “oversubscribed” these days, with the potential for angels and very early investors to sell to the new investors. I’ve seen this secondary liquidity even in some rounds as low as $15-$20m in valuation, as long as they are oversubscribed.  If you want to sell in the next round, just ask the founders (nicely).  They’ll likely remember and keep track and let you know when they raise the next round.
  • When the startup gets very mature, a secondary market can start to exist on its own. Large investors and sometimes the company itself will create a structured marketplace where on a regular basis some or angel shares can be sold. But this generally only happens for better-known startups that are fairly late stage.
  • Sometimes, you can find a buyer on your own, if the company is doing well.  The easiest way is often to reach out to the 2-3 largest VCs in the startup.  If the company is doing well, they may want to buy.  There may be limitations in the financing docs around these transfers, but usually those limitations can be worked out.  Just bear in mind most VCs won’t want to buy very tiny stakes, at least not in one-off transactions.

Plus of course:

  • You can and usually are required to sell if the startup is acquired, and will have the option to in or after an IPO. That’s often years down the round and relatively uncommon, but that’s part of the bet you make as an angel.

Angel investments start off as illiquid and unsellable, and often stay that way. But the good news is, these days there are most chances in each venture round for the angels and earliest investors to sell some or all their shares.

Just ask when a startup raises a new venture round if you can sell. Often, you can.

A related post here:

7 Guidelines on Selling Some of Your Stock in a VC Round

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