Can I sell my startup shares before the company goes public?

Yes, in most cases you can sell your startup shares before the company goes public, but there are often restrictions. Many startups have internal restrictions or policies (ROFRs, for example) that govern how / when shares can be sold. Check with your company’s legal team to see if you’re able to sell.

How do I find buyers for my startup shares?

There are a lot of platforms and brokers out there that can list your shares or help find a buyer for a listing and/or transaction fee – usually 1-5%, though that number can vary greatly. Alternatively, you can work directly with a buyer to negotiate a fee free transaction. Ballast never charges a transaction fee and buys assets directly from sellers for a Ballast fund to hold.

What are the tax implications of selling startup stock?

It depends, and if your sale is substantial in value, it’s probably worth checking with a tax advisor about it. If you’ve held the shares for over a year, the sale might qualify for long-term capital gains. Less than a year – for example, you exercised your options the day the sale went through – and you might be a looking at an ordinary income tax level.

What is my startup stock worth?

The big question – and probably one you won’t find an answer to on Google. The easiest starting point is the last round valuation. If the valuation is recent, from the last 12 months or so, it’s likely a strong price indicator. If the valuation is older, it could be both too low and too high. In both cases, a secondary buyer will likely require a discount on the current fair market price to compensate for the illiquid nature of the stock. If you’re selling common shares (most founders / employees are), the discount will be greater than it would be for preferred stock. Common shares are generally the last shares to receive proceeds in a liquidity event, and secondary buyers need to account for that risk in their underwriting.

Can I sell vested and unvested shares?

Usually, only vested shares are considered for a secondary transaction.

Do I need company approval to sell my startup stock?

In many cases, you might need company approval. This is often outlined in the company’s bylaws or your stockholder agreement. Some companies may even have provisions requiring the board to approve any transfer of shares to new parties. Ballast is generally approved by companies as a buyer.

Do I have to exercise my options before I sell them? What if I don’t have the cash required?

In some way or another, you need to purchase the shares. In some instances, the buyer can work with the seller to execute a cashless exercise. In a cashless exercise, the buyer and seller negotiate a purchase price (Number of Options x Negotiated Price Per Share), and the buyer pays the company the purchase price of the options (Strike Price x Number of Options) and then pays the seller the remaining cash for the (Negotiated Price Per Share – Strike Price) x (Number of Options).

Ballast vs. Secondary Exchange / Brokers

For a selection of heavily traded, large private companies, there is ample pricing data and a universe of buyers available on secondary brokerage websites. For the majority of venture backed startups however, there is not a readily available “market” for their shares. For companies in this bucket, Ballast can be helpful. We are experts in pricing illiquid, later-stage startups that aren’t in the market often. Our team has a background in primary VC, with decades of experience investing into companies from pre-seed to IPO. We are acutely in tune with the trends in the venture markets and use our primary investing experience to understand the value of a business relative to the market and its peers. We understand that at certain stages, numbers don’t tell the whole story, and we approach a company’s valuation based on its potential.

Ballast is a passive investor in its direct company investing. That means we transact with sellers for the shares, and then essentially leave the management team alone. We aim to be friendly, quiet investors on the cap table. We do not take board seats or active roles managing the company. When you work directly with Ballast, versus a exchange platform, it can be easier to get the sale approved by the company as they may be familiar with us already or consider us a friendly shareholder.