Q: Dear SaaStr: When Can Angel Investors Sell Their Shares?
There’s isn’t that much “liquidity” for startup shares, but there’s more than their used to be.
There are 2 basic ways for angel investors to sell their shares before an IPO or a sales (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. Ask the founders. Just ask them (nicely).
- 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 structure marketplace where on a regular basis some or angel shares can be sold. But this generally only happens for better know startups that are fairly late stage.
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:
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Jason Lemkin, Khareem Sudlow
