The Secondary Market Gold Rush: How Smart Founders Are Weaponizing Employee Liquidity
 
The closing of the first institutional round is always a moment of celebration. Finally, the pathway to unlocking exit riches for the team seems tangible. But we all know very few startups reach the end of that particular journey: McKinsey research shows only 12% of European startups that raise Seed funding ever achieve a successful exit or reach Series E. In other words, 88% of employees will never see meaningful returns from their equity.
 
But the difference between building a company people want to work for and one they're desperate to leave often happens years before you consider an exit.
 
The stakes have never been higher. UK startups now take 9.6 years from launch to Series C, nearly double the 5.8 years recorded in 2019. Something far more dangerous than running out of cash threatens your company: running out of people who believe in the dream.
 
Your early employees - the ones who took massive pay cuts to join your mission - are watching their peers at Google and Meta receive and sell shares quarterly while their own equity gathers dust.
 
Three weeks ago, we explored the four foundational competencies that separate successful fundraisers from the rest. While most founders obsess over the first three - finding aligned investors, crafting compelling propositions, and mastering communications - it's the fourth pillar, Deal Sophistication, that often determines who builds truly fundable companies versus who merely survives funding rounds.
 
Today, we're diving deep into an advanced application of deal sophistication that's transforming how savvy founders think about equity: the strategic use of secondary markets. This isn't about raising capital - it's about something more fundamental. It's about understanding that your cap table is a living, breathing strategic asset that can be actively managed to create competitive advantage.
 
 
Secondary Markets Have Become Your Secret Talent Retention Weapon
 
Let’s start with employee motivation. As we mentioned, UK startups now take almost 10 years from launch to Series C. Your early employees' equity is trapped, creating a ticking time bomb of resentment.
 
But smart founders are flipping this liability into competitive advantage by using secondary sales to give employees regular liquidity events - turning dead equity into cash in their pockets every 2-3 years, just like their peers at public companies.
 
According to The VC Corner's analysis of the US market, the average discount for venture assets has narrowed to ~75% of NAV (net asset value) in 2025, up from the high 60s in 2023. This means employees can now sell portions of their vested equity at reasonable valuations without waiting for an IPO. While UK secondary markets typically lag US trends by 12-18 months, London-based fintechs like Revolut and challenger bank Monzo, which hit a $5.9 billion valuation through secondary sales, are already pioneering similar approaches. Similarly, ElevenLabs this week confirmed $100m worth of employee shares are being sold in a huge secondary round valuing the company at $6.6 billion, double what it was in January.
 
This is Deal Sophistication in action. As we noted in our four pillars framework, experienced founders "actively guide the process, deftly setting valuation expectations and steering investors into deal structures that work for all." Secondary markets extend this principle beyond fundraising - they're about steering your entire equity structure toward sustainable success.
 
What's particularly compelling for earlier-stage UK companies is that platforms like Ledgy and TISE Private Markets are making secondaries accessible to Series A and B companies, not just unicorns. Depop facilitated early employee liquidity well before its eventual £1.1 billion acquisition by Etsy, proving this isn't just a late-stage game.
 
 
The New Power Play: Using Secondaries to Control Your Cap Table
 
Here's what some founders miss: secondary transactions aren't just about liquidity - they're about power. When you facilitate employee secondaries, you control who buys those shares. Smart founders are using this to quietly reshape their cap tables, bringing in strategic investors without dilution. The VC Corner reports that in the US, top-tier funds are integrating secondary options into their lifecycle. Startup boards are getting comfortable with structured liquidity events.
 
UK boards are still warming to this idea, but forward-thinking founders are already leveraging it. Remember our warning about deal sophistication from the foundational framework: "First-timers don't get cut any slack by investors. There's nothing in the negotiation playbook about fairness."
 
This applies doubly to secondary transactions because they're unregulated and entirely at the board's discretion. Your investor agreements likely give VCs veto rights over any share sales, rights of first refusal to buy those shares themselves at whatever price they choose, and zero obligation to facilitate employee liquidity. One difficult board member can block your entire secondary program - leaving your team watching helplessly as US competitors offer quarterly liquidity to their employees. The solution? Build secondary rights into your term sheets from day one.
 
TempoCap notes that Wise used their 2020 secondary share sale to strategically bring on new growth investors while rewarding earlier backers. Similarly, Depop's pre-acquisition secondary sales "served to 'clean up the cap table'" by replacing early-stage investors with those better suited for their growth phase. This level of sophistication transforms you from passive recipient of investor terms to active architect of your cap table destiny.
 
 
The Premium Signal: Why Secondary Pricing Predicts Fundraising Success
 
The dirty secret VCs don't want you to know: they obsessively track secondary market pricing as a leading indicator. Fenwick's Q2 2025 Venture Beacon, which tracks primarily US deals, reveals that 28.9% of 1H 2025 secondaries traded at premiums to recent equity rounds. While UK secondary data is less transparent, platforms like Seedrs and Crowdcube are showing similar patterns for later-stage UK companies.
 
This connects directly to what we call the "investor's lens" in our investment proposition pillar. Smart founders understand that VCs are constantly assessing signals beyond your pitch deck. Secondary market premiums provide third-party validation that no amount of storytelling can match - it's the market voting with real money on your company's trajectory.
 
The key insight for UK founders: US investors considering your next round are already checking if your shares trade at premiums on US secondary platforms. PitchBook data shows that growth-stage portfolios are seeing higher premiums while earlier stages face wider discounts - understanding where you sit on this spectrum is crucial for timing your next raise.
 
 
The Talent Arbitrage: How to Compete with US Compensation
 
This is where UK founders face their biggest challenge. A senior engineer in San Francisco expects $300-400K total compensation; in London, it's £120-180K. You can't win on cash, but structured secondaries change the game entirely. The VC Corner's research on US markets shows that unlike some institutional buyers who demand steep discounts, evergreen funds are often willing to pay closer to NAV.
 
The opportunity for UK founders: US secondary buyers are increasingly interested in UK startup shares, especially in FinTech and DeepTech. By facilitating sales to these buyers, your employees can realize £100Ks every 2-3 years while still holding upside - suddenly making your equity package competitive with US offers.
 
Deal sophistication isn't just about negotiating with VCs - it's about structuring every aspect of your equity to build a winning company. Founders who master programmatic secondaries demonstrate the kind of sophisticated thinking that makes investors lean forward. You're not just solving a compensation problem; you're showing you understand how modern equity markets really work.
 
 
The Strategic Exit: Building Your Own Liquidity Ladder
 
The smartest US founders are using secondaries to create optionality around exit timing - a lesson UK founders desperately need to learn. Industry Ventures' market analysis notes: We have seen an increase in the number of large, company-led secondary tender offers. Some examples in the public domain include Canva's $1B+ tender, Stripe's tender at a $70B valuation, and Databricks' $10B secondary at a $62B valuation.
 
These are all US examples, but UK unicorns like Checkout.com and Blockchain.com are quietly following suit. The crucial difference: UK founders often wait too long, only considering secondaries when employees threaten to leave. The US playbook says start planning your secondary strategy at Series A, not when you're desperately trying to retain your CTO five years later.
 
Interestingly, the gap between Europe and the US isn't just about exits - it's about the entire journey. McKinsey's analysis shows US startups have a 17% success rate from seed to exit, compared to Europe's 12%. This 40% advantage compounds at every stage, which is why US companies can offer more aggressive secondary programs - they're playing with better odds from the start.
 
KPMG's UK fintech analysis notes that given the challenges facing the UK's capital markets, secondary transactions could remain quite robust in 2025. This isn't just a trend - it's becoming essential infrastructure for UK tech companies serious about competing globally.
 
 
The UK's Secondary Revolution Is Just Beginning
 
Secondary markets in the US have evolved from a "distressed seller" backstop to a sophisticated founder tool. The UK is 18 months behind but catching up fast. The latest government initiative, PISCES (Private Intermittent Securities and Capital Exchange Systems), aims to create a regulated secondary marketplace framework, signalling official recognition of this market's importance.
 
This brings us full circle to our foundational principle: "The founders who prepare like they don't need funding are the ones who get it." Secondary markets embody this paradox perfectly. By creating liquidity options for your team, you demonstrate you're building for the long term - which ironically makes investors more eager to fund you in the short term.
 
The most successful founders we work with understand that Deal Sophistication extends far beyond term sheets. It's about architecting every aspect of your equity structure - from employee ownership to investor composition - with the same strategic thinking you apply to product development. Master this fourth pillar, and the other three become exponentially more powerful.
 
UK founders who master this now - before it becomes standard practice - can solve their three biggest challenges simultaneously: retaining talent against US competition, validating their valuation to international investors, and maintaining control over exit timing. Those who wait for the UK market to "mature" will find themselves playing catch-up while their best people leave for companies that already get it.

If you're planning to raise in the next 6-12 months and want to understand how secondary market strategy can strengthen your position before you start fundraising, let's talk.