Companies Offer Employee Liquidity Through Share Sales

Private growth companies are increasingly implementing regular secondary share sales to provide liquidity for employees and early investors. This trend is driven by companies staying private for longer periods than before, with the average time reaching 11 years by 2024, up from 6.9 years in 2014, according to data from Morningstar Indexes and PitchBook.

In these secondary sales, employees and investors can sell existing company shares to new buyers, unlike primary funding rounds where a company issues new shares to raise capital. This allows employees to convert their "paper wealth" into cash without the company needing to go public or sell itself prematurely.

Experts describe this trend as a "secondaries arms race," where companies feel compelled to offer liquidity to remain competitive in attracting and retaining talent. Structured liquidity programs are designed to reward long-standing employees and keep them engaged, even though some company leaders fear employees might cash out and leave.

Successful share sales often include specific eligibility criteria for employees, such as limits on who can sell, their tenure at the company, and the percentage of shares they can divest. This approach helps transform the employer-employee relationship from a transactional one to a genuine recognition of the value the employee has delivered to the business.