What Is a Secondary Transaction?
A secondary transaction is the sale of existing shares by one shareholder to a new buyer. No new capital enters the company; the company's cash position is unchanged. The cap table reflects a change in ownership (seller out, buyer in) but no change in total share count or valuation.
This is the opposite of a primary transaction, in which the company issues new shares in exchange for cash. Primary = new shares, capital in; secondary = existing shares change hands, no capital in.
The two often happen together. A Series C primary round of €30M can be paired with a €5M secondary in which founders and early investors sell shares to the same new lead. The new lead gets a larger initial stake; founders get liquidity; the company gets €30M.
Who Buys Secondaries?
Four buyer categories. Dedicated secondary funds (e.g. StepStone, HarbourVest, Industry Ventures) specialise in buying late-stage private shares at a discount to the most recent primary round price; they target Series C and beyond. Existing investors exercising pro-rata or ROFR rights on a proposed sale; this is the most common path for early-stage secondaries. New primary investors expanding their initial allocation by buying both new and existing shares in the same transaction. Strategic acquirers exploring a longer-term acquisition by taking a minority stake first.
The buyer type matters because it determines the price discount and the approval path. Secondary funds expect a 15–25% discount to the last primary round. Existing investors and primary investors often buy at par with the primary round. Strategics may pay a premium for the strategic optionality.
Most secondaries in Europe close at a 0–20% discount to the last primary round price, with the discount narrowing as the company approaches Series C and beyond.
ROFR Mechanics and Timeline
Right of first refusal (ROFR) is the procedural backbone of every secondary. The shareholder agreement defines the sequence in which the company and existing shareholders get the chance to buy the offered shares before any third-party sale can close.
Standard 60-day sequence: • Day 0: seller delivers a formal Transfer Notice with the buyer's name, share count, and price. • Days 1–30: company has the first option to buy at the same price. If company exercises, transaction closes with the company as buyer (shares retired or held in treasury). • Days 31–60: if company does not exercise, existing preferred shareholders have a pro-rata option to buy at the same price. If oversubscribed, allocation is pro-rata to existing holdings. • Day 60+: any unsubscribed shares can be sold to the original third-party buyer at the same price within 90 days. If no third-party sale happens within 90 days, the ROFR process restarts for any subsequent attempted sale.
The seller cannot reduce the price during the third-party sale window without re-triggering the full ROFR sequence. This prevents 'sham' ROFR offers at inflated prices followed by quiet discounted sales.
Transfer Restriction Clauses
Beyond ROFR, the SHA typically imposes additional transfer restrictions: (a) absolute lock-up of founder shares for a defined period (usually 4 years from incorporation or vesting completion); (b) board approval required for any transfer above a defined threshold (e.g. €100K); (c) prohibition on transfer to competitors or to entities on a defined restricted list; (d) tag-along rights for minority holders when a large shareholder sells (see [drag-along and tag-along](/captable/drag-along-tag-along)).
The combined effect is that secondaries cannot happen without active company cooperation. A founder who wants to sell €2M at Series B needs to: deliver Transfer Notice; wait 60 days; secure board approval; coordinate with the buyer on transfer documents; potentially share the allocation with tag-along electors; obtain tax clearance in each affected jurisdiction.
Without active company support, the process typically takes 12–16 weeks. With company support (e.g. a structured founder liquidity program), it can close in 4–6 weeks.
Founder Liquidity Programs at Series B/C
Many lead investors at Series B/C build a structured founder secondary into the term sheet — typically allowing each founder to sell 5–10% of their existing position to the new lead at the round price. The rationale: founders who have been working for 5+ years deserve some financial security, and a small liquidity event makes founders more willing to take the long-term risk of building toward a larger exit.
Typical structure: €30M Series C primary + €3M founder secondary, allocated across 2–3 founders proportional to their pre-round holdings. The €3M secondary buys existing common shares at the Series C price (often with a small discount to reflect the common vs. preferred status).
Founder taxation in EU varies: in most jurisdictions, the secondary is treated as a capital gain on the founder's original shares, taxed at 25–30% in most countries (German Abgeltungsteuer at 26.375%, French flat tax at 30%, Italian 26%, UK CGT up to 24% with potential Business Asset Disposal Relief at 14% for qualifying founders).
The board's role is to approve the secondary as part of the round; minority shareholders cannot block a structured liquidity program if the board approves and ROFR has been waived in the round documents.
Cap Table and Data Room Updates After a Secondary
Post-secondary cap table updates: remove the seller's shares; add the buyer with the same share class (secondary buyers receive the same class of shares the seller held, including the same preferences and voting rights); update the SHA signature page to add the buyer as a party.
Data room updates: store the executed Share Purchase Agreement, the Transfer Notice, ROFR waiver letters from each existing shareholder, board approval resolution, and updated cap table. Prospective Series D investors will review the secondary history during due diligence; a clean documentation trail saves weeks.
Tax filings: each jurisdiction has notification and filing requirements. In Germany, the GmbH share register must be updated and filed with the commercial register; in France, the share register is updated and any related capital gains tax is filed in the seller's annual return. Cross-border secondaries (e.g. German seller, US buyer) may require additional tax clearances.
See [cap table management](/captable/cap-table-management) for the operational discipline that keeps secondary history clean, and [shareholder agreements](/captable/shareholder-agreements) for the underlying transfer restriction framework.
How CAPLINK Manages Secondary Transactions
CAPLINK's transaction workflow handles the full ROFR sequence: Transfer Notice generation, ROFR waiver collection, pro-rata calculation for oversubscribed offers, board approval workflow, and post-close cap table update with full audit trail. Each ROFR cycle is timestamped and stored in the data room for future due diligence.
The platform also models the post-secondary cap table in advance, showing buyer ownership, seller exit, and any tag-along impact. For founder liquidity programs, the structured-secondary template generates the documents and tracks approval signatures across the full board and shareholder base.
Read [right of first refusal](/captable/right-of-first-refusal) for the ROFR procedural mechanics, [shareholder agreements](/captable/shareholder-agreements) for the underlying transfer framework, and [drag-along and tag-along](/captable/drag-along-tag-along) for the related minority protection clauses.