2. Exit or Liquidity Events: When You Can Sell

Modified on Thu, 7 Aug at 9:26 AM

Owning shares is one thing, but what about selling them? When dealing with private companies, shares aren’t freely tradable as there isn’t an open market like the stock market. This means that the private company shares are generally illiquid, where you can’t sell them anytime you want. Usually, you only get the chance to sell your shares during:

1. IPO

When you company goes public, its shares become listed on a stock exchange like the Nasdaq. This is a major liquidity event, where it is often the first time employees are allowed to sell their equity.

Do note however, that most employees are subjected to a “lock-up period”, lasting usually about 6 months after the IPO. This means that employees are unable to sell their shares even though they’re now publicly traded.

2. An Acquisition (M&A Event)

An acquisition is define as another company buying yours. This can be another opportunity to sell your equity, but what happens to your ESOPs depends on the terms of your company’s stock option plan and the acquisition deals.

A few common outcomes are:

Your vested shares being bought out at acquisition price
Your shares are converted to those of the acquiring company
Your unvested shares either accelerate (vest immediately) or cancelled

3. Liquidity Programs

Alternatively, your company might offer liquidity programs that are structured opportunity for employees in private companies to sell some or all of their vested shares. Common types of liquidity programs are:

1. Company Buyback

Company offers to buy back vested shares at a pre-determined price

2. Tender Offer

Company invites external investors like existing VCs or new private investors to buy shares directly from employees

3. Secondary Sale Window

If the company allows you to sell to approved investors or back to the company, normally during a limited timeframe)

Not all companies provide these options, so check your equity plan or ask your HR team to understand what’s allowed.

4. Summary

ESOPs are a long-term benefit, not a quick payout. You receive a grant, earn your shares over time through vesting, may choose to exercise them (if required), and then — eventually — may get the chance to sell them during a company exit or liquidity event.

Each stage involves decisions, and it’s okay to ask questions. The more you understand your equity, the better positioned you are to make the most of it. If you have any doubts, feel free to contact us.