As pointed out in the previous column, founders partially exiting through a secondary is not unusual but it is essential to keep the timing and context in mind. When Travis Kalanick sold a portion of his Uber stake during a large secondary transaction, the company was making huge losses and battling governance issues. A secondary at that point increased concerns instead of easing them. Closer home, secondary transactions by Byju’s founders, which seemed routine during peak valuation years, began to look different once financial stress and governance questions surfaced.
Here are some guidelines founders can consider before doing a secondary. First, establish that the startup has a good future. From seed to Series A, the startup is still finding its feet and this is the wrong time for a secondary exit. By Series B, once product-market fit is established and growth is steady, even if losses continue, selective secondaries are not an issue, like Brian Chesky managed without disrupting Airbnb’s momentum.
Next, show strong momentum and convince the market that the company is going after market share in an exploding market. Losses don’t kill trust, but unexplained losses do. During high growth, Zomato and Swiggy were burning capital, but the narrative was expansion and market capture. In such contexts, measured secondaries can pass without friction. On the other hand, even a small secondary amid slowing growth and missed targets looks like hedging.
Entrepreneurs should know where to draw the line. Small slices of stake sale to build personal security is fine, but a bigger sale to enhance lifestyle and reducing the founder’s commitment is a no-no. Vijay Shekhar Sharma did partial stake sales at PayTM, but always retained significant skin in the game.
Secondaries are also judged against what else is happening.
If an entrepreneur executes a secondary on the sly while delaying salaries or vendor payments, laying off employees or signing up for a down round of capital raise, then it creates negativity. This is where hindsight becomes brutal. As happened at Byju’s.
Finally, secondaries must take place in a transparent manner. Handled well, secondaries can actually build trust. Freshworks, led by Girish Mathrubootham, enabled structured liquidity for employees ahead of listing, which was well accepted with creating negativity.
In conclusion, secondaries are not a problem if done correctly and at the right time. Founders should treat a secondary like a product launch that is well timed, perfectly calibrated, and transparently communicated.
(The writer is a serial entrepreneur and best-selling author of the book ‘Failing to Succeed’; posts on X @vaitheek)
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Published on April 27, 2026