Secondary markets in private healthcare: what founders should understand

The new normal

Secondary sales of common and preferred stock are now a routine feature of late-stage private financings. Employees expect some liquidity. Early investors want partial exits. Founders should have a considered posture.

Governance

The company should control secondaries through a written policy — who can sell, when, and to whom. Ad-hoc transactions create cap table chaos.

Pricing

Secondary pricing is not the same as primary pricing. Setting these expectations with the board and prospective buyers early avoids surprises.

The founder's own secondary

There is nothing wrong with taking modest founder secondary at a growth round. Communicate transparently with the board. Do not overreach.

Why secondaries became routine

Longer paths to exit in healthcare, driven by extended regulatory and reimbursement timelines, have made secondary sales a practical necessity rather than an exceptional event, giving early employees and early investors a path to liquidity without waiting for an acquisition or IPO that may be many years away. What was once a sign of investor distress is now a routine feature of a growth-stage company's capitalization strategy.

This shift means founders now encounter secondary conversations earlier and more frequently than prior generations of healthcare founders did, often initiated by existing investors seeking partial liquidity rather than by the company itself.

Setting rules before the first request

Companies that handle secondaries well establish clear governance before the first request arrives, including which share classes are eligible, whether the company or board must approve buyers, and how much total secondary volume is acceptable in a given period without disrupting the primary fundraising narrative. Reactive, one-off decisions tend to set precedents a company later regrets.

A particular risk is allowing a secondary transaction to introduce an unfamiliar investor onto the cap table with information rights or expectations that were never negotiated as carefully as a primary round would have been, simply because the transaction moved quickly outside the company's normal fundraising process.

The pricing tension nobody states plainly

Secondary pricing creates an awkward tension because a price set too close to the last primary valuation can signal stagnation to the market, while a price set meaningfully below it can spook existing investors or employees about the company's trajectory even when the discount reflects normal secondary market illiquidity rather than any deterioration in the business.

The more sustainable approach treats secondary pricing as its own negotiation grounded in comparable transaction data where available, rather than anchoring rigidly to the last primary round, and communicates that distinction clearly to anyone affected so the pricing is not misread as a referendum on company performance.

When founders sell their own shares

Founders selling a portion of their own equity in a secondary is increasingly normalized at growth stage, but it requires unusually careful timing and framing, since employees and the board will inevitably read the transaction as a signal about the founder's own confidence in the company's trajectory, whether or not that inference is fair.

The founders who navigate this well limit the size of any personal secondary relative to their remaining stake, time it to follow rather than precede a strong operating period, and communicate the rationale directly to the team rather than letting it circulate as an unexplained data point on the cap table.

The tax and structuring details founders overlook

Secondary transactions carry tax consequences that differ meaningfully depending on share class, holding period, and transaction structure, and founders who treat a secondary as a simple stock sale sometimes discover an unexpectedly large tax liability only after the transaction has closed. Involving tax counsel before agreeing to terms, not after, is a distinction that has meaningfully changed outcomes for founders who did it early.

The same structuring questions affect employees participating in a broader secondary program, and companies that provide clear educational material about these consequences ahead of a transaction tend to see fewer disputes and better-informed participation decisions.