Secondary rounds in the tech industry - employees and founders selling shares as part of bringing new investors into the company - are making a comeback after a two-year absence. More and more employees are becoming millionaires, even before the company is sold or goes public. In the past year, Armis, Island, Quantum Machines and Exodigo - relatively mature tech companies - have allowed employees and founders to sell shares to new investors, with the money from the sale flowing into their pockets rather than the company's.
Secondary rounds are so called because the sale is made after the company has previously issued shares to the founders and employees in the past and these are transferred for the second time to new investors. This is compared to a "primary" fundraising round in which the company issues shares to an investor, and all the money flows into the company's coffers. Often, secondary and primary rounds are conducted together as part of a financing round.
A notable rise in fintech
Secondary rounds were particularly popular during the Covid "bubble" years as a means used by venture capital funds to invest in unicorns. In those days, funds left no stone unturned to invest in tech companies, sometimes at any cost. At that time, entrepreneurs and early investors conditioned the entry of investors in secondary rounds and these investors put hundreds of millions of dollars into them, sometimes alongside a large investment in the company.
The 2021 secondary wave created a layer of entrepreneurs who became very wealthy before the exit but was criticized for cutting incentives for entrepreneurs to bring the company to a successful exit. Particularly large secondary rounds occurred in companies such as Verbit and Lightrix, causing some of their founders to retire shortly afterwards.
Secondary rounds faded after the Covid bubble burst in May 2022, when interest rates in the US began to rise. They became rarer, but over the past year have made a comeback. A report seen by "Globes" by fintech company Altshare, which manages share holdings and options for tech companies, entrepreneurs and investors in about 3,000 companies, shows a new surge in the volume of shares sold before exits in the early stage (A and B rounds) of companies - initial fundraising rounds by companies aiming to start selling the product or speeding up early sales. Employees in early stage companies have increased the proportion of shares sold in secondary rounds from 8% in 2023 to almost 12%, while in more mature companies (Stage B), the proportion of shares held by employees and sold to investors increased from 11% in 2023 to 15.4% this year.
The increase has occurred in almost all sectors - cybersecurity, AI and life sciences, but it is most noticeable in the fintech sector. Among A-stage fintech companies, for example, the amount of shares sold by employees in an average secondary round has increased from 11.8% in 2022 to 15.8% since the start of 2025. Despite several notable exits in the sector, such as the eToro IPO, the sale of Next Insurance for about $2.6 billion, and the sale of Melio for $2.5 billion, employees seem to be rushing to sell shares or options that have expired early.
On the other hand, in the cybersecurity and AI markets, the trend is different, and fewer employees agree to sell shares to investors. In the cybersecurity sector, between 2022 and 2025, there was a smaller increase in the percentage of shares sold in secondary rounds, from 10.3% to 12.2%.
Altshare founder and CEO Ronen Solomon says, "In the cybersecurity sector, more options are allocated to employees compared with other markets. However, even after the options have matured into shares among the more senior employees, they are less inclined to sell them in the early stages because those employees understand that there is a close horizon for an exit."
"In cybersecurity, we see quick exits overall, and therefore many employees also prefer to wait a little longer with the sale and not exercise at earlier stages. This is in contrast to areas such as fintech or life sciences - where the waiting time for an exit is long. For example, Melio was sold as a seven-year-old company, while Next Insurance was sold a decade after its founding. eToro went public almost 18 years after its founding and after surmounting a series of hurdles.
On the relative rarity of secondary rounds in AI companies, Solomon says: "This is a relatively new field where uncertainty is high, and where investors prefer to wait and not buy shares in early secondary rounds, but to wait for more mature stages and see that the companies stabilize."
A means of incentivizing employees
Activity in secondary rounds is mainly seen among tech employees, and less so among company founders. Consistently, founders sold fewer shares in each secondary round on average than their total employees. For example, in cybersecurity companies in the later stages, while employees realized a total of 15.3% of shares on average, founders sold only 12.7% of their shares in each such round.
In AI, the gap is even wider, with founders selling only 9.4% of their shares, compared with an average of nearly 16% among employees. "Often the aim behind secondary rounds is to provide an incentive to employees or entrepreneurs," says Solomon. "But in cases where entrepreneurs want their employees to stay in the job and not look for a new job, or in cases where the employee has exercised options and the chances of an exit are low, or the path to it is long, selling secondary will help keep the employee in the job."
In such cases, of course, only employees whose options have expired and converted to shares will receive the benefit - and naturally, the older and more senior employees will benefit more.
Published by Globes, Israel business news - en.globes.co.il - on October 28, 2025.
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