The secondary sale of shares is gaining in popularity but has challenges, although that has not inhibited the emergence of new specialist secondary funds.  The proposed new PISCES regulatory framework for trading in private companies in the UK has the potential to address pain points and to democratise the sale of secondaries.

Nearly 80% of tech companies are considering a secondary share sale in the next year, according to a survey of 2,550 startups in Europe, the UK and the US, conducted by Ledgy and published in Sifted.

The secondary sale dilemma arises from the lack of alignment between the seller and the company’s agendas. It is, at best, inconvenient for the company to have a seller of its shares; at worst, it can mean providing information at a time when the company’s recent performance is not at its best and end up sending negative messages to the market. This lack of alignment means that companies may not always cooperate with the sellers, resulting in a lack of current and accurate company information for potential buyers and more complicated governance processes. See my article Creating personal liquidity by selling shares in your startup published in March 2021.

Coinciding secondary sales with a capital raise is probably the best option for both the seller and the company, as sellers can use the company information and financials that have been prepared and curated for investors, and it is at a time of the company’s choosing. The seller can also reduce their liquidity discount by providing current and accurate information, but as always, it will be dependent on the supply and demand for shares in the capital raise.

Taking this alignment one step further is for the company to buy back the seller’s shares and then reissue them as part of the capital raise, as a class of shares appropriate to that raise. In this case, the company itself is managing the transaction directly with the buyer.

Another way of better aligning the seller’s and the company’s interests is to have the company manage the sale of shares on behalf of the seller. Although this uses management’s precious time, it does mean that the company has more control over the process, whilst buyers are likely to get more current and accurate information on the company. Recent examples are neobanks Revolut, Monzo and  Tide.

Specialist secondary funds are becoming increasingly common, purchasing mostly, but not always,  late-stage or pre-IPO shares. One example of an early stage secondary that I recently came across was Siena Secondary, who buy shares in companies from Series A onwards. There are many other secondary funds such as Geneva-based Giano Capital, the Nordic Secondary Fund and the well-known US-based Industry Ventures.  To be clear, secondary funds can potentially have the same issues as other buyers regarding seller and company alignment.

The PISCES (Private Intermittent Securities and Capital Exchange System) regulatory framework for trading in private companies in the UK can potentially address these pain points associated with the private sale of secondaries through the establishment of rules, especially those of company information disclosure, for trading platforms in secondaries.

It is part of a wider agenda of the UK government to reinvigorate its capital markets, and, if successful, could become a model for other countries. PISCES is imminent – legislation will be published next month (May 2025), with the first auctions expected to be run by the end of the year.

PISCES will operate as a secondary market only, facilitating the trading of existing shares in intermittent trading windows. It will not facilitate capital raising through the issuance of new shares.

The Financial Conduct Authority’s stated aim is to ensure that the regime is attractive to companies and other participants, while limiting the risk of potential harm to those trading through appropriate and proportionate rules and protections.

Companies are the key players in this regime, who would presumably act on behalf of sellers, ensuring full alignment between these two parties. PISCES will give companies greater discretion over how and to whom their disclosures are distributed, when trading occurs, and which investors can participate in their trading events

Under this regime, disclosures and pre- and post-trade transparency information must be shared with all investors participating in a PISCES trading event, but will not have to be made public. The following table shows the distinguishing features of PISCES relative to Multilateral Trading Facilities (MTFs) and  Crowdfunding platforms:

We will watch the PISCES developments with great interest over the next year, as it has the potential to serve startups of all stages and sectors, and could be a real win for technopreneurs looking for a better route to liquidity.