How to sell pre-IPO stock to diversify your portfolio and reduce risk

Receiving equity as part of a compensation package at a privately held company, especially a high-growth startup, might feel like holding a winning lottery ticket. If the company grows, it may raise capital at increasing valuations, with an eye toward going public via an Initial Public Offering (IPO). SpaceX, for example, went public at a $1.77 trillion valuation,¹ which was more than 10x its valuation from an early 2023 funding round and more than 100x its 2015 Series G valuation.² However, SpaceX represents one example, and there is no assurance that other private company stocks will experience similar valuation growth or performance. While early SpaceX equity holders might not have received quite as large returns, based on factors like share dilution, the growth still exemplifies the potential for pre-IPO equity to turn into a windfall.

Still, there's a risk of relying too much on any one company's equity. SpaceX stock, for example, has fallen below its debut price, and with post-IPO lockup periods limiting initial stock sales, some employees might not be receiving quite as much as they planned.³ A more dramatic example is how the grocery delivery company Instacart saw its valuation fall from $39 billion⁴ in early 2021 to closing its first day as a public company at just over $11 billion in 2023.⁵ Its market cap still remains below $12 billion as of August 2026 — around a 70% decrease from early 2021.⁶

These kinds of swings can significantly affect an employee's financial well-being. And even if a stock doesn't decline, it's important to consider how holding pre-IPO equity might still affect your financial picture in other ways — positively or negatively — such as in terms of risk, liquidity and tax implications. As such, you might consider selling some of your pre-IPO stock to then diversify into other assets.

How to sell pre-IPO stock

Selling pre-IPO shares often occurs on a secondary market: a venue where investors buy and sell previously issued private company stock. The process begins when you indicate your interest in selling vested shares through a private marketplace such as Forge. From there, the marketplace works to match you with a qualified buyer.

Once a match is found, the transaction enters a company approval phase. Your employer will review the proposed sale and may exercise its right of first refusal (ROFR), which gives the company the option to purchase the shares itself. If the company waives its ROFR and approves the transfer, the trade moves to settlement. The full process from listing to settlement can take several weeks to a few months. All transactions are subject to share availability, eligible buyer matches and transfer restrictions.

Selling pre-IPO stock through a private marketplace may provide the flexibility to reduce concentration and liquidity risk more on your own schedule, though it's worth noting that there can be other opportunities to sell pre-IPO stock via the company that issued the shares. Some startups let employees sell shares through a process known as a tender offer, where either the company buys back existing shares or allows a third-party investor to do so. However, these may be infrequent events, if available at all, depending on the particular company.

Startup equity as a component of your overall net worth

Let's take a look at a hypothetical example of a startup employee's net worth. Meet Taylor. She's a 35-year-old who has worked for five years as an engineer at a successful SaaS startup and was one of the first hires. She has a relatively low base salary, with most of her compensation coming from stock options. So, she doesn't have enough liquid income to save more than the company match in her 401(k), and she has only built a small emergency fund. The startup's valuation grows, though, so on paper, her equity value increases.

Her company is still private, but if it goes public via an IPO, she assumes she'll be able to sell the stock for a big gain. Taylor is feeling pretty good about her financial health. However, by holding that startup equity, her net worth is largely tied to the startup's fortunes, and she has limited liquid assets.

Understanding how your startup equity figures in your overall net worth is important and can help you make smarter financial decisions.

Startup equity as a component of your overall net worth

Let’s take a look at a hypothetical example of a startup employee’s net worth. Meet Taylor. Taylor has worked for five years as an engineer at a successful SaaS startup. She owns a home, contributes to her 401k and puts a little money every month into a portfolio of publicly traded stocks. But the overwhelming bulk of Taylor’s net worth is comprised of the equity she has earned as part of her compensation. Her company is still private but when it goes public via an IPO, she knows she’ll be able to sell the stock for a big gain. Taylor is feeling pretty good about her financial health.

For illustrative purposes only. This hypothetical example does not represent actual investment performance or guarantee future results.

Meet Ryan. Ryan has worked for five years at the same privately held company as Taylor. Ryan felt confident about her company's IPO prospects but didn't want to put all her eggs in one basket when it came to her financial health. She chose to sell 50% of her vested stock on the secondary market and use the proceeds to diversify her net worth.

She added funds to her 401(k) and stock portfolio and she put a chunk into savings so she'd be able to afford a potential job loss for several months. She also invested some of the proceeds into several other promising startups via the secondary market. Ryan's net worth is the same as Taylor's in this example, but it is more balanced across investment types. So, she doesn't face as much risk if any one company declines. She also has more liquidity to adjust her financial position if needed.

For illustrative purposes only. This hypothetical example does not represent actual investment performance or guarantee future results.

Negative market conditions and down rounds

Now let’s introduce a downturn into this scenario. Taylor and Ryan’s company begins to struggle in an increasingly challenging market. The company needs to raise money quickly to ride out a downturn and conducts a primary financing round at a significantly reduced valuation.

For illustrative purposes only. This hypothetical example does not represent actual investment performance or guarantee future results.

Because Taylor’s net worth was made up mostly of her startup equity, she has lost $1.6 million in value, over 60% of her net worth. Taylor is obviously disappointed. But she doesn’t control the valuation of her company’s stock, so there was nothing she could have done. Or was there?

Let’s take a look at Ryan’s net worth during the same downturn. Ryan’s equity also suffers a significant loss and impacts her net worth. But because she had diversified, Ryan’s loss was limited to $800,000 leaving her net worth at $1.7 million versus Taylor’s resulting net worth of $935,000.

For illustrative purposes only. This hypothetical example does not represent actual investment performance or guarantee future results.

The above is a hypothetical example. The company's value could just as well increase, which would benefit Taylor and her larger position. In a downturn, other asset types may also decline in value, including stock portfolios, 401(k)s and real estate. It's also worth noting that this represents net worth, not liquid net worth. There are costs associated with liquidating almost any asset class (except ones like cash), and for private securities, there is no guarantee that a buyer can be found.

What to consider before selling pre-IPO stock

Before deciding to sell, review your company's transfer restrictions and ROFR policies, as these dictate whether and how you can sell your shares. Some companies enforce blackout periods or require board-level approval before any transfer can proceed.

Tax implications also vary depending on the equity type, such as whether you hold Incentive Stock Options (ISOs), Non-Qualified Stock Options (NSOs) or Restricted Stock Units (RSUs). The type of equity you hold, combined with your holding period, will shape your tax liability. Consider your personal financial goals as well: selling a portion of your equity can help diversify your portfolio, but it's important to weigh your need for liquidity against the potential for future upside. Consulting with a tax advisor or financial professional is recommended before initiating a sale.

How Forge can help you sell private company stock

If you’re interested in diversifying, Forge, the leading secondary market platform, can help you understand the current value of your private stock so you can get a sense of how much of your equity, if any, you want to sell. If you decide to sell, we work to connect you with our network of more than 125,000 accredited investors and institutions who may be interested in buying your stock. To learn more about selling your private company stock, please see our blog “Can you sell shares in a private company before an IPO."

If you’re ready to get started listing your shares, create a free account on our platform today to see what your shares might be worth.