How to sell private shares on Forge: A complete guide

Overview

Congratulations on taking the first step in accessing liquidity for your private company shares with Forge. As some of the world’s most innovative companies opt to stay private for longer, many employees are looking to access liquidity for the equity they hold. However, compared with publicly traded securities listed on the NYSE or Nasdaq stock exchanges, transacting in pre-IPO company shares is often more complex, usually requiring significantly more time to execute and potentially facing more restrictions.

This guide answers key questions, outlines a step-by-step guide to selling your shares on Forge and addresses how a majority of shares are traded in our marketplace. Please note that because many private companies have idiosyncratic rules and varying levels of sophistication in trading shares, you may encounter additional steps or other requirements in selling your shares.

Your selling options

There are two main ways to sell your private shares on Forge:

1. In a direct transaction, you sell your shares to a specific buyer on Forge.

2. In a single-company Forge fund transaction I(hereafter called a “Forge fund offering transaction”), you sell your shares to a Forge-managed special purpose vehicle (“SPV”) set up to hold a private company’s shares (a “Forge fund”), or via a Forge offering, [link to “What are Forge fund offerings and how do they work on Forge?”] which is a formal listing of shares in a private company that is available for potential purchase (an “offering”).

In this guide, for Forge fund offering transactions we will focus on the process of selling your shares to a Forge fund. For more information on Forge fund offerings, please contact us at [email protected].

Option 1: Sell directly to a buyer through a direct transaction

If you choose to sell your shares directly to a buyer, you can be matched with a specific buyer and may have a higher ability to negotiate than selling to a Forge fund. However, selling directly is often more complex and takes more time than selling via a Forge fund transaction.

In direct transactions, the timeline encompasses multiple steps, including what is often the longest part of the process: the fact that many private companies have the ability to exercise a ROFR (right of first refusal). This means that the company has the legal right to purchase the shares being offered for sale ahead of an external buyer. In some cases, an existing stockholder may also have a ROFR in addition to the company. The ROFR process can delay transactions, so it is important to understand these procedures (which vary from company to company). For more details on the ROFR process, please see Step 7 (“Notify the company and understand the ROFR process”) below.

Completing a direct transaction often takes approximately 45 to 60 calendar days or more to finalize, though that time frame can increase or decrease depending on individual circumstances.

Option 2: Sell through a Forge fund transaction

In many cases, you will have the option to sell your shares to a Forge fund. Compared with selling to a direct buyer, Forge fund transactions generally follow a much more straightforward process and may condense the timeline considerably. For instance, unlike direct transactions, when selling to a Forge fund you generally do not need to worry about the ROFR process, as that aspect has already been negotiated between the company in which you own shares (hereafter “the company”) and Forge. However, we still recommend notifying the company of your desire to sell your shares and potentially gain pre-approval, as that may speed up the timeline of the transaction process.

In many cases, the timing to finalize a Forge fund transaction can range from as short as approximately five business days to several weeks, depending on the circumstances.

The selling process

Below is an outline of the steps involved in the selling process. Unless noted, these steps are applicable to both direct and Forge fund transactions, while steps that are only applicable to one or the other transaction types are noted. In addition, please bear in mind that some transactions may require additional (or fewer) steps depending on the circumstances, so your experience may differ from these general guidelines.

Fees

Fees can vary based on the type of transaction, among other considerations. In direct transactions, Forge charges a fee between direct buyers and sellers. In most direct transactions, seller fees range from approximately 2% to 4% of the total transaction size, though some transactions may be eligible for lower or no fees depending on the circumstances, such as transaction size and market dynamics. Please note that you will see prospective fees before entering into a trade and Forge only charges fees on completed transactions.

For a Forge fund transaction, there is a one-time fee, typically 1% to 2% of the transaction size. However, fees can be higher due to demand levels and for a variety of reasons such as transaction size and market dynamics, so it is important to read the prospectus and other fund materials closely.

Minimums

Minimum transaction sizes vary based on the type of transaction. For direct transactions, Forge typically requires transaction sizes of $100,000 or more, though lower amounts may be considered. The $100,000 minimum amount is normally driven by companies, which often require higher minimums in order to approve the addition of a new investor to their capitalization (cap) table.

A Forge fund offering may accept transactions as low as $5,000, though minimums may be higher depending on the specific company or individual circumstances.

Selling private company shares: A step-by-step guide

Step 1: Register for Forge

To begin the selling process, you first need to create an account on Forge. Forge does not charge a fee to create an account or to access Forge and join our global network of buyers and sellers. Forge only gets paid upon the completion of a successful transaction.

At this stage, you will need to complete your profile, including confirming your identity by uploading valid identification. You will not be able to list your shares for purchase before you complete this process.

The onboarding steps are key components of transacting on Forge, as all buyers and sellers must be credentialed in order to complete a transaction. This means that the data you see on Forge has been submitted by credentialed users, helping ensure the quality and accuracy of data and leading to a higher likelihood of completing transactions.

Step 2: Get onboarded and validate ownership of your shares

Once you have successfully signed up on Forge, you must confirm that you are the legal owner of the shares you wish to sell. Please follow the steps here.

Step 3: Determine your selling method: Direct or through Forge fund offering transaction

At this stage, you will likely have the option of selling your shares either directly to a buyer or indirectly through a Forge fund transaction.

Direct: If you choose to sell your shares directly, you have the potential to be matched to a specific buyer and may have more flexibility on pricing. However, the post-trade process will likely take longer than if you sell your shares through a Forge fund offering transaction. Due to the potential for ROFR considerations, there may also be a lower likelihood of completing a transaction with a direct buyer. 

Forge fund transactions: If you choose to sell your shares indirectly through a Forge fund offering transaction, you have the potential to complete your transaction more quickly than with a direct buyer, particularly if Forge is already on the company’s cap table. However, you may have a lower ability to negotiate a share price during a Forge fund offering transaction than with a direct buyer, though circumstances may vary depending on the company and the Forge fund.

Step 4: Research and submit an asking price

Researching a potential share price

At this stage, you’ll need to determine your desired share price. Like all transactions, buyers and sellers of private shares need to agree on a price to proceed. Again, unlike the public market, which often offers near-instant prices on securities, pricing of pre-IPO company shares is more complex and less transparent than that of publicly traded stocks and exchange-traded funds (“ETFs”). Forge offers a broad range of data to help you determine the price you’re willing to accept for your shares.

For more than 200 companies, users can access a Forge Price™, which is a derived, indicative price that synthesizes data from various sources, including secondary market transactions, recent funding rounds and active bids and asks on Forge. Forge Price provides a more timely and relevant reflection of company value and price discovery and can serve as a beneficial starting point for sellers seeking a higher likelihood of completing a transaction. However, please note that Forge Price is a derived price based on multiple historical data points and may not always be a future-transactable price.

In addition to referencing Forge Price, here are several other questions to consider:

1. What is the highest current asking price on Forge?
2. What is the discount or premium from the company’s last funding round or other liquidity event like a company-sponsored tender offer?
3. Based on recent transactions, is the company’s price moving upward, downward or staying relatively flat?
4. What is the last-matched price for a closed transaction?
5. How often has the company’s shares traded recently and at what range(s)?

For more in-depth education on how to price your shares, consider reading out How to price your shares guide.

And if you’re looking for guidance on how to set a potential share price, please create an account today.

Option 1: Respond to a buyer’s bid by accepting it or negotiating their terms

You can engage with any active bid listed in the market — whether the trade is direct or facilitated through a Forge fund offering. If the listed terms (price and quantity) work for you, you may accept the bid and move forward with the transaction. If not, you have the option to propose alternate terms (e.g., a lower price or different quantity), initiating a negotiation with the buyer.

Option 2: Submitting an ask price

If you do not see a current active bid or one that matches your desired price or quantity, you can submit a new asking price. The active market table lists recent bid and ask information, including pricing and share quantities, among other data points. You can use the active market table to see other ask prices and to help set your ask price. If there is a Forge fund offering available for the company in which you own shares, you will have the option to sell your shares to the fund. The active market table may indicate that fund units are available to trade, including price information.

Once you submit your ask price, it will show up in the active market table, which buyers (either direct or through a Forge fund offering) can review and use for negotiation.

Step 5: Negotiate and finalize trading terms

After you have submitted an ask price, you will have the opportunity to negotiate with prospective buyers on the price of your shares. When negotiating, it is important to understand the concept of bid-ask spread. In some circumstances, particularly when markets are volatile, the bid-ask spread might widen, indicating that there is disagreement about what price a private company’s shares should sell at. But if the bid-ask spreads are tight, that is an indication that private market buyers and sellers are in more alignment, which might result in more liquidity.

In the public market, bid-ask spreads can be as low as several cents due to the broad level of information available for most public securities. However, given the lack of widespread price disclosure of private market stock trades, private market bid-ask spreads can be several percentage points, if not double digits, apart.

Once you have agreed to a price (either via a direct negotiation or via a Forge fund offering transaction), the trade is “accepted” and moves on to the next stages of the process.

Step 6: Sign a selling agreement and complete applicable documents

At this point, you will need to sign a selling agreement and fill out all required paperwork. The next steps vary depending on the types of transaction:

• For direct transactions, the transaction is typically subject to the ROFR process, which is explained further in Step 7.
• If you are selling your shares to a Forge fund offering, the ROFR process in most cases has already been resolved as part of a broader agreement between the company and Forge, though it is important to fully read and understand all fund documents. For Forge fund offerings, you can move on to Step 8.

Step 7: Notify the company and understand the ROFR process (direct only)

In a direct transaction, even after you finalize an agreement with a buyer, the process is not complete. Once you enter into a selling agreement, Forge notifies the company of the pending transaction. In most situations, the company’s Board of Directors will have between 30 and 45 business days to decide to ROFR, though terms may vary significantly between individual companies, and some companies respond more quickly to ROFR requests than others. There may also be legal or other fees required by the issuing company to complete a transaction.

Why would a company choose to exercise its ROFR rights? A company may deem the potential transaction price as too low, they may not want to add another external investor to the company’s cap table or they may have other reasons. In some cases, an existing stockholder may also have a ROFR in addition to the company. Either way, the ROFR process must be completed before a trade can be finalized. If a company or stockholder decides to ROFR, you will be selling your shares back to the company or existing stockholder (not to your initial buyer).

Step 8: Finalize the trade process and settle funds

Once all the steps — including ROFR, if applicable — have been completed, the transaction can be finalized.

For a direct transaction, this means that the buyer’s funds (minus transaction fees) are distributed to you. It can take one to five business days for the funds to be transferred to you. Likewise, when selling through a Forge fund transaction, the proceeds (minus fund and transaction fees) are distributed to you. For sales through a Forge fund transaction, it can take approximately one to five business days from closing of the fund to receive your proceeds.

Step 9: Understand taxes and other considerations

Once you complete the transaction and receive payment for your shares, you will likely be liable for taxes on the proceeds. Please contact your tax professional for advice on how to handle any required amounts due and to discuss your individual situation.

Key points to remember

Selling your pre-IPO company shares can help you realize the fruits of your labor and help you build long-term wealth. However, as noted above, the process is not nearly as simple as trading publicly listed stocks or ETFs.

Please contact us at [email protected] with any questions along your selling journey.