Suggestions
Aaron Harris
Co-Founder at Magid & Company
Aaron Harris, Co-Founder of Magid & Company
Aaron Harris is the Co-Founder of Magid & Company, a firm that works with founders to scale their startups and navigate fundraising, with a focus on Series A and Series B rounds.2 He was previously a partner at Y Combinator for 7.5 years, where he built the YC Series A program and advised founders on over 200 Series A and B rounds that raised more than $3 billion.23
Some key facts about Aaron Harris:
- He has experience as a history student, founder, banker, analyst, manager, investor, and advisor3
- He is an investor in and advisor to over 25 unicorns worth over $100 billion4
- He wrote the definitive Series A Guide while at Y Combinator1
- His LinkedIn username is aaronkharris1
Aaron Harris is building something new with Magid & Company, aiming to provide founders with un-conflicted fundraising advice after the seed stage.2 He has a wealth of experience working with founders and startups, having funded over 1000 companies during his time at Y Combinator.3
Highlights
Founders should be able to sell secondary whenever they’d like to do so. If you make something - and that thing is valuable - you should be able to sell it. Actually selling that secondary can be tricky. Let's go through the actual steps (or read the whole essay https://lnkd.in/eajr238N):
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Get the term sheet.
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Negotiate “normal” major terms: dollars in, price, board, etc.
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Don’t forget about re-vesting. Founders often do.
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Sign the term sheet. Go out and start figuring out allocations for the remaining dollars.
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If you’re lucky enough to have more demand than you do space, you have the opportunity to sell some secondary. Figure out how much excess demand you have.
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Talk to your lawyer and your accountant about what you want to do. Ask them to explain the pros and cons of selling secondary as common shares vs. preferred shares (which is a bit out of scope for this essay).
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Decide how much secondary you want - ideally this is “reasonable,” which is a moving target. One good way to frame “reasonable” is to give a clear reason as to why you want to sell. This is particularly important in early rounds. Good reasons include: “Need to pay off student debt” and “Just had our first kid after years at below market salary.” Less good reasons include “Need a new Porsche” and “LinkedIn ghostwriter prices went up.”
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Go to your new lead investor and say “Hey! Great news! We have 2x demand for available shares. It would mean quite a lot to me and my cofounder if we could take (insert reasonable amount here) off the table because (insert reasonable reason) here. Obviously as our lead, you get first access. Sound good?”
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Work with the buyer to figure out if you are selling common shares or preferred shares. (a) If you are selling common shares, and the buyer is willing to buy these at the same price as preferred, great! Just make sure that you aren’t creating any challenges around voting by giving those shares to an outside party. Also, talk to your lawyer and accountant. (b) If you are selling preferred shares, go back to your lawyer and accountant to make sure you’re not creating any issues for yourself. You’ll also need to confirm with your existing investors that they are ok with you doing this because it will change the preference stack - which impacts them.
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Triple check your numbers.
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Complete your transaction and close the round.
Selling secondary at the Series A or Series B can be a great idea. Here's how to do actually do it.
