A seller considering a secondary transaction usually spends most of their time negotiating the per-share price. That is the right place to start, but it is the wrong place to stop. The difference between the gross offer price and the net proceeds that land in your account can be substantial — 15 to 30 percent in some structures — and most of that gap is entirely predictable if you model it before signing.

This guide walks through the five components of a net proceeds model for a pre-IPO secondary sale. You do not need a finance background to run these numbers. You need the offer terms, your grant documentation, and about forty minutes.

Component 1: gross proceeds and how they are calculated

Gross proceeds equal the per-share offer price multiplied by the number of shares (or share equivalents) you are transferring. If you are selling options rather than exercised shares, the gross proceeds figure should be net of the exercise price — you are not receiving the full per-share price, you are receiving the spread between the offer price and your strike price.

This distinction matters most for sellers with deep in-the-money options. A seller with a $1.00 strike price on a name trading at $40 on the secondary market is in a different position than a seller with a $25 strike on the same name. The gross proceeds per option are $39 and $15 respectively — a 2.6x difference that disappears if you only compare the headline price.

Make sure you know whether the offer is priced on a fully-diluted basis or an as-converted basis. Some buyers price on fully-diluted share counts (which include options not yet exercised, warrants, and convertible notes), which depresses the per-share number relative to an as-converted price on a smaller share count. Both are legitimate, but they are not directly comparable without adjustment.

Component 2: marketplace fees and transaction costs

Most secondary marketplaces charge sellers a transaction fee expressed as a percentage of gross proceeds. Fee structures vary: some marketplaces charge both buyer and seller, some charge only one side, and some embed fees in the bid-ask spread rather than disclosing them as a line item. Ask explicitly how the fee is structured before you commit.

Legal and administrative costs are a second category. If you are transferring shares directly, you may bear some portion of the legal documentation cost. If the transaction routes through an SPV, the SPV setup cost may be borne by the buyer or split. Confirm in writing which party bears which cost before you sign a letter of intent.

Wire transfer fees, notarization, and medallion guarantee requirements (required by some transfer agents for equity transfers) are small but real. On a $100,000 transaction they are immaterial. On a $30,000 transaction near the minimum threshold, they add up.

Component 3: federal and state income tax

Tax is typically the largest single reduction to gross proceeds, and it is the component sellers most frequently underestimate. The key variable is your holding period and the nature of the shares being sold.

Shares held for more than one year and sold at a gain are generally taxed at long-term capital gains rates at the federal level — currently 20 percent for most high-income taxpayers, plus the 3.8 percent net investment income tax for earners above certain thresholds, producing a combined federal rate of up to 23.8 percent. Shares held one year or less are taxed as ordinary income, which can reach 37 percent at the federal level.

State income tax adds to this. California, for example, taxes long-term capital gains at ordinary income rates — up to 13.3 percent — with no preferential rate. A California seller at the top bracket selling shares held more than one year could face a combined federal and state rate approaching 37 percent on the gain. A New York City-based seller faces a combined rate in a similar range.

Your taxable gain is not your gross proceeds — it is gross proceeds minus your cost basis. If you exercised ISOs and already paid for the shares, your basis is the exercise price. If the shares came from RSU vesting, your basis is the ordinary income recognized at vesting (which should appear on your W-2). Getting the basis calculation wrong is one of the most common errors in seller net proceeds modeling.

The single most common modeling error we see from sellers: calculating tax on gross proceeds rather than on the gain. Basis can reduce your taxable amount substantially — and for shares acquired at low early-stage exercise prices, it may be nearly zero, making the distinction irrelevant. Know which situation you are in.

Component 4: QSBS exclusion — does it apply?

Section 1202 of the Internal Revenue Code allows shareholders in qualifying small business stock to exclude up to $10 million (or 10 times their basis, whichever is greater) of gain from federal income tax on a sale. The exclusion requires the shares to have been original-issue stock acquired directly from the company, the company to have been a domestic C-corporation with aggregate gross assets under $50 million at the time of issuance, and a five-year holding period.

For employees and early investors in pre-IPO companies who acquired shares at founding or in early rounds, QSBS eligibility can be the most valuable single factor in the net proceeds calculation — worth tens of thousands of dollars in federal tax savings on a meaningful position. The catch: many secondary buyers are acquiring shares that do not qualify for QSBS treatment because the shares were not acquired directly from the company (they were acquired from a prior holder). This does not affect the seller's QSBS eligibility, but it is worth understanding that your secondary buyer cannot inherit your QSBS treatment.

If you believe your shares may qualify under Section 1202, confirm eligibility with a qualified tax advisor before closing a secondary transaction. QSBS eligibility is a threshold question — either your shares qualify or they do not — and it changes your after-tax net proceeds materially.

Component 5: lockup and post-closing obligations

Secondary sales of private company shares occasionally carry post-closing seller obligations that affect your effective net proceeds. Post-IPO clawbacks are a separate category worth understanding before you set a reserve price. The most common: representations and warranties about ownership, absence of liens, and no prior transfers. Breaching these reps can result in clawback provisions — obligations to return proceeds if a warranty turns out to be false.

Less common but worth checking: some company transfer policies require the seller to agree to a lockup on any remaining shares in the same company following a secondary sale. If you are selling a portion of your position and plan to sell more later, confirm that the transfer policy does not impose a waiting period on your next sale.

Finally, review whether your company has a right of first refusal that could cause the transaction to be redirected to the company or an existing investor at your agreed price. ROFR does not reduce your proceeds if exercised — the price is the same — but it can change the counterparty and the settlement timeline, and that matters if you are relying on proceeds by a specific date.

Putting the model together

  1. Start with gross proceeds: offer price × shares, minus exercise price if applicable.
  2. Subtract marketplace and transaction fees. Confirm whether legal costs are included or separate.
  3. Calculate your taxable gain: gross proceeds minus cost basis.
  4. Apply your estimated combined federal and state tax rate to the taxable gain. Use your actual marginal rates, not a generic estimate. State residence on the closing date controls more than most sellers assume — our piece on secondary sale tax residency walks through how relocations interact with vesting and exercise dates.
  5. Check QSBS eligibility. If your shares qualify and you have held them five-plus years, subtract the federal tax that would otherwise apply on up to $10M of gain.
  6. Review post-closing obligations for clawback risk or future transfer restrictions.
  7. The result is your estimated net proceeds. Compare it to what you need and what you expected.

Running this model takes less than an hour and can change a seller's decision meaningfully. We have seen sellers walk away from offers that looked compelling at the headline price and looked less compelling after a ten-minute net proceeds calculation. We have also seen sellers accept prices they would have rejected if they had correctly calculated their QSBS exclusion and recognized how little tax they owed.

If you are ready to explore what your position might be worth on the current market, visit the Limen Markets seller page — or read the seller playbook for a broader view of timing, documentation, and negotiation strategy.