A Qualifying Private Sale Safe Harbor for Stage-Appropriate Liquidity
Here’s a scenario that plays out thousands of times a year across the startup ecosystem: An early employee joins a promising company. They work hard, take below market salary, vest their equity, and watch the company grow from seed to Series D. The company is worth $2 billion. On paper, their shares are worth a life-changing amount of money.
But they can’t sell.
Not because of anything they did wrong. Not because the company is failing. Simply because the regulatory architecture governing private securities resales was built for a different era, one where companies either went public within a few years or stayed small. That world no longer exists.
This is the private market liquidity problem in its most human form, and it’s one I’ve spent years thinking about at AngelList. In 2019, I submitted a rule-making proposal to the Commission recommending a “stage-appropriate liquidity” framework centered on a simple, self-executing resale safe harbor for accredited-to-accredited transactions in non-reporting private companies not yet ready for Exchange Act reporting. I called this a “Qualifying Private Sale.” (AngelList Response to Harmonization Release).
I want to revisit this recommendation and share why it matters even more today.
The Market Has Changed. The Rules Haven’t.
Fewer companies go public during their rapid growth phases than at any point in modern history. Meanwhile, private markets are where America’s most innovative companies are built—and where most of the value is created. The companies that used to IPO at $500M in revenue are now staying private until $5B or $10B.
This isn’t inherently bad. But it creates a serious structural problem: the people who build these companies, founders, early employees, angel investors, have no reliable way to get liquidity before an IPO or acquisition that may be a decade away.
The secondary market for private securities exists, but it's still nascent for all but a handful of late-stage companies. It’s opaque. It’s expensive. Transaction fees of 5–7% or more are common. It’s inaccessible to anyone without institutional connections or accredited investors willing to speculate with risky intermediaries. And it’s plagued by legal uncertainty that makes even willing buyers and sellers reluctant to transact.
The result: liquidity concentrates around a handful of pre-IPO household-name with imbalanced order books. Everyone else is locked out.
Why Current Rules Fall Short
Congress created Section 4(a)(7) of the Securities Act specifically to enable secondary trading in private securities. In practice, it’s nearly unusable.
Why? Because the exemption requires issuers to provide GAAP-compliant financial disclosures, disclosures that private companies routinely do not give and that sellers are often contractually barred from sharing anyway. You end up in a situation where an investor might legally possess the relevant information but can’t legally share it with a buyer. The exemption collapses under its own conditions.
There’s also a chronic “affiliate” ambiguity problem. Startup investors commonly hold board observer seats, advisory roles, or pro-rata rights. Any of these might create affiliate status under Rule 144. Determining whether you’re actually an affiliate requires expensive legal analysis on every single transaction. For smaller shareholders trying to sell $50,000 in equity, that legal bill can be prohibitive.
These aren’t edge cases. They are the market. And they explain why secondary liquidity remains concentrated among those with the resources to navigate the complexity.
What We’re Proposing: Stage-Appropriate Liquidity
The concept is straightforward: the regulatory framework for resales should match the issuer’s stage, not impose public-company-style disclosure burdens on transactions that don’t warrant them.
We’ve called this a “Qualifying Private Sale” safe harbor, and we’ve been advocating for it since our 2019 rule making proposal in response to the SEC’s Harmonization Release. The core idea hasn’t changed because the core problem hasn’t changed.
Here’s what the safe harbor should look like:
- A clean resale pathway for accredited-to-accredited transactions. If both the seller and buyer are accredited investors, and the issuer is a non-reporting private company, secondary resales should proceed without affirmative issuer-disclosure requirements. The current requirement that private companies hand over audited financials to enable employee liquidity is backward. It penalizes the most important transactions in the ecosystem.
- General solicitation, with verification. Right now, sellers can’t publicly advertise that they have shares to sell. This directly disadvantages smaller shareholders who don’t have Goldman Sachs on speed dial. Rule 506(c) proved that general solicitation with accredited-investor verification works. The SEC’s own post-506(c) enforcement record confirms it doesn’t meaningfully increase fraud risk. Let it work here too.
- A clear, objective insider definition. Adopt the Rule 15c2-11 “Company Insider” standard—officer, director, or 10%+ beneficial owner—and retire the current affiliate status ambiguity. This isn’t just a technical fix. It materially reduces transaction costs for the hundreds of thousands of shareholders who currently can’t tell, without a lawyer, whether they’re even allowed to sell.
- Seller-level transaction caps over a rolling window. We’re not trying to facilitate large-scale distributions. A transaction-size cap, say, 10% of the outstanding class over a rolling period, keeps the safe harbor targeted to real liquidity needs rather than opening the door to synthetic IPOs.
- Federal blue sky preemption. SEC Chair Atkins has noted that secondary trading “almost always” triggers state blue sky laws, and that manual exemptions can be costly and time-consuming. Securities sold under Section 4(a)(7) are already “covered securities” under Section 18 of the Securities Act, which means that any state blue sky restrictions are preempted and therefore inapplicable. No further legislative ask is required.
- Issuer protections that actually encourage consent. Many issuers resist secondary transfers because they fear Section 12(g) holder-count exposure. Fix this by allowing all purchasers from a single seller in a qualifying sale to count as a single beneficial owner for 12(g) purposes. Add a private litigation safe harbor against 10b-5 claims and a clear non-integration rule so qualifying resales don’t contaminate the issuer’s primary capital raise. Remove the issuer’s rational reasons to block transfers, and you’ll see more transfers get consented to.
The Timing Is Right
Here’s why I’m optimistic this can actually move.
The SEC’s Spring 2025 Unified Agenda includes a potential second NPRM for Rule 144 targeted for April 2026, expressly aimed at expanding instances where the safe harbor is available. It also includes a parallel initiative to facilitate capital formation and simplify pathways for private businesses, also April 2026. A stage-appropriate resale safe harbor fits squarely within both.
We’re not asking the Commission to invent a new regulatory category. We’re asking them to rationalize and harmonize existing frameworks in a way that reflects how private markets actually work in 2026.
Complementing Public Markets
Stepping back, the root of the issue lies in the decrease in IPOs. It's well known that the number of public companies has fallen from around 8,000 to 4,000 in the last two decades and the top 10 companies now make up more than 40% of the S&P 500's market cap.
We should all want more robust public markets. The liquidity paths and return generators for private markets ultimately run through public markets, whether via M&A or IPO.
Supporting stage-appropriate secondary liquidity can actually create a bridge to public markets, not replace them:
- More secondary market fluidity ahead of an IPO helps prepare issuers and reduces the "free fall" risk of going public.
- Professionally managed funds that can cross between public and private markets create stable float and condition retail interest in companies before they list.
- Increased market coverage can make it easier for smaller, high-quality companies to go public earlier, not just the top five ultra-large-cap companies.
The Qualifying Private Sale safe harbor is designed to make private market development complement a robust public market rather than acting as a substitute for it. Good secondary market infrastructure broadens the pipeline of IPO-ready companies.
One More Thing: This Isn’t Just About Venture
The biggest beneficiaries of better secondary market infrastructure aren’t sophisticated institutional LPs. They’re early employees. Angel investors. Founders who took dilution to get the company off the ground, created jobs, and now hold illiquid paper for a decade or struggle to finance option exercises.
There’s also a registered-funds angle that matters for retail investors. The SEC’s own Investor Advisory Committee has said the optimal path for retail access to private markets runs through listed closed-end funds, interval funds, and tender offer funds. These vehicles are growing fast; unlisted tender offer and interval funds hit $249 billion in AUM in 2025. Better-functioning secondary markets directly strengthen their liquidity management, reducing risk for retail investors.
We can do better. The road map exists. Let’s build it.