Stage-Appropriate Liquidity for Accredited Investors

Based on AngelList Letter (File No. S7-08-19, 2019)

The crux: Stage-appropriate liquidity allows accredited investors to access secondary sales—without imposing public-company-level obligations on early-stage ventures not yet ready for an IPO. By clarifying safe-harbor exemptions for limited resales and streamlining certain 1933 Act and 1934 Act provisions, the Commission could reduce transaction costs and enable more transparent private secondary transactions.

Why Stage-Appropriate Liquidity Matters

In the letter, AngelList emphasized that smaller investors who specialize in seed and pre-seed rounds often lock up capital for years. With more flexible secondary exit options:

• They can recycle capital into new startups, fueling additional innovation and job creation.
• Seed investors remain incentivized to participate, rather than forced to wait a decade or more for a possible IPO or acquisition.

Key Recommendations

1. Simple Safe Harbor for Limited Private Resales: Provide accredited-only channels for partial liquidity events that do not trigger full public disclosure or Exchange Act registration. This fosters an orderly marketplace without imposing undue overhead on early-stage issuers.
2. Non-Integration of Secondary Transactions: Clarify that small, stage-appropriate secondaries won't be integrated with the issuer's primary offerings—removing a major barrier to startups blessing these liquidity windows.
3. Minimize Redundant Disclosure: A more tailored approach to resale disclosure—especially for small-lot accredited transactions—helps sellers find buyers without an unwieldy compliance burden.

Ensuring Investor Protection

While advocating for these streamlined liquidity pathways, the letter also stressed that any adjustments should:

• Remain limited to accredited investors, who have sufficient resources or sophistication to evaluate the risks of illiquid venture investments.
• Require that any general solicitation for these secondaries includes "reasonable steps to verify" accredited status (akin to Rule 506(c)).
• Preserve anti-fraud provisions and disclaimers about the uncertain time to exit, ensuring transparency around risk.

Looking Ahead

By refining these exemptions, the SEC can support a healthier venture ecosystem: early investors gain partial liquidity, while capital can be recycled back into emerging startups. Meanwhile, founders retain control and avoid the complexity of early forced IPOs or heavier compliance. In short, stage-appropriate liquidity stands to benefit all stakeholders in the private markets.

Read more in our original 2019 letter for detailed proposals on how to tailor safe-harbor provisions to accredited-only secondary markets, reduce friction, and uphold investor protections.

This post references AngelList's policy letter filed with the SEC in 2019 (File No. S7-08-19). For more context, see the full comment letter.