4 ms·

How common was it for founders to cash out on common shares in the Series C-E rounds the last decade?

twelve40 4y ago
if the investors are willing to buy your shares from you, then why not? I've done secondary sales as early as seed. Unless you hide it from the board somehow, or you are explicitly prohibited from doing this, it's just a business transaction.
- leet_thow 4y ago
  Not an ethics question of why or why not, I'm just curious.
  - slap_shot 4y ago
    It was certainly much more common the last few years. However, those transactions are more of "hey investor, let me sell you some of my shares in this round" and not whatever complex behavior is described in this article.
  - adrr 4y ago
    So execs don't bounce. I left a company because they didn't offer a secondary and i was 3/4 vested with no exit in sight. I had a job offer to another company that promised an IPO in a year. If i would have been paid, i would have stayed but its hard to turning down a "guaranteed" 7 figure pay out. It's a numbers game, 1 out 10 startups will have an exit that makes people money.
  - sarahowen62 4y ago
wmf 4y ago
Pretty common. With startups waiting ten years to IPO, many founders and employees would "take money off the table" along the way.
Schnitz 4y ago
Very. It's usually not this egregious though. Founders might want stable finances for their family or the ability to buy a reasonable home, but VCs want them to keep going, so VCs allow founders to cash out some of their equity so that founders don't go for an exit for the sake of their personal finances.
- leet_thow 4y ago
  Makes sense, thanks.
- kkielhofner 4y ago
  Agreed but it's never this significant. In the world of "real companies" investors, boards, teams, etc are not OK with providing a founder with "F U money" (which this certainly is) so that they can go on and do nothing, leave for another venture, etc. For the others involved from investors to employees it's never good to be working with someone who could (theoretically) stand up from a meeting and walk out to go on and do whatever they want forever.
  - wmf 4y ago
    I'm reminded of the "Grouponzi" round from 2010. https://venturebeat.com/entrepreneur/groupon-fundraising/ https://venturebeat.com/entrepreneur/groupon-fundraising/
    - kkielhofner 4y ago
      Bingo. It could be argued the relative failure of Groupon was largely driven by key stakeholders/insiders cashing out way too big way too early.
    - dmitryminkovsky 4y ago
      Thanks for this. Love the end: > And this stealth IPO has one more advantage: There’s nothing preventing Groupon from doing a real IPO in 2011. If anything, the reassuring cash pile makes it a more attractive investment.
- deleted 4y ago
Dwolb 4y ago
It’s common to sell secondary, but usually limited to something like 10% of vested shares per person.
NelsonMinar 4y ago
The article: "Mr. Bankman-Fried’s cashout was large by startup-world standards, where such sales historically were taboo because they allow founders to reap profits before investors."

if the investors are willing to buy your shares from you, then why not? I've done secondary sales as early as seed. Unless you hide it from the board somehow, or you are explicitly prohibited from doing this, it's just a business transaction.

leet_thow 4y ago
Not an ethics question of why or why not, I'm just curious.
- slap_shot 4y ago
  It was certainly much more common the last few years. However, those transactions are more of "hey investor, let me sell you some of my shares in this round" and not whatever complex behavior is described in this article.
- adrr 4y ago
  So execs don't bounce. I left a company because they didn't offer a secondary and i was 3/4 vested with no exit in sight. I had a job offer to another company that promised an IPO in a year. If i would have been paid, i would have stayed but its hard to turning down a "guaranteed" 7 figure pay out. It's a numbers game, 1 out 10 startups will have an exit that makes people money.
- sarahowen62 4y ago

wmf 4y ago

Pretty common. With startups waiting ten years to IPO, many founders and employees would "take money off the table" along the way.

Schnitz 4y ago

Very. It's usually not this egregious though. Founders might want stable finances for their family or the ability to buy a reasonable home, but VCs want them to keep going, so VCs allow founders to cash out some of their equity so that founders don't go for an exit for the sake of their personal finances.

leet_thow 4y ago
Makes sense, thanks.
kkielhofner 4y ago
Agreed but it's never this significant. In the world of "real companies" investors, boards, teams, etc are not OK with providing a founder with "F U money" (which this certainly is) so that they can go on and do nothing, leave for another venture, etc. For the others involved from investors to employees it's never good to be working with someone who could (theoretically) stand up from a meeting and walk out to go on and do whatever they want forever.
- wmf 4y ago
  I'm reminded of the "Grouponzi" round from 2010. https://venturebeat.com/entrepreneur/groupon-fundraising/ https://venturebeat.com/entrepreneur/groupon-fundraising/
  - kkielhofner 4y ago
    Bingo. It could be argued the relative failure of Groupon was largely driven by key stakeholders/insiders cashing out way too big way too early.
  - dmitryminkovsky 4y ago
    Thanks for this. Love the end: > And this stealth IPO has one more advantage: There’s nothing preventing Groupon from doing a real IPO in 2011. If anything, the reassuring cash pile makes it a more attractive investment.
deleted 4y ago

Dwolb 4y ago

It’s common to sell secondary, but usually limited to something like 10% of vested shares per person.

NelsonMinar 4y ago

The article: "Mr. Bankman-Fried’s cashout was large by startup-world standards, where such sales historically were taboo because they allow founders to reap profits before investors."