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> Founders (and favored lieutenants) can arrange take money off the table while raising rounds and thus become independently wealthy

How does this work?

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When the company raises an additional round, the new investors build in provisions that allow the founders to take money off the table.

One example of this is IVP leading a round in Snapchat, and the two co-founders splitting $10M in exchange for some amount of personal stock.

What's the benefit of doing it this way, as opposed to selling some of their own shares from a previous round to the funding VC, or on the secondary market? Is it just a cleaner deal this way?

I don't think it's actually that common, and typically used with really hot companies.

A few reasons: it makes the new investor more competitive to the founders if there are others vying for the investment, but it also prevents selling too early.

If you have $5M in the bank, you'll be more likely to try to go for the home run rather than sell to facebook for $3B (which was rebuffed by the founders of snapchat).

Makes sense - it's sort of a psychological exploit to make the deal more enticing. Of course founders can always sell their shares on a secondary market, but it's much harder to turn down $5M cash.

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