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Comment by leet_thow | Hacker News Reader

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

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.

Makes sense, thanks.

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.

I'm reminded of the "Grouponzi" round from 2010. https://venturebeat.com/entrepreneur/groupon-fundraising/

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.

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.

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.

Not an ethics question of why or why not, I'm just curious.

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.

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.

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

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

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