Are large founder secondary sales good or bad for the company?

Sumeet Gajri · Jan 17, 2020

Founders taking a small portion of their ownership off the table in secondaries can be healthy, but founders selling large percentages at early series B or C is concerning and can deter him as an investor

Small liquidity de-risks a founder who has only held salaried jobs; large early sales break alignment between investors, founders and employees, and are unfair when employees aren't offered the same opportunity, raising doubt about long-term commitment

Scope: a very personal decision for founders; depends on the founder's context and situation

44:49 20VC: Portfolio Construction, Optimising SPVs, Opportunity Investing "Between Rounds", Being Distribution-Centric Over Product-Centric and Capital Concentration Within Funds With Sumeet Gajri, Chief Strategy Officer @ Carta

Jason Lemkin · Jan 4, 2024

A founder taking $140M off the table in secondary, as at Hopin, is unethical and abusive rather than a hero story

A real founder ranks themselves last behind employees, customers and investors; the company needed that money, it ripped off investors and probably employees, and it wasn't good for customers

Scope: he acknowledges many people see it as a hero story

28:47 20VC: Predictions for 2024: What Happens to Early Stage VC Funding, Do a Load of Venture Funds Die, What do LPs Do in 2024, Does Figma Kill the M&A Market, Will IPOs Comeback & What Does a Trump Administration do for Startups with Jason Lemkin @ SaaStr

Alex Rampell · Jan 12, 2026

Massive secondaries are bad for companies because they introduce moral hazard and disconnect newly wealthy founders from employees and investors

Generational wealth can make a founder swing for the fences, but it can equally make them stop caring about liquidity for employees and investors; you want everyone in the same boat

Scope: a $50–100M founder secondary can be fine if they just turned down a large acquisition and are genuinely going for the biggest outcome; objection is to large secondaries done purely as ownership-percentage plays by funds

31:49 20VC: a16z's $15BN Fundraise with Alex Rampell | The Best Companies Have Hostages Not Customers | The Best Founders Materialise Capital, Customers and Labour | Mid-Sized Funds with Die and The Future of Venture Capital

Michael Eisenberg · Dec 6, 2021 · hedged

A key difference versus twenty years ago is the volume of secondary transactions letting founders take money off the table, and it is genuinely unclear how those founders will behave if conditions turn and the cap table compresses from the top.

People have made a lot of money in secondaries in a way that wasn't true ten, twelve or twenty years ago, so their incentives when the going gets tough are untested.

14:52 Uncertain how founders with secondary liquidity will behave if conditions turn

Harry Stebbings · Jan 4, 2024

A sole founder selling 10% for $150-200M in a hot round where investors are begging to buy is not unethical

The founder goes from ~50% to ~40% ownership, so still holds a huge stake, and the investors are the ones pushing the secondary rather than the founder forcing it on them; the cushion lets them think bigger

30:26 Founder secondary is not unethical when investors not founder push for it and ownership stays high

Jason Lemkin · Jan 4, 2024

Taking out more than about $10M of secondary is a bad sign about a founder even in the hottest round

$10M already covers a house down payment, a good car and kids' schooling, and most B2B CEOs live relatively humble lives because people won't work for a douchey CEO; beyond that the founder is effectively saying the company isn't worth its price and monetizing now

31:15 Secondary above roughly 10m signals problematic founder motivation

Jason Lemkin · Jan 4, 2024

VCs were the enablers of the founder secondary excesses and are now living with the incentives they created, likely regretting some of those deals

Founders pushed too hard, but the VCs were the drug dealers who handed out the money; a founder with $100M+ in the bank and slowing growth won't kill themselves for the company

32:43 Vcs enabled and share blame for founder secondary excesses

Jude Gomila · Feb 11, 2020

Modest founder secondaries that provide basic security (e.g. buying a house) are acceptable and can make founders economically more efficient, whereas life-changing amounts create distraction

Like a sprinter, founders need to be relaxed but not too relaxed; a small amount lets them take a lower salary and de-stress, while $100m off the table changes their life and distracts them

36:27 Modest secondary for basic security helps large life changing secondary distracts