I’ve come up with a rough guideline:
- If valuation is > $100m pre,
- And founder sells < 5% of her holdings,
- It’s not that big of a deal, and probably a good idea. If it makes things less stressful for the founders, that’s better for everyone.
Where I get anxiety is if it’s neither of those two cases. If the founder is selling > 5%, she’s not just getting a little liquidity … she’s selling out a material amount of her stake. That’s worrisome.
And if the price she or he is selling is less than $100m pre, it sort of tells me they aren’t really building a Unicorn.
If you think you are building a Unicorn, why sell > 5% of your shares at < 1/10th the exit price?
No one would. It’s just getting good. Anyone would want to hold in that scenario, other than to get some capital to buy a house, pay for kids’ college, etc. Certainly any founder crazy enough to be really trying to build something huge wouldn’t want to sell too much as 10% of the price she’s ultimately get.
Actions speak louder than words.
So I am 1000% in favor of founder / secondary liquidity. But if it’s too much (as a %), too early (valuation), I do get worried.
My advice generally then is either wait until the next round (take less dilution, make more on the secondary sale). Or maybe, sell your company — if you don’t really believe. Or maybe, just raise a little later so the math pencils out better.
And if the founders still want to do it anyway, it’s fine by me. I’ll just worry 🙂
More here: https://www.saastr.com/7-guideli…