Silicon Valley's best kept secret: Founder liquidity

Founder Liquidity: What It Is and Who Gets It

• Many comments note that in Series A/B rounds, founders often sell a small portion of their common stock (“secondaries”) alongside new primary investment, sometimes into the low- to mid–7 figures.
• Several argue this de-risks founders’ personal lives (paying off debt, securing housing) and better aligns risk appetites with VCs, who prefer “swing for the fences” behavior.
• Critics say this is often hidden from employees, undermining the “all‑in founder” myth and creating a perception gap about who is actually still risking what.

Employees and Access to Liquidity

• It’s rare for non-founder employees to be included in early tender offers; when they are, it’s usually limited (e.g., 5–20% of vested equity, sometimes tenure-gated).
• Some think founders should only take liquidity if all employees can participate pro rata; others say founders’ unique risk and replaceability justify asymmetric treatment.
• Regulatory/tender-offer rules (e.g., limits around number of sellers) are mentioned as a practical barrier to broad employee participation.

Equity Structure: Options, Early Exercise, and 90-Day Windows

• Strong criticism of the standard 90-day post-termination exercise window; several suggest 5–10 year windows and note a small but growing list of startups doing this.
• Many advocate early exercising options and filing 83(b) elections when cheap, to avoid later AMT hits and losing equity on departure; others counter that this is risky if exercise costs or tax bills are large and liquidity is uncertain.
• Confusion is common around what 83(b) covers (unvested stock vs options) and what companies can or can’t “restrict” (early exercise vs filing itself).

Founders vs Early Employees: Risk, Reward, and Morale

• Founders emphasize years of low/no salary, personal debt, reputational risk, and inability to simply “quit,” arguing this justifies 20–50x higher ownership.
• Early employees push back that they often work similar hours, take below-market pay, and can still end up with trivial or zero outcomes—even on sizable exits—due to dilution, preferences, and opaque cap tables.
• Widespread view: being an early employee is usually a bad financial bet versus FAANG or later-stage startups; worthwhile mainly for experience, autonomy, or enjoyment, not EV.

Transparency, Ethics, and Possible Reforms

• Many see secrecy around founder liquidity and complex cap tables as exploitative; some call for more transparency tools, standardized employee-friendly terms, or even regulation.
• Others frame it as straightforward market dynamics: founders and investors will offer the minimum terms needed to hire; it’s on employees to understand and negotiate or walk away.