Founder liquidity refers to the practice where founders sell a portion of their shares during a new funding round. Why is it a secret that founders get liquidity in many venture rounds? Because it undermines the narrative of the founder who is “All-in.” The story of the founder who mortgaged their house and lived on ramen noodles for years is compelling. Investors and founders both tend to think that if employees knew founders were getting liquidity that that would negatively impact employee morale Founders often feel guilty that they are getting liquidity Investors think that the liquidity could taint the perception of future investors negatively Investors, founders, and employees all believe that founders are taking more risk than early employees.

Source: Silicon Valley’s Best Kept Secret: Founder Liquidity

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