Founders Circle

Last week my friend Chris Albinson formed an interesting new firm called Founders Circle Capital. He wrote a bit about what they are doing here.

In a nutshell, Founders Circle provides liquidity for the founders and employees of a “breakaway growth companies” so they don’t need to sell or take the company public prematurely. I like this line from the post I linked to above:

An investment from Founders Circle–typically just enough for team members to pay off graduate school debt, put a down payment on a house, send the kids to school, or pay for a loved one’s medical expenses–gives companies the flexibility to pass on early acquisition offers and motivates essential team members to stay at the company they have put their heart and soul into.

Of course the question is always “when is the right time to do this?”. You should not do this sort of thing too early in a company’s life. It takes time for the equity value to get to a point where it makes sense for the founders and employees to take a bit of their equity value off the table. I guess that’s why they focus on “breakaway growth companies”. That’s smart.

If you want to learn more about Founders Circle, here’s a page on their website that outlines the kinds of investment programs they operate. It’s great to have investment vehicles like Founders Circle in the venture capital market. It provides an important part of the “capital stack” that startups need to access to go all the way to the finish line.

#VC & Technology

Comments (Archived):

  1. David Semeria

    Aren’t we all supposed to go to the pay window together?

    1. JimHirshfield

      No. We’re all created equal. But some are more equal than others.

    2. fredwilson

      you can all go together with this approach, but only cash a little bit of your paycheck

    3. Russell

      my thoughts exactly – hard to differentiate between the early people, and if they are only putting in small tickets, than hardly worth splitting 5 or 10 ways?

    4. Kasi Viswanathan Agilandam

      VCs have multiple pay-windows in a year (multiple investment) but founders have only one in every 5-10 years…they should have some option of having a decent living. I think this is a good beginning… let thegood thing happen …Every VC should do this when they come in during the B or C round… then what is the point of doing all that 60-90-day long due-diligence?

    5. Jorge M. Torres

      People change as their life circumstances change. True, this is tricky and has to be managed, but I like that the entry point for FC is at the CEO and Board level, i.e., those who should be shepherding company culture and who have the responsibility of keeping the bigger picture in mind.

      1. JimHirshfield

        Don’t kid yourself, Jorge. The ONLY way to do something like this is thru the CEO/Board.

        1. Jorge M. Torres

          Yes, the only **right** way to do this is at the CEO/Board level. But there’s a wrong way too, e.g., staking out employees in the company parking lot in the hope that they’ll trade some of their shares for cash. I hear that this is actually happening in SF right now. Aggressive approaches to soliciting employees is why Uber and others have had to crack down on employee stock sales. It’s good that FC is clear about differentiating the firm from the more aggressive players.

          1. JimHirshfield

            Right. But aren’t those vested shares still non-transferrable?

          2. Jorge M. Torres

            Depends on the company and how things have been documented I suppose.

          3. JimHirshfield

            I think my shares in USV portfolio companies are all non-transferrable. But feel free to make me an offer. 😉

          4. Jorge M. Torres

            Something tells me you have invited me to embark on a fool’s errand. 😉

          5. JimHirshfield

            No one’s judging.

          6. LE

            It’s unclear to me what you are viewing as “wrong” here.Who is “wrong” in this transaction and for what reason?staking out employees in the company parking lot in the hope that they’ll trade some of their shares for cash.For example in the above are you claiming that this is illegal? Or just undesirable from the vantage point of certain parties?

          7. Jorge M. Torres

            No, I’m not claiming this is illegal. CEOs and Boards have a legitimate interest in managing the cap table, and, just as important, the company culture. So “wrong”or undesirable in the sense that an unmanaged process like the one in my example poses the greatest risk to the company culture.

    6. JamesHRH

      Yes, but this is the issue:- we are worth $200M today- Founder is worth $20M, ALL OF IT IN COMPANY STOCK- why is it required by investors, NONE OF WHOM HAVE 100% of their net worth in company stock, that founder not diversifyClassic lack of equity – you are diversified but control someone else’s ability to do so. You have to let them.Never met Chris but he is joining Brad Katsuyama in the club of CDN’s fixing US financial markets..Love that his Twitter profile has woman goalie in the picture – there is someone who knows how to live life based on market demand!

      1. William Mougayar

        The Silicon Valley Canadian mafia is strong, about 300,000.

        1. JimHirshfield

          Congrats (?) on a new mayor in Toronto.

          1. JamesHRH

            Its mostly congrats on getting rid of the old one.New one is everything that Ford Nation despises – his family profile and connections are the basis for his career, he has no discernible track record of achievement, he is in love with the sound of his own voice, he has made lots of dough while having a huge public profile.If Canada submitted a candidate for Monty Python’s Upper Class Twit of the Year competition –… – it would be John Tory.Just because, Toronto media hailing him as what the city needs, a compromise candidate (when, in fact 1/3 of voters voted for Rob Ford, the nastier of the Ford boys, b/c John Tory is exactly the person they do not want as Mayor, as person who thinks Toronto does not include the suburbs – they hate his guts basically).

          2. JimHirshfield

            Monty Python reference gets you the upvote every time.

          3. Jigdel

            Let’s hope Toronto begins to get the respect it deserves. Goldkind should definitely run next time (he won a respectful 0.4%

          4. William Mougayar

            yup…a normal one. thanks!

          5. JimHirshfield

            Ha! There is no “normal” when it comes to politicians.But I get what you mean relative to R. Ford.

      2. Chris Albinson

        David & James love the connection to Brad(-: Phil Libin nailed this issue here in my view.

      3. ShanaC

        Brad is a really interesting guy – and I would love to talk to him about liquidity versus the little guy issues

  2. awaldstein

    These layered cash out venues for startups are a double edged sword, with a strong lean towards the positive.This simply wasn’t there raising funds early on in the valley–made you a heads down build your business pragmatist and tactician. Having relief is great thing if managed.Net net a good thing used smartly.

    1. fredwilson

      exactly. doing this right is tricky.

  3. JimHirshfield

    Seems like a good VC strategy to distinguish oneself from other VCs when competing for those breakaway companies.

    1. JamesHRH

      Agreed +100.He has solved a problem for, to roughly recast a16z’s focus, “the 15 companies that get formed in a year that really matter.”

  4. Kasi Viswanathan Agilandam

    It sounds like the cash-in offer is for good ’cause’ … housing, schooling, medical…not for Ferrari, yacht :-).Why do the VCs want the founders to get tied to the company …I hate that.After all that due-diligence and 100’s of questions and all other crap … they should do this by default when someone coming in at Series B or definitely by C.

  5. Jorge M. Torres

    The copy and positioning on FC site is some of the best that I’ve seen for a venture firm. Very clear how they want to partner with startups and how the firm strives to drive alignment while being mindful of company culture. If they deliver on all of this, they’re going to get a a lot of uptake among CEOs and boards who want to provide this option to their employees.

    1. jason wright

      i very much agree.

    2. LE

      The site is nice and makes good points.I was surprised at the actual “Kitchen Tables” in their homes. I’ve attached a picture which will show up at some point after the disqus jet stream lag.Although I would have expected something more ritzy pitzy … it does seem to dove tail well with their soft gentle approach in selling this service.

    3. ZekeV

      Jorge Torres, another VC pursuing a unique niche!

  6. CJM

    I’ve been a long time reader of AVC, but this is my first post, as the topic is near/dear to my work. I manage a venture secondary fund with a focus on small “secondary directs”. we work with entrepreneurs and VCs to provide liquidity solutions throughout the cap table.In the past boards were reluctant to allow managers to get liquidity ahead of the investors, but over time it has become an accepted practice, based on the realization that entrepreneurs are trying to manage risk just like the rest of us. Most, if not all, of their personal net worth is locked up, so the longer it takes to achieve “organic” liquidity (a la M&A or IPO), the more risk averse they become with their companies. If you can give them a solution that helps mitigate that risk (in this case, paying off mortgages, student loans, alimony), that allows the entrepreneur to be more comfortable in hitting the gas, and hopefully getting the company to the next level.In short, if you give a little now, you hopefully get a lot back later.

    1. fredwilson

      yes, exactly!thanks for leaving a comment

      1. CJM

        For those thinking about partial liquidity, it’s best to talk with your board members first about your desire to take some cash now. Sometime they will be the best source of capital, but don’t be offended if they suggest looking elsewhere, as these deals can cause issues related to their own internal carrying values, etc.Also, be mindful that, while certainly not the only item factored into the analysis, these deals may have an impact on your company’s 409(a) valuations, which then impacts your future option pool strike prices. Check with your auditors to see if they think it may have an impact.

        1. David Semeria

          I think the key point is to offer the same terms to all shareholders. As as seed investor I would be unhappy to see founders taking money off the table before me. If, on the other hand, I was extended the same terms (pro rata of course) then I can have no compliants.

    2. someone

      as Richard Caves said many years ago, “entrepreneurs cannot diversify their career risk”

    3. Richard

      One strategy that i have read about it the so called “No-Sale”. The founder borrows money from an investment bank (or fund), using his or her shares as collateral. The collateral shares are then frozen in value by selling Put options and buying Calls. At a future (preset) date, he or she can then either keep the cash or turn over the shares. Any thoughts on this?PS Chris’s reply below was to my previous comment about there seemingly being people within your current VC stack eager to add to their personal holdings.

      1. Chris Albinson

        Rich great point. It is really not a question of demand. The issue really is how & when to do founder liquidity in a way that addresses all the stuff (legal, tax, 409A, disclosure – all areas where it is helpful to have an new investor set the terms), but most importantly turn it into a celebration of what has been accomplished and help motivate the team for the hard work ahead. In almost all of our investments, the existing investors participate with us. Kevin Chou, founder of Kabam thoughtfully wrote about his experience with us here…

        1. Richard

          Looks like you jumped right in to my initial post. Thanks. I updated my post as I thought I would make better use of your time by asking a somewhat more “in the weeds” question. Thanks.

    4. ShanaC

      Basically, psychology matters hugely in risk – and people often assume simple drivers when people actually have complicated ones.*sigh* Big pictures matter.

    5. ShanaC

      Also, welcome – and I should come up with obligatory question:How do you manage the fight, flight, or stop reaction

    6. ZekeV

      Hm, you have changed my perspective. I always felt like it was a compromise on the investors’ part to take some of the pressure of management to push for exit. But you raise a really good point, that taking some pressure off can align incentives for a bigger exit. (Apologies if my paraphrasing detracts from the nuance of what you’re saying.)

  7. jason wright


    1. JimHirshfield

      Like a foot rub?

      1. jason wright

        a founder rub.

  8. jason wright

    http://www.founderscircle.c…”…Founders Circle can purchase a portion of their vested common stock through either a direct purchase or a deferred purchase by guaranteeing a Silicon Valley Bank loan.”so is the deferred purchase price pegged to the value of the stock as it is at the time the loan guarantee is agreed?

    1. Chris Albinson

      Jason yes that is basically right.

  9. William Mougayar

    This sounds a bit like what Buffer App is doing with their 3.5M raise (on 60m post-val), and the founders are taking 2M out of that. In this case, is that ratio is a bit too high?

    1. JimHirshfield

      Actually, a 3.5M raise….so a majoity of new funds are for cash-outs.

        1. William Mougayar

          you’re right. it is 3.5M. i corrected myself.

    2. awaldstein

      This is kosher in your eyes as an investor?

      1. William Mougayar

        Buffer is a bit non-traditional. it seems they can get away with it. I don’t think it’s the norm.

    3. bsoist

      I thought of Buffer right away. I think 2/3.5 might be a bit high, but I like what Buffer did. And I like what FC is doing.

      1. awaldstein

        What is your criteria for too much?Feels too much generally honestly.

        1. bsoist

          Actually, I realized after leaving the comment that “a bit” was generous. It feels more than a bit high, but I don’t really have an objective reason to say that. I don’t know the specifics of the investment. Like you said – it “feels” too much to me.Whenever something feels like that to me, I think a lot about what it might feel like to others who have skin in that game.

          1. awaldstein

            First off thanks–as I didn’t know about this and love the transparency of their raise.So simple and bold and they have metrics.I’m not interested in investing so hey–if it works good for them.

          2. bsoist

            I love the transparency too.And I like options. Every time I discuss a potential partnership with an entrepreneur, one of the first things I ask is a carefully worded version of “are you going to jump at the first acquisition offer because you can’t pay your rent?” That’s the extreme example, but it usually leads to a discussion of any short term goals they may have. I see FC as one potential option to meet those shorter term goals ( if exercised carefully ).

          3. awaldstein

            Nicely said.

        2. William Mougayar

          I’m asking. I think it’s a high ratio from a conventional point of view. But Buffer is run in a non-traditional. they have explained this on their blog.

          1. awaldstein

            I read this and am fascinated honestly.But I struggle with the idea of me putting my dollars as an investor into such a cash back.And asking what your take is from your gut.

          2. William Mougayar

            My take is if you can get away with it, then great for them. They built a lot of social capital early on, and got a lot of friendly angels to invest in them. It sure looks like the deal is good for the company, more than it is for the investors, IMO. And since you’re asking, I don’t agree with their valuation being pegged at similar public companies valuations. I think it’s like apples vs. oranges.

          3. awaldstein

            I takes some prodding to get a gut response from you my friend but it is always worth it.Thanks!

    4. Matt Kruza

      I think the question of “too much” based on a ratio is incomplete. I will have to read on Buffer, but lets say they are cash flow positive.. if so then there raise may be appropriate. If they are still burning $300k a month and this raise only gives them 8 months of runway then that is a different take, regardless of percentage taken off the table

      1. William Mougayar

        It’s still the ratio I’m asking about 2/3.5 is about 57%.

  10. Twain Twain

    “Gives companies the flexibility to pass on those early acquisition offers” is an important part.Lots of startups cash out too early. If the founders and management had an arrangement like the one Founders’ Circle is proposing, then they might be able to “do a Facebook” and not cash out too early: decline Yahoo’s $100m buyout offer and find themselves valued at $1.5 billion a few months later because MS made a strategic investment. And we all know what happened next…IPO…and FB is a titan.The issue of not forcing mgmt to cash out too early is especially vital in the UK. A few years ago, Eric Schmidt made this comment: “You need to get better at growing big companies. The UK does a great job of backing small firms and cottage industries but there’s little point on getting a thousand seeds to sprout if they’re then left to wither or get transplanted overseas.”The irony is that Google has just bought out key AI teams (DeepMind and two Oxford University startups) that could have become the next $ billion UK startups.

    1. RichardF

      I agree there are few UK VC’s with the foresight to do this. I do know of one that allowed a friend of mine to take a small amount off the table earlier on and this paid dividends because the payday was better in the long run.

    2. LE

      then they might be able to “do a Facebook” and not cash out too early: decline Yahoo’s $100m buyout offer and find themselves valued at $1.5 billion a few months laterAny discussion of those outliers, and they are outliers by the way, also needs to consider the following:a) Not everyone would want to be as famous or as rich as Marc Zuckerberg. Just like not everyone wants to be Brad Pitt. Not everyone wants to have the burden of being a billionaire. Having money is good but having to much money can be a big problem as well. Just like drinking to much milk. Be careful what you wish for. [1]b) Passing on a offer that will be life changing and making you “rich” enough could be a mistake especially in a world that changes as quickly as technology. Not evaluating the downside. Big mistake.[1] I’m not talking about the proverbial “money doesn’t buy happiness” meme. I’m talking about having fame and to much money, for some people, could totally be a negative experience. Not everyone wants the entire world up their ass and wants to live in a fishbowl.

      1. Twain Twain

        These are all good points. In Nov 2013 when Snapchat turned down FB’s $3 billion offer, a lot of market commentators went “WTF?!!!” A year later they’re valued at $10 billion.However, it’s true that those are the “unicorns” (the FBs, Ubers, Pinterests etc.). The majority of founding/mgmt teams are not going to be in those situations where the magic is aligned:* great team delivering great product* mass consumer adoption* great investor-mentor guidance and support* capital liquidity in a bull marketEvery founding/mgmt team has parameters of success according to their situational circumstances. For example, most AI startups would cash out early to Google because then they’d have access to the Quantum servers and AI knowhow that Google has.Some founding teams don’t care one iota for VCs because IPO’ing is not something they’d ever consider; they want to build companies that will remain private (or in partnership structure), generate enough revenue for their employees to earn a decent income for the rest of their lives and avoid the media, government and finance sector scrutiny that comes with being a public company.Some founding teams are not at all motivated by owning monetizable shares; so some release their knowledge as Open Source materials, some set up as charitable foundations and some just code apps for the sake of the intellectual challenge rather than to earn $$$ and become #1 on AppStore.There is such a diversity of situations for founding/mgmt teams.My comment is mostly to reflect a specific situation about startups, especially in the UK, being forced to cash out too early. Too early could be at the sub-$1 million level as well as all the way up to the $100 million that FB turned down.If something like Founders’ Circle can support the founding/mgmt team as they work through how to do things like “pay off graduate school debt, put a down payment on a house, send the kids to school, or pay for a loved one’s medical expenses” whilst they’re doing their best to build value for their customers, employees, investors, wider society then that’s a good thing.

        1. LE

          pay off graduate school debt, put a down payment on a house, send the kids to schoolCreatively, also, some of these things could be taken care of another way. With less cash.For example “pay off graduate school debt” is just really “pay interest on graduate school debt”. If the assumption is that someone will make money in the future having even 200k of liability isn’t a big deal. Especially when you consider that it will be paid with less valuable dollars. So someone having enough money to pay just interest is not the same as having enough money to pay off principle? See the difference?Likewise, and oddly enough given what I said above, giving someone enough to make a down payment on a house doesn’t allow someone to earn money to actually pay for the house or be able to afford the expenses of a house. Perhaps a model where the house was purchased by someone else with a quid pro quo for exchange of ownership at a future date might be a creative solution while still providing the proper motivation that I feel might go down the drain if things got to cushy. (Some synagogues buy house for rabbis for example and let them live there.)As far as “send the kids to school” or “pay for a loved one’s medical expenses” that’s a bit different.I think with respect to that the most important thing to realize is that if you enter into a risky venture with a possible big payout you have to understand in advance that it might be years before you can come up for air.I’m also curious how many people in this situation have to pay for a loved one’s medical expenses or how often that happens and why the burden is foisted on them exactly….or why they feel it’s something they have to do. [1] It’s not like they are the rich uncle and have it made in the shade.[1] Sounds harsh but I don’t think you can go around (except in exceptional circumstances) and make financial decisions for your own life because a family member has a medical problem which has become your problem. (And I know this sounds cold by the way..)

          1. Twain Twain

            Founders are also employees like everyone else. They have medical bills to pay (sometimes not their own), family to take care of (e.g., roof over their heads), household cash-flow and budgets to contribute to.

        2. ShanaC

          I don’t see how snaphat has a great team – but it does have an icarus like one for now.

          1. Twain Twain

            KPCB, Yahoo, Coatue, Lightspeed, General Catalyst, Benchmark Capital and IVP probably see Snapchat as a “great team” since they’ve invested in them.Investors constantly tell the market “We invest in great teams with great products” so I’m parameterizing the unicorns by that definition — rather than my own personal opinion of the Snapchat team (I don’t have a personal opinion because I don’t know them and don’t use Snapchat).On Pando, Sarah Lacey wrote an extensive piece ‘Venture Capital and the Great Big Silicon Valley Game”*…where she called out the likes of Evan Spiegal of Snapchat.

  11. Jordan Hepner

    Fred, would USV consider putting its next fund on a platform like iCapitalNetwork so we can invest with your firm? Great way to involve your most avid supporters.

    1. fredwilson

      we have too much money already. we’ve been shrinking our fund sizes for several fund formation cycles and i expect we will continue to do that. we can’t add more investors when we are cutting back our existing and loyal ones

      1. John Revay


  12. pointsnfigures

    Had a person ask me once about this exact thing. They were thinking of taking money off the table in a financing round. My question didn’t center around debt, alimony etc, it was broader; “If you take money off the table now, will the money change your life?” If it does, then by all means negotiate a way to take some money off the table. If not, then let it ride.

    1. falicon

      +1 for “Let it ride” alone.

  13. Abdallah Al-Hakim

    Interesting. One of the recommendations made in Ben Horowitz book (the hard things about hard things) was how important it is in startups to start paying c-level executives market competitive salaries once they can afford it. The idea is to not make the founder un-necessary poor which removes some of the pressure to sell early. So, founder circle can probably operate in that space just before a company can afford to pay its c-levels the appropriate market salaries.

  14. Matt Kruza

    Ok, so at what valuation does this make sense (both to fellow entrepeneurs and curious of VC and angel investor perspectives too). My personal take is probably need to be at least at $50 million or so to really claim you have created enough value to cash out anything more than $100k or so (making exceptions for <100k to pay off high interest debt etc. which could wear on execs mind). But what is everyone’s take? I certainly would think 25m minimum is reasonable and could see arguments of 100m or 200m. also, do some think it should more depend of length of time in? (like 18 months in less likely to be appropriate than if they are 5 years deep?)

    1. Chris Albinson

      Matt great question and one that the community continues to struggle with. Our view is once the start up is 4+ years old & on the way to build something big = another 4+ years ahead of it + already built great product market fit. At this point the team has clearly accomplished & sacrificed a lot. It is also clear they have many miles to go in the marathon that it takes to build a great company & life pressure is building up (house, kids, school debt). We think of this as the water station at mile 21 in that marathon to build a Breakaway growth business. There is no question there are needs @ miles 8, 12, 16 etc. We believe you create misalignment at miles 1-8 & that it is not a good idea. This question is always more people and company specific because the details really matter.

      1. Matt Kruza

        Chris, love the response and thinking. Pretty aligned with where my thinking is. The race analogy is good. If anything time in should be more meaningful than absolute amount of %

      2. William Mougayar

        Hi Chris, Roughly what percentage goes to the founders pockets vs. into the company?And what do you think of what Buffer App is doing?

        1. Chris Albinson

          William – the short answer is it depends. I think a good way to think about it is 15-50% of vested stock after the company is 4+ years old. Enough to stay focused and build the business. In terms of Buffer App, it seems like too much too early, but I don’t know all the facts. I love how transparent they are being.

          1. William Mougayar

            Thanks Chris. I had a similar initial reaction as yours re: Buffer.

  15. LE

    We recommend providing liquidity at a level that’s just enough to let your people pay-off their debts, buy their family a house, enroll their kids into school, help cover a family member’s medical needs or, for early backers, enable them to return funds to its members. That’s it. I think the question is when does not having financial pressure impact the motivation and the work ethics of the person who has been given the lifeline? At what point? What’s the dollar amount that provides relief but does not dampen motivation and drive? [1]I remember as a kid being told by my Dad about a particular salesman who was getting married and wouldn’t be a single bachelor anymore. The concept that my dad told me was very clear to this day. The salesman would end up having to work harder as a result of the pressure of having a wife and a family. My dad was very happy that he was getting married.When I met my new brother in law he was a bachelor, good looking, living the life in NYC as an opera singer able to date dozens of women at the same time <– exaggeration. Going from gig to gig work wise not saving not caring about the future. One weekend he sung at an old age home and was paid $1000 for a few hours work. I asked him how easy it was to get that work and he told me “really easy but it’s not what I do so I turn most things down” (roughly translated not exact). I couldn’t believe that he was turning down $1000 for a few hours work.Well low and behold 2 years later he’s now married and had to move out of the city and buy a home for his wife (who is also a singer but does’t work as much). All the sudden his ass is totally in gear and motivated to make money because he needs money to make his bride happy. So he’s giving voice lessons and doing whatever he can to make a buck.[1] Further even with respect to the family if the wife sees that the pressure is not there she might very well put on more pressure to work less hours. I’m sure Fred wouldn’t be schlepping all over the world for 4 weeks away from the office if he wasn’t living in Manhattan my guess is he’d be less likely to take time off (and not for money reasons ..)

    1. ShanaC

      because too much fear is paralyzing. Fight, flight or stop. You don’t want to activate stop or flight.So low and behold is a complicated beast

  16. ErikSchwartz

    This should be based on cash flow, not valuation. In a cash flow positive business with strong user growth I have no issue with this at all.For a product that has not yet found a sustainable business model to turn the product into a company IMO the practice is fraught with peril.

  17. JLM

    .This blog post confronts two interesting areas: the compensation of CEOs and the path to the pay window.As a Boardmember, you and the company own the CEO’s problems. If he is living on Ramen noodles and suffering, then his performance will be compromised. You own that problem and it is just good business to ransom his discomfort and put him in the most productive environment possible.When you have a company which is “aligned” with the future and the real opportunity, they are also aligned with the journey to the pay window. Nobody gets to push and shove to the front of the line. Everybody goes to the pay window together. Their is an elegant simplicity to that concept which appeals to reality.These two notions can collide and like any collision of complex ideas there is a necessity to negotiate a separate peace. This requires a degree of sophistication that makes the flavor of the two ideas together more pleasing than either one by themselves.In my CEO coaching, I am constantly counseling CEOs to get employment agreements which codify the legal relationship between them and their employers — typically the Board. You will never get a fairer deal than the initial employment agreement. Compensation, change of control, termination, severance — negotiate all of these things when everyone is still giddy with the possibilities of it all.This is also a good time for a CEO to negotiate any short term liquidity considerations. This is where the Board can prevent short term problems from becoming big problems. You will not get the best performance from a CEO living in a cardboard box on top of a subway grate.On the other hand, there is something magic about the path to the pay window being a parade in which everyone is marching in step and holding hands. It works and there are very important principles at work here. I have done it a few times. It works.With each passing day, the degree of subtlety and sophistication necessary to make these judgments becomes more challenging. Throw in serial entrepreneurs who may already be wealthy and whose performance is unlikely to be impacted by short term considerations and poor King Solomon had it easy.Personally, I find myself always counseling CEOs to take care of themselves as I don’t trust Boards and VCs to take care of the CEO. They always take care of themselves.OTOH, I find more VCs who are understanding the real world pressures of the CEO and his effort to create value and personal wealth.Everybody needs to wet their beak.JLM.

  18. Kinesh Patel

    This is interesting, but there are others taking innovative marketplace-based approaches to this problem:

  19. Ahsan Sohail

    Two interesting dynamics are arising: 1) Providing liquidity to founders/employees of high growth companies is a great idea. As CJM mentioned, you never want these individuals to become risk averse at just the wrong time, or worried by a potential to diminish the value of their equity.2) Funds like Founder Circle help private companies stay private for even longer. At the end of the day, this will harm the retail investor by shifting the majority of equity growth to private investors since companies will IPO at a much higher value. This trend has been around for a while and will likely continue to stay for years to come.

  20. fredwilson

    i hate the exchange idea

  21. LE

    Stopped by WF Marlton to look for your “nasty bread”. Not there yet. Still has tons of “Vermont Bread Company” on the shelves. Bakery lady didn’t know anything I asked her.

  22. Chris Albinson

    We looked at this closely and agree with Fred. Exchange funds never work for a couple of reasons, but the main one is the person with the worst stock wants to push the most in, the person with the best stock doesn’t want to put any in. In the end, you really haven’t accomplished the goal of diversification. The returns are bad and don’t really help anyone.

  23. Chris Albinson

    West coast just waking up & now post coffee! Fred thank you for kind words! Great conversation here already. A couple of thoughts.Founders Circle is my 6th start-up and one that is very personal. We have had the challenge as founders, operators, section 16 officers in public companies, and board members when the company’s needs don’t match the team’s need. It became a win/lose & you just had to “suck it up” adding unneeded personal stress and distraction on an already stressful life. We knew there had to be a better way. A way that was transparent and company constructive to address the needs of all the founders, company, and existing investors.Done correctly, a secondary can thoughtfully deal with the stuff (tax, legal, 409A, disclosure), but most importantly energize the team. One of our Circle members, Kevin Chou, founder of Kabam wrote about his experience here

  24. LE

    You could do this test.Take the same exact product and label one with “Nasty Bread” clearly visible (as if that moniker means something) and the other without any special brand or some less provocative name. (Not saying to replace “Lancaster Bread Company” just to add to the plastic bag “Nasty” in some way. Or box, whatever.)My guess is that the product labeled “nasty” will outsell and continue to outsell the less provocative name.No need to reprint bags you can just stick some nice labels on it.Point being if I’m staring at a rack full of bread what is going to cause me to take a moment and think “hey what’s up here”? And in that moment possible make a buying decision. And remember or mention the name to someone else “hey that nasty bread is really good”.That said if this doesn’t fit with your marketing vision that’s understandable.

  25. fredwilson

    adverse selection problems