Founders Cashing Out Early in Venture Deals Raises Concerns

A growing trend of venture capital deals includes payouts to founders during funding rounds, raising questions about incentives and long-term commitment to startups.

Recent deals reveal that founders are increasingly “taking money off the table” through secondary sales, where venture firms purchase their personal stock during investment rounds. Crypto payments firm Mesh saw a $20 million payout to its founder as part of an $82 million Series B round this year, and the blockchain social network Farcaster’s CEO received at least $15 million from a $150 million Series A raise. This practice, while legal, is sparking debate within the venture capital community.

The practice is particularly common during periods of market exuberance, such as the 2021 crypto boom, where founders of companies like OpenSea and MoonPay also received eight-figure payouts. While some investors argue that these early exits don’t necessarily diminish a founder’s dedication – noting many are already financially secure – others express concern about the signal it sends. The increasing prevalence of these arrangements could impact future investment strategies and due diligence processes. For more on venture capital trends, see NFX.

The issue also raises questions about equity and opportunity, with one female founder suggesting these early payouts may reflect a bias towards male founders. As reported in Fortune, the practice remains largely unspoken, with both VCs and founders hesitant to discuss the implications publicly. Officials stated that they expect this trend to continue during periods of high market activity, with potential repercussions when market conditions change.