Jan 26, 2023

It’s a lot harder than it was 12 months ago. “Secondary liquidity” for founders is a fluid question and process. Up until say 2017–2018 or so, in SaaS, there was a rough rule: a relatively small amount of secondary liquidity ($1m-$2m) would be offered by growth investors in top VC rounds once a startup crossed $10m ARR or so. Generally, less than 10% of the total round might go to secondary liquidity. Get to say $15m ARR, growing quickly, raise a round at a $120m valuation, and founders might each take $1m as secondary liquidity. This all changed as venture markets for SaaS exploded from 2019-early 2022. Secondary liquidity creeped into every hot round as a way for even Series A investors to win deals. It became common at the peak of venture craziness in 2021 for even $1m ARR rounds to have some significant founder secondary if the deal was way oversubscribed. And we saw a series of $100m+ deals for founder secondary in hot decacorns. I'm all for founders selling in secondary to de-risk a little and make their lives easier…but ~$140MM?? 17%?? Realizing nine figures before profitability (and presumably long before employees can de-risk) feels very strange. pic.twitter.com/KAtZyyiGOP For now, the pendulum has swung back in tougher times. Founder secondary seems to have almost disappeared, as early-stage investors have backed away, and growth rounds are rare. The demand to buy founders’ shares at all but a handful of super-hot startups has waned. Growth investors are doing far fewer rounds, and are OK with secondary shares, but are demanding larger discounts with smaller sales. Having said all that, this is pretty different from PE-style buy-outs of profitable SaaS companies. This is what Atlassian and Qualtrics did, for example. They bootstrapped themselves to tens of millions in profitable revenue, and then sold a big chunk of founder secondary. You can see in our convo with Accel Growth (which led the investments in Atlassian and Qualtrics) saying they’d love to do more of these deals right now, they just can’t find them: A related post here :