Historically, VCs were very much against founders receiving early liquidity, meaning the ability to cash out some shares before a full exit event. The logic was that they wanted founders to stay “hungry” for the exit (acquisition or IPO) in which everyone (including the VCs) makes money, and that taking money off the table removed that hunger.

That logic is understandable, but many VCs today have come around to the view that it is too myopic. Too much “hunger” for an exit event can actually reduce the ambition of a founding team by making them more likely to seek a suboptimal (early) exit at a lower price. A founder’s financial impatience can thus actually reduce the returns to their investors.

There can be many perfectly understandable reasons for why founders may want some early liquidity that have nothing to do with a lack of “hunger” for more growth of the startup. Most often, they’ve been growing the company for years, often at a salary far below what they could earn as total compensation in the broader market, and their families are asking, “So if you’re doing so well, when will we actually see some of it?”

It can be frustrating for a spouse to see headlines that your company has raised tens or hundreds of millions of dollars at very impressive valuations and yet still not be able to afford a home they’ve been eyeing that, had you taken that job at BigCo instead of being an entrepreneur, you certainly could’ve afforded. Success on paper without anything to show your loved ones can generate very real personal life tension.

For this reason (and others), early founder liquidity is considered a much more reasonable topic of discussion during VC funding rounds, and VCs see the acceptance of some early liquidity as consistent with broader fiduciary duties to maximize returns for stockholders. Letting founders take some money off the table can make them “swing harder and longer” for the whole cap table.

That said, there are still understandable limits.

Seed stage is virtually always too early. We have seen founder liquidity at Series A, but a lot rests on the context. For example, some Series A rounds circa 2026 are often of a size and a valuation that would’ve labeled them Series B 5-10 years ago, due in part to “seed stage” (and even what some call pre-seed) stretching out far longer than before.

If your Series A round is thus seen by your lead investors as a “growth round,” discussing liquidity may be viable. Series B (true growth stage, when product-market fit has clearly been established), however, is when founder liquidity becomes a “more often than not” scenario.

Aside from stage, there are limits on how much will be allowed to be sold. Again, context matters, and what’s acceptable varies widely, but it’s rare to see founders sell more than 3-5% of their holdings in any given secondary sale.

That’s usually enough for founders to bring home a meaningful amount of cash to impact their personal lives and reduce impatience, without negatively affecting that longer-term “hunger” that VCs still very much want to protect.

At formation stage, keep Series FF in mind as a useful planning structure for facilitating early founder liquidity from a tax perspective. Also when choosing a startup’s lawyers, ensure company counsel is truly independent from the VCs sitting on the Board, so that when founders and other common stockholders enter tough negotiations there aren’t concerns about where loyalties truly lie.

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