Crypto Founders Cashing Out Early: A Deep Dive into Secondary Sales

Introduction to Rapid Wealth in Crypto

In the startup world, we're accustomed to stories of founders toiling for years before becoming millionaires upon an IPO or acquisition. But in the crypto space, the path to wealth can be considerably shorter.

Notable Cases of Secondary Sales

Take Bam Azizi, who founded the crypto payment company Mesh in 2020. After an $82 million Series B funding round this year, at least $20 million went directly into Azizi's pocket through 'secondary sales'.

Secondary sales mean that investors are buying shares from founders or early participants. This means that a significant portion of the funding amount may not actually reach the company's accounts. However, for founders, this provides them with early financial freedom.

Further Examples and Risk Assessment

Azizi is not alone. The crypto bull market since last year has seen Bitcoin's value soar from $45,000 to $125,000, creating countless fortunes. In mid-2024, crypto social media platform Farcaster raised $150 million in a Series A funding round, with at least $15 million earmarked for purchasing shares held by founder Dan Romero.

Omer Goldberg also benefited, with his security company Chaos Labs receiving $15 million in a $55 million Series A funding round this year. While the company has become an important voice in blockchain security, it has remained silent on the deal.

Why Do VCs Agree?

According to insiders, secondary sales are becoming common in the current hot crypto market and trending AI tracks. Major venture capital firms, such as Paradigm and Andreessen Horowitz, often agree to purchase founders' shares to secure a leading position.

Lessons Learned from the Past

This scenario may be familiar to veteran crypto observers. During the ICO craze of 2016, countless projects easily raised hundreds of millions of dollars through token issuance. Companies tried to impose constraints on founders using 'governance tokens,' but one venture capitalist confessed: 'They call them governance tokens, but they don't really govern anything.'

The Right Incentives

Why don't venture capital firms insist on more traditional incentive models—allowing founders to meet basic financial needs in Series B or C rounds, but they must wait until the company is truly successful before receiving significant returns?

Derek Colla, a veteran deal lawyer, points out that crypto companies are mostly 'asset-light' and do not require huge capital investments like the chip industry, so this money naturally goes to the founders.

Colla concludes, 'Great founders never want to sell on the secondary market.' In this industry full of opportunity and bubbles, it may be worth thinking about: What kind of incentives can truly create great companies?