Jun 4 2007

Can Founders Cash Out At Time of Venture Investment?

Q: Can the founders sell off their shares to the company and get paid from the investment which has come in the company at the valuation rate of the round?

A: (Jason). Most likely, not. VCs are reluctant to allow founders to cash out, as the money going into the company is normally needed to operate / grow the company. Furthermore, many VCs have stories where they did allow founders some liquidity, they are no longer motivated, etc. and the company spirals. There are some very visible examples that most VCs talk about when this discussion comes up and they have not been “happy endings.”