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Late-stage sales are routine
Late-stage companies like Anthropic and OpenAI are within months of an IPO, and employees taking chips off the table there is fine. SpaceX ran organized secondaries every six months for years.
The Series A signal
A founder raising a Series A who tries to take chips off the table sends the opposite message. Investors back a company because they want the founder all in, and cashing out does not fit that. For a nascent, pre-revenue company, selling reads like a lack of faith in your own company.
When the picture changes
The picture changes in year three or four, when a company has $100 million in revenue and is tripling revenue year over year. A sale by the founder at that stage is a different matter.
How do founder shares vest?
Founder stock typically vests over four years, with a one-year cliff: nothing vests until the first anniversary, then a quarter vests at once, and the rest vests monthly. Investors insist on this so a founder who leaves early does not walk away with a full stake. The four-year schedule with a cliff became standard in venture deals in Silicon Valley.
Why do companies stay private longer now?
Late-stage private funding became abundant in the 2010s, and public-company rules such as Sarbanes-Oxley in 2002 added compliance costs. Companies could raise large rounds privately and arrange secondaries so employees were not forced to wait. Amazon went public in 1997, about three years after its founding, Google in 2004, about six years after, and Facebook in 2012, about eight years after.
Why do insider sales worry investors?
Selling by insiders can signal that they expect weaker results. Finance research on insider trades, including Nejat Seyhun's studies of insider trading disclosures, has long found that insider purchases carry a clearer signal than sales. Insiders sell for many reasons, such as taxes or buying a house, so a sale alone says less than a purchase.
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