Remember 2021? It feels like a lifetime ago, doesn’t it? That was the year of founder-focused liquidity, where fortunes were made on paper before a company had even proven its long-term viability. The poster child for this era was Hopin, whose founder, Johnny Boufarhat, famously sold an astonishing $195 million worth of his stock. We all know how that story ended; the company’s valuation cratered from a peak of $7.7 billion. The whole episode left a rather sour taste in everyone’s mouth.
Fast forward to today, and the landscape of startup liquidity strategy has been completely redrawn. The wild, founder-first cash-outs are out. What’s in? A far more measured, strategic approach focused on a company’s most valuable asset: its people. The conversation has decisively shifted from founder windfalls to employee retention.
The Great Recalibration: Why Secondary Sales Got a New Job
So, what’s really going on here? Simply put, the game has changed. The IPO window, once the promised land for cashing out stock options, has been stubbornly shut for years. Startups are staying private for much longer, which creates a very real problem for the employees who took a risk to join them. Their stock options are like a lottery ticket they can’t cash, even if it’s a winning one.
This is where secondary sales, specifically through a mechanism called a tender offer, have stepped in to fill the void. This isn’t just about being nice to staff; it’s about survival and smart talent economics. In a fiercely competitive market for engineers, data scientists, and product managers, you can’t expect the best people to stick around for a decade with no tangible return. A well-timed tender offer transforms illiquid, on-paper wealth into actual money in the bank.
Think of it like this: for most of the year, employee shares are locked in a vault. A tender offer is like the company announcing it will open the vault for a few weeks, with a designated buyer—either the company itself or a new investor—ready to purchase a certain number of shares at a pre-agreed price. It’s a controlled, private market event that provides liquidity without the chaos of a public listing.
The New Playbook in Action
This isn’t just theory. As reported by TechCrunch, some of today’s most promising startups are making this a core part of their strategy.
– Clay, the automation platform, is a prime example. The company has methodically used tender offers to reward its team whilst its valuation has soared. It conducted a tender at a $1.5 billion valuation, saw its valuation jump to $3.1 billion a few months later, and is now reportedly valued at $5 billion, having tripled its annual recurring revenue to $100 million in a single year.
– Linear, the popular project management tool, allowed employees to sell shares at a $1.25 billion valuation, giving them a taste of the upside they helped create.
– ElevenLabs, the AI voice company, recently executed a $100 million secondary sale at a staggering $6.6 billion valuation—double its previous mark.
What do all these companies have in common? They understand that this isn’t just about cash; it’s about morale. Kareem Amin, the CEO of Clay, noted that with this approach, “the gains don’t just accumulate to a few people.” This fosters a sense of shared ownership and success that is incredibly powerful for building a resilient organisation. As Nick Bunick of NewView Capital put it, “A little liquidity is healthy, and we’ve certainly seen that across the ecosystem.”
A Strategic Shift in Startup Compensation
This move represents a fundamental change in startup compensation. A competitive salary and a promise of future stock options are no longer enough. The new package, especially for late-stage private companies, must include a credible path to liquidity before an IPO or acquisition that might be years away.
Tender offers are becoming a powerful recruitment tool. Imagine you’re a top engineer choosing between two startups. Both offer similar salaries and equity. However, one has a history of running annual tender offers for its employees. Which offer seems more attractive? The one that gives you a tangible way to realise some of your hard-earned wealth along the journey. It de-risks the proposition of joining a startup.
But Is There a Catch? The View from the Venture World
Of course, no strategy is without its trade-offs. Whilst fantastic for employees and the companies retaining them, this trend has some significant downstream effects on the venture capital ecosystem. Ken Sawyer of Saints Capital summed up the tension perfectly: “It is very positive for employees, of course. But it enables companies to stay private longer, reducing liquidity for venture investors, which is a challenge for LPs.”
He hits on the crucial point. Venture capital funds operate on a cycle. They take money from their investors, known as Limited Partners (LPs), invest it in startups, and are expected to return that capital (with a healthy profit) within about a decade. The primary way they do this is through massive liquidity events like IPOs or major acquisitions.
When companies like SpaceX and OpenAI stay private indefinitely, running regular secondary sales to keep employees happy, they break this cycle. The VCs and their LPs are left holding shares they can’t easily sell. If LPs don’t see their money coming back, they become reluctant to invest in the next generation of venture funds. This could, over time, starve the ecosystem of the very capital that allows startups to form in the first place. It is a delicate balance.
The Future of Startup Liquidity
What we are witnessing is the birth of a new equilibrium. The 2021 model of founder-first excess was unsustainable. The current model, focused on disciplined, employee-centric liquidity, is a far healthier approach for building enduring companies. It aligns incentives and recognises that in the modern economy, talent is the ultimate kingmaker.
However, the challenge for the entire tech ecosystem will be to balance this new internal liquidity with the external liquidity that the venture model depends on. Can we have both? Or will the rise of the “private-for-longer” company force a fundamental restructuring of how venture capital works?
The smart founders and VCs are already grappling with these questions. A robust startup liquidity strategy is no longer a “nice-to-have”; it’s a critical component of company-building. The organisations that get this right will be the ones that attract and retain the best people, and ultimately, will be the ones that win.
What do you think? Is this employee-focused liquidity a permanent and positive shift, or does it pose a long-term threat to the venture capital model that fuels innovation?
