False promise of liquidity

I was chatting with some people in my Washington Huskies fan Discord group about recruiting kids in the day and age of NIL. Since a couple years ago, schools/fans can more or less legally pay college athletes to play sports at their school. We had a funny discussion on whether each person would be a halfway decent recruiter, given that pretty much none of us work in sports or have played more than high school level football.

I came to the conclusion that I would be better than average given my day job which consists of building relationships, negotiating, and yes giving money to people. Someone else made a joke about how brutal it would be speaking to a bunch of kids (and their parents) asking for money upfront without actually earning it yet. I had a good laugh and then realized just how similar this is to startups and tech.

We get a lot of inbound and requests from founders and employees looking for liquidity. That should be no surprise, because I also like money. However I’ve noticed that over the last few years, there’s been such a large disconnect with reality when it comes to liquidity. For example, I had a founding employee reach out last month looking for liquidity on his shares after reaching a collective $1M in revenue. Yes, that’s collective.

I don’t blame individuals for looking for cash to better their lives, but I do believe that the last few years of the bull market have unfortunately created an unhealthy promise that you join a startup and you’re guaranteed liquidity at some point in time. The reality is that almost all startups fail and most startup shares end up worthless.

Liquidity comes when your company has hit certain milestones. ZIRP unfortunately moved those milestones earlier and unfortunately we now have a situation where founders and employees expect that to be the norm. That is no longer the case and it won’t be going forward, yet there is still a perception among employees that it is so.

I don’t believe this is healthy for the startup ecosystem in general. The get-rich-quick world is now over and people need to get back to joining startups for the right reasons.