The startup world celebrates tales of founders who scratch and claw for years and, lastly, turn into multimillionaires when the enterprise they constructed goes public or is acquired. These tales of wealth are frequent in crypto, too—although the trail to a giant payday is usually a lot shorter.
Living proof: Bam Azizi based crypto funds agency Mesh in 2020, and this yr raised $82 million in a so-called Collection B funding spherical. Within the extraordinary course of issues, capital raised in a Collection A or Collection B spherical goes virtually completely to fund a startup’s progress. However on this case, the spherical included at the least $20 million for Azizi himself.
The payout got here by way of secondary gross sales, which entail buyers buying shares held by the founder or others concerned early within the startup’s existence. Such gross sales imply that, when a startup broadcasts a funding spherical, the corporate itself usually receives much less cash than what’s touted in a headline. It additionally signifies that, moderately than ready years to transform their shares into money, the founder is instantly very wealthy.
This isn’t essentially a foul factor. In response to a request for remark about Azizi’s windfall, a Mesh spokesperson pointed to current achievements, together with a PayPal tie-up and the launch of an AI pockets, to recommend the corporate is doing very nicely. Nonetheless, founders cashing out early by way of secondary gross sales—a standard characteristic of the present bull market—allows some founders to amass fortunes earlier than their firm has actually confirmed itself, which in fact it could by no means do. This raises questions on whether or not such payouts distort incentives, and concerning the broader get-rich-quick tradition of crypto.
A $7.3 million compound in Los Angeles
Mesh’s Azizi just isn’t the one founder to obtain an early payday on this go-go crypto market, which kicked off final yr and has seen the value of Bitcoin soar from $45,000 to $125,000.
In mid-2024, a crypto-based social media platform known as Farcaster raised an eye-popping $150 million Collection A spherical led by the enterprise capital agency Paradigm. That determine included a purchase order of at the least $15 million value of secondary shares from Farcaster founder Dan Romero. An early Coinbase worker who acquired fairness earlier than that crypto large went public, Romero has not been refined in the case of his wealth. In an interview with Architectural Digest, he mentioned intensive renovations to his household’s $7.3 million, four-building compound in Venice Seaside, which Architectural Digest likened to “a small Italian village.”
Whereas the renovations have been successful, that’s not the case for Farcaster. Regardless of early momentum, the startup final yr reportedly had fewer than 5,000 every day customers, and at the moment trails far behind rivals like Zora. Romero didn’t reply to repeated requests for remark about Farcaster’s efficiency or his sale of secondary shares.
Farcaster’s struggles are notable in gentle of the $135 million ($150 million minus $15 million) the corporate raised, however they don’t seem to be uncommon. In crypto, and enterprise capital extra broadly, buyers perceive that it’s much more frequent for startups to fail than to develop into main enterprises.
Omer Goldberg is one other crypto founder to profit from the present wave of secondary gross sales largesse. Earlier this yr, he acquired $15 million as a part of a $55 million Collection A for his safety agency Chaos Labs, in response to a enterprise capitalist concerned within the deal. Goldberg didn’t reply to requests for remark, nor did Chaos Labs, which is backed by PayPal Ventures and has emerged as an influential voice in blockchain safety issues.
Azizi, Romero, and Goldberg are just some examples of those that have benefited from the current spate of secondary promoting, cited by enterprise capitalists and a crypto founder who spoke with Fortune. These sources requested to not be recognized with a purpose to protect relationships within the business.
Based on buyers, secondary gross sales—that are additionally happening in different buzzy startup sectors like AI—are on the uptick due to the new crypto market, which has seen enterprise corporations like Paradigm, Andreessen Horowitz, and Haun Ventures jostle to get in on offers.
On this context, enterprise corporations can turn into the lead investor of a spherical, or assure themselves a seat on the desk, by agreeing to show a portion of a founder’s illiquid shares into money. The preparations sometimes contain a number of VC corporations agreeing to purchase the shares in the middle of a funding spherical, and holding on to them in hopes they’ll be capable to promote them at the next valuation down the street. In some instances, a startup’s early workers might also have a possibility to promote shares—or, in different instances, they’ve been left at nighttime in the case of founders promoting.
For buyers, secondary transactions include threat because the fairness they obtain consists of frequent shares, which include fewer rights than the popular shares they sometimes obtain in a funding spherical. On the similar time, in a crypto business that has a historical past of overpromising and under-delivering, secondary gross sales invite a debate over how a lot to reward an early-stage founder—or in the event that they even have an effect on the long run success of a startup within the first place.
Crypto founders are completely different
For longtime crypto observers, the spectacle of founders amassing outsize sums in a bull market might set off a way of déjà vu. In 2016, a wave of so-called preliminary coin choices (ICOs) noticed quite a few initiatives increase tens and even tons of of hundreds of thousands of {dollars} by promoting digital tokens to enterprise corporations and most of the people.
These corporations sometimes promised to popularize revolutionary new makes use of for blockchain or to overhaul Ethereum as a worldwide laptop, which in flip would improve the worth of their tokens as their initiatives attracted extra customers. Right this moment, most of those initiatives are little greater than digital mud. A few of the founders nonetheless make the rounds on crypto’s countless convention circuit, however others have disappeared altogether.
One enterprise capitalist recollects how buyers in that period tried to impose accountability on founders via so-called governance tokens. In concept, these tokens offered their homeowners with a vote on a undertaking’s course, but it surely hardly ever labored out that manner in follow.
“They might be known as governance tokens, however they don’t govern shit,” the enterprise capitalist noticed ruefully.
By the point of the following crypto increase in 2021, startup offers started to extra carefully resemble conventional Silicon Valley funding rounds, with enterprise capitalists receiving shares of inventory (although token gross sales within the type of warrants stay a standard characteristic of enterprise offers). In some instances, in addition they got here with early payoffs to founders by way of secondary gross sales like those taking place proper now.
That is what occurred at funds agency MoonPay, the place executives raked in $150 million in the middle of a $555 million funding spherical. This association resulted in notoriety two years later when a media investigation reported that the agency’s CEO purchased a Miami mansion for almost $40 million shortly earlier than the underside fell out of crypto markets in early 2022.
Then there’s the NFT platform OpenSea. The once-buzzy startup raised over $425 million in a number of funding rounds, which included a hefty portion in secondary gross sales to its founding executives. By 2023, nevertheless, NFTs had turn into all however irrelevant, main the corporate to announce this month that it’s pivoting to a brand new technique.
‘You’re constructing a cult’
Given the business’s risky historical past, it’s value asking why enterprise capital corporations don’t insist crypto founders settle for a extra conventional incentive construction—one the place, within the phrases of 1 VC, they receives a commission sufficient on the Collection B or C stage to not fear about their residence mortgage, however nonetheless should wait till their agency achieves a profitable exit earlier than the large payday.
Derek Colla, a companion at Cooley LLP who has helped construction quite a few offers, says the norms are completely different in the case of crypto. He notes that crypto corporations are “asset gentle” in contrast with different startup sectors, which means capital that will go to issues like chips can go to founders as an alternative.
Colla added that, as a result of crypto is so pushed by influencer advertising, there’s an oversupply of individuals keen to throw cash at founders. “You’re constructing a cult,” he observes.
At Rainmaker Securities, a agency that makes a speciality of secondary gross sales, CEO Glen Anderson says a giant purpose founders have been receiving large early payouts is just because they’ll. “We’re in a little bit of a hype market in a variety of classes of shares like AI and crypto,” Anderson says, “and while you’re in that type of market and also you inform story, you possibly can promote.”
Anderson additionally says founders promoting shares isn’t an indication they’ve misplaced religion of their startup’s large ambitions. Nonetheless, there’s the query of whether or not founders are morally entitled to an eight-figure payday for making an attempt to construct an organization that will by no means go anyplace.
Colla, the lawyer, says he doesn’t assume these payouts extinguish the hearth of a startup founder to construct their firm. He notes that MoonPay’s founder bought drubbed within the media over his mansion, however that the startup’s enterprise is flourishing right this moment. In the meantime, in his view, Farcaster might have fizzled, however that was not owing to any lack of effort by Romero the founder, who, he says, “grinds more durable than anybody.”
Nonetheless, Colla acknowledged, the very best entrepreneurs search to carry on to all of their shares as a result of they imagine they are going to be value much more down the street once they take their firm public. “Nice founders don’t wish to promote on the secondary markets,” he stated.
Correction, Oct. 30, 2025: An earlier model of this story incorrectly said the quantity Mesh raised in its Collection B. It raised $82 million and, months later, raised extra for a complete of $130 million.
