Crypto Founders Cashing Out Early: is It a Problem?

Good morning, it’s crypto Editor Jeff Roberts pinch-hitting for Allie. Over the course of my career, I’ve written many stories along the lines of “Buzzy new startup raises $50 million.” Imagine my surprise then when I learned that, in recent years, those splashy headline numbers are not always what they seem. In a growing number of deals, it turns out, a chunk of the money raised doesn’t go to the startup, but instead into the pockets of the founder.

That was the case with crypto payments firm mesh, which announced an $82 million Series B this year that included a $20 million payout to its founder.Ditto with the blockchain social network firm farcaster, which raised an eye-popping $150 million Series A, but saw its CEO carve off at least $15 million of that. You can read about other examples here.

These payouts-which are totally above board-take place by means of secondary sales that involve venture firms purchasing some of the founder’s personal stock during a round.In VC-speak, the practice is called “taking some off the table” and it’s common during frothy markets. During the crypto boom that tailed off in 2021, for instance, the founders of firms like OpenSea and MoonPay collected eight-figure payouts.

VC firms and founders, unsurprisingly, are not eager to talk about the practice. After all, cashing in early clashes with the Silicon Valley ideal of the founder who would never dream of selling their stock as they are so sure their startup is going all the way. It’s not unusual for founders to sell some shares at a later stage “so they don’t have to worry about the mortgage,” in the words of one VC, but an eight-figure Series A or B payday-well before it’s clear a startup will succeed-feels different.

When I spoke with investors from small firms,they blamed large crypto VC firms for dangling sweetheart secondary arrangements to be the lead on a deal. A person at one of those large firms,in turn,blamed generalist firms charging into the crypto market for the proliferation of these arrangements.

My reporting focused on crypto deals, but it’s a safe bet that founders in other hot sectors like AI are also “taking some off the table” in early rounds. The question is weather this matters.

Venture investors told me that many crypto founders are rich already, so a big Series A payout is unlikely to undermine the incentive they have to build their company. They also claimed they’ve seen no evidence that a founder who hits an early jackpot will grind less hard than one who hasn’t. And, after all, the nature of venture is that most bets don’t work out so does it matter if one portion of a losing bet on a portfolio company went to a founder?

Still, there is an ick factor. Most Americans don’t begrudge Mark zuckerberg or Jeff Bezos for being obscenely wealthy as, well, they built awesome companies used by everyone. But do they feel the same about a crypto founder who gets filthy rich without building anything of note? The situation is also awkward since, as one female founder wrote me, these early stage payouts may reflect a vote of confidence in men that is not always extended to women.

Venture capital,of course,is hardly the only realm where people can get very rich without accomplishing much. In the sports world, my poor Toronto…

Funding Roundup: AI Procurement, Data Infrastructure, and More Secure millions This Week

This week saw a diverse range of companies securing significant funding, spanning AI-powered government contract solutions to innovative RV technology. Here’s a quick look at some of the notable rounds:

• Government Contracts: GovWin, a Herndon, Va.-based market intelligence platform for the government contracting industry, raised an undisclosed amount of funding from Thoma Bravo.

• Procurement Automation: Procurement sciences, a Washington, D.C.-based AI-powered platform designed to automate the processes for businesses to secure and fulfill government contracts, raised $30 million in Series B funding. Catalyst Investors led the round.

• Data Infrastructure: DualBird, a Westborough, Mass.-based data infrastructure company, raised $25 million in combined seed and Series A funding. Lightspeed Venture Partners led the round, joined by Bessemer Venture Partners, Angular ventures, and Uncork Capital.

• Enterprise Intelligence: Parable, a Brooklyn, N.Y.-based intelligence layer for enterprise operations, raised $16.5 million in seed funding.HOF Capital led the round, with participation from Story Ventures and InMotion Ventures.

• Smart RVs: Evotrex, a Los Angeles, Calif.-based smart, power-generating RV company, raised $16 million in pre-Series A funding from Unity Ventures and Kylinhall Partners.

• E-Bike Solutions: Ridepanda, a San Francisco-based company providing e-bikes as an employee benefit, secured $11 million in seed funding.

Recent Funding Rounds: A Quick Look

Here’s a rundown of some recent funding activity across various sectors. These rounds demonstrate continued investor interest in innovative companies tackling diverse challenges.

VENTURE CAPITAL

• Aclima,a San Francisco-based environmental intelligence company,secured $50 million in Series C funding. This investment will fuel their expansion and further develop their network of environmental sensors.
• Vianai Systems, a Silicon Valley-based AI platform provider, raised $130 million in Series B funding. They plan to use the funds to accelerate product development and expand their go-to-market strategy.
• Forto, a Mexico City-based freight forwarding platform, announced a $20 million Series A extension. This brings their total Series A funding to $52 million, allowing them to scale operations and meet growing demand.
• Frst led a $3.3 million seed round for OneLot, a Manila, Philippines-based financing platform for used car dealers. Brick & Mortar Ventures also participated. OneLot is addressing a critical need for financial access within the used car market.
• OneLot, a Manila, Philippines-based financing platform for used car dealers, raised $3.3 million in seed funding. Accion Ventures and 468 Capital led the round, with contributions from Everywhere Ventures, Seedstars, and others.
• Planbase,a San Francisco-based AI-powered employee management platform,raised $2.1 million in funding from Y Combinator, localglobe, and angel investors. They’re streamlining HR processes with artificial intelligence.

PRIVATE EQUITY