Latest / The Startup Exit Podcast with Fexingo: IPOs, Acquisitions, and Founder Liquidity Events / How Founders Use IPO Pop to Structure Post-Exit Wealth
Transcript
- Lucas: The loudest sound at an IPO is the opening bell. But the most dangerous sound for a founder is the silence about sixty days later, when the pop has faded and they're still holding most of their shares. Luna: You're talking about the temptation to wait for a better price after the stock starts trading. Lucas: Exactly. And a lot of founders fall into it. They see the stock double on day one — like Roblox did back in 2021, popped about fifty-four percent — and they think, 'Why sell now? It's going higher.' But that initial pop is often the peak, at least for a while. Luna: Roblox is trading around fifty-one fifty today, down quite a bit from those early highs. But you're not saying the pop is always the top, right? Lucas: No, not always. But statistically, a huge percentage of the first-day gain is given back within the first six months. And for founders locked up for ninety to a hundred eighty days, they can't even act during that window. So the smart move is actually to sell into the pop — before the lockup expires. Luna: But how do you sell before you're allowed to sell? That's the puzzle. Lucas: There's a mechanism called a pre ipo secondary block trade. The founder negotiates with the underwriters to sell a portion of their shares as part of the offering itself — not in the lockup period. It's not common, but it's becoming more accepted, especially in hot IPOs where demand is ten or twenty times oversubscribed. Luna: So the founder basically says, 'Give me some of that oversubscription action.' Lucas: Right. And the underwriters are happy because they get to allocate more shares to their best clients. But the founder has to be willing to leave money on the table if the stock pops higher. The trade-off is certainty. Luna: Certainty versus regret. That's a psychological game as much as a financial one. Lucas: It really is. And look, we've seen some founders get very sophisticated about this. They'll use collar structures — buying put options and selling call options against their position — to lock in a price floor while still participating in some upside. That way they can wait out the lockup without full exposure. Luna: That's a hedging strategy. It costs money, but it protects against the downside of holding concentrated stock. Lucas: And it's become more accessible as options markets have deepened. But the simpler point is: if you're a founder about to IPO, you should think about your exit before the roadshow starts. Not after. Luna: Are there recent examples of founders who did this well? Or who regretted not doing it? Lucas: Well, take Go, the Japanese ride-hailing company that just had the biggest IPO in Japan this year. They priced at the top of the range, and the stock has held up well. But the founder sold a significant secondary block in the IPO — about fifteen percent of the offering was insider shares. That's a signal to the market that the founder is diversifying, but also that they have confidence at that price. Luna: And the market didn't punish them for selling? Sometimes that's a worry for founders — that selling looks like a lack of conviction. Lucas: It can, if it's structured poorly. But if the founder sells a modest, pre-announced amount as part of the IPO, it's seen as prudent portfolio management. The real red flag is when a founder dumps millions of shares the day the lockup expires. Luna: That's the 'lockup dump' that always hits the stock. Lucas: Yes. And it's avoidable. Some founders use Rule 144 plans — pre-planned selling schedules — to dribble shares out over time. Others use exchange funds to swap concentrated stock for a diversified pool. But the key is to have a plan before the ticker starts trading. Luna: So let's talk about that planning step. How early should a founder start? Lucas: Ideally, a year before the IPO. You need to understand your cost basis, your tax situation — especially if you're in a state with high capital gains taxes. And you need to decide: do I want to sell ten percent, twenty percent, or none in the offering? That decision should be based on your personal financial goals, not on what you think the stock will do. Luna: That's hard, because founders are wired to be optimists about their company. Lucas: It's the biggest cognitive bias in this whole process. And it's why some founders end up as the largest individual shareholders in companies that later trade below the IPO price. They never sold. Luna: Speaking of which, I saw a stat recently — I think from a study by Stanford — that something like forty percent of venture-backed companies that go public trade below their IPO price after one year. Lucas: That's about right. And that means the pop is not just a celebration — it's an opportunity. If you're the founder, the smartest thing you can do is have a predetermined selling plan that captures some of that liquidity early. Luna: And if you're an employee with options? Same advice? Lucas: Even more so, because employees typically have less information and more concentration. They should be selling into the pop if they can. Of course, many are also locked up, but some companies now allow early exercise or have structured secondary programs for employees. Luna: Right. And we've seen more companies do that, especially in the AI space where talent wants liquidity. Lucas: Exactly. And that's a good thing. The more liquidity you can provide early, the more aligned everyone stays. But it requires the founder and the board to prioritize it. Luna: So, for a founder listening who's planning an IPO next year — what's the one actionable takeaway? Lucas: Talk to a wealth advisor who specializes in concentrated equity, and build a hedging or selling plan before you file your S-1. Don't let the excitement of the roadshow and the pop dictate your financial future. Luna: Because the pop is champagne, but the real wealth is built in how you manage what comes after. Lucas: Exactly. And on that note, I want to say something quick. We can have conversations like this because a small group of listeners supports the show directly. If you find value in these episodes, you can help keep them ad-free by visiting buy me a coffee dot com slash fexingo. It's a simple way to chip in, and it really does make a difference. Luna: Yeah, it's that listener-funded model that lets us dive deep into topics like this without commercial breaks. We appreciate every bit of support. Lucas: So, back to the strategy piece. One thing I didn't mention is that founders can also use structured loans against their locked-up shares. That gives them cash without selling, and they can repay the loan after the lockup expires. Luna: But that's risky if the stock drops and they get a margin call. Lucas: Very risky. And we've seen that blow up. So the cleanest approach is still a planned secondary sale or a collar. But the loan option is there for founders who are very confident. Luna: Confidence is expensive. Lucas: It is. And the market doesn't reward it. So plan ahead, sell some, and enjoy the rest of the ride. Luna: Good advice. Thanks, Lucas.