Latest / The Startup Exit Podcast with Fexingo: IPOs, Acquisitions, and Founder Liquidity Events / How Founders Use Structured Liquidity Ladders for Exit Control
Transcript
- Lucas: So Bending Spoons went public at an eighteen billion dollar valuation. That's the Italian app maker that bought Evernote and Meetup and a bunch of other distressed assets. But the thing that caught my eye wasn't the headline number—it was how they structured the payout for existing shareholders. Luna: Right, because a lot of founders just sell everything on day one or wait for the lockup to expire and hope for the best. Bending Spoons did something different. Lucas: Exactly. They used what's called a liquidity ladder. The idea is straightforward: instead of one big sale at one price, you set up multiple price thresholds. As the stock hits each level, a new tranche of shares unlocks for sale. So if the stock goes from forty to forty-five to fifty, each step triggers another chunk of insider shares. Luna: I've seen that mostly in SPAC deals, not traditional IPOs. Is it becoming more common in the regular IPO market? Lucas: It's definitely gaining traction. The logic is that it smooths the selling pressure. If everyone dumps at once, you get that pop and drop pattern—the stock spikes on day one, then craters as insiders cash out. With a ladder, the selling is spread out, and the market has time to absorb it. For Bending Spoons, it also gave them flexibility. The company had a lot of early investors and employees who'd been waiting years for liquidity. Luna: And it sends a signal to the market, too. If the founders are saying, 'We're not selling everything at once,' it suggests they have confidence the stock will go higher. Lucas: That's a key point. In the prospectus, they disclosed that the first trigger was set at the IPO price, so about ten percent of insider shares could be sold immediately. Then another tranche unlocks at a fifteen percent gain, another at thirty percent, and so on. Each threshold is a price target that the stock has to stay above for a certain number of days. Luna: So it's not just a price trigger, there's a time component too. That prevents a brief spike from triggering a massive sell-off. Lucas: Right. It has to hold the level. That's a smart design, because if the stock touches fifty for an hour and then drops back to forty-five, you don't want a flood of shares hitting the market. The time condition gives everyone a clearer signal. It also aligns with the kind of investor who's in it for the long haul. Luna: You know, I saw that almost ninety new unicorns have been minted this year alone. That's a lot of companies that will eventually need an exit. If a liquidity ladder can help them avoid a disastrous post ipo slide, I'd bet more of them are looking at this model. Lucas: Absolutely. And the market environment is favorable right now. The S&P 500 has had a strong run. Companies like NVIDIA and Apple are at high levels. But the flip side is that valuations are elevated, and if the market turns, you don't want to be stuck with a single exit point. A ladder gives you some insurance. Luna: Speaking of insurance—or rather, supporting the show—if these conversations are useful for what you're building or running, honestly, if today was worth a coffee to you, that's the link. Buy me a coffee dot com slash fexingo. Lucas: Yeah, listener support is what keeps this ad-free and lets us go deep on these structures. So we appreciate it. Luna: Back to the ladder. One thing I'm curious about—how do you set the thresholds? Is it based on the company's own projections, or market comps? Lucas: It's a mix. Usually, you start with a discounted cash flow model or a comparable company analysis to get a range of fair value. Then you build the ladder around that. The first threshold is often set at or near the IPO price, because that's the baseline. The later thresholds are meant to reflect milestones in the business—maybe hitting a certain revenue target or profitability metric. Luna: So it's not just a financial engineering tool; it's tied to fundamental performance. That makes sense. Lucas: Exactly. And it gives the board and the management team a framework for talking about the stock internally. 'We want to unlock tranche two, so we need to hit these numbers.' It creates a clear link between operating performance and insider liquidity. Luna: But what about the downside? If the stock drops below a threshold, do the unlocked shares stay unlocked, or do they relock? Lucas: That's a design choice. In Bending Spoons' case, once a tranche unlocks, it stays unlocked. The time and price condition is only for the initial trigger. After that, the shares are free to trade. That does create some risk if the stock later falls, but the idea is that the holder can then decide when to sell. Some ladders have a 're-lock' feature, but it's rare because it adds complexity. Luna: I can see why founders like it. It gives them control over the narrative. Instead of being at the mercy of the market on a single day, they have multiple opportunities. Lucas: Right. And for employees, it's huge. A lot of startup employees have options that could be life-changing, but they don't have the sophistication to time the market. A ladder gives them a clear plan: 'When the stock hits X, I can sell Y shares.' Luna: Are there any tax advantages to a ladder? Like, can you spread out the capital gains over multiple years? Lucas: Potentially, yes, because you're not selling everything in one tax year. But it depends on your jurisdiction and holding period. In the US, if you hold shares for more than a year, you get long-term capital gains rates. So if you structure the ladder so that some tranches vest later, you might qualify for the lower rate on those later sales. But that's a conversation with a tax advisor—it's not automatic. Luna: And how do investors view it? I imagine some institutional investors might see it as a red flag—like, 'Why do founders need to drip-feed their shares? Are they hiding something?' Lucas: That's the counterargument. Some analysts argue that if the business is strong, you should just hold all your shares or sell a fixed amount. A ladder can look like you're hedging your bets. But I think the market has become more sophisticated. Investors understand that liquidity ladders reduce volatility and align incentives. In Bending Spoons' case, the stock actually went up after the IPO, and the first two thresholds were triggered within the first month. Luna: So it worked for them. But is it suitable for every company? Like, a small biotech that might only have one shot at a drug approval? Lucas: Probably not. Ladders make sense when you have a broad shareholder base and a stock that could trade in a range. For a binary outcome company, a single-step sell-down might be more appropriate. But for most SaaS or marketplace businesses, it's a great tool. Luna: And it's not just for IPOs. Could you use a liquidity ladder in an acquisition, too? Lucas: Yes, in a stock for stock acquisition, you could have a similar structure. Instead of cash, you get acquirer shares, and then you can set thresholds for selling those shares. But it's more common in the IPO context because that's when you're actually creating a public market for the stock. Luna: So if I'm a founder listening, what's the takeaway? Should I push for a liquidity ladder in my next exit? Lucas: I'd say: consider it. But you need to have a clear-eyed view of your business's prospects. If you think the stock is going to double, a ladder might leave money on the table because you're selling some shares early. If you're more uncertain, it's a great way to de-risk. And you need to negotiate it with your underwriters—they might push back because it complicates the offering. Luna: And the underwriters have their own incentives. They want a clean IPO with a big pop on day one. A ladder that spreads out selling might dampen that pop. Lucas: Exactly. So it's a negotiation. But with the market as hot as it is—eighty-nine unicorns minted this year—founders have more leverage. They can say, 'Look, I want this structure, or I'll wait.' And underwriters are starting to accommodate because they don't want to lose the deal. Luna: It feels like we're moving toward more customized exit structures. The one-size-fits-all IPO is becoming less common. Lucas: I think that's right. Founders are more sophisticated, and they've seen too many cases where the stock crashes after the lockup expiry. They want to protect their upside and their team's upside. A liquidity ladder is one more tool in the toolbox. Luna: And it's a tool that seems to be gaining traction. I wouldn't be surprised if in five years, it's standard practice for growth-stage IPOs. Lucas: Maybe. It could become table stakes, like the lockup itself used to be. The key is that it gives founders control. And in a market where timing is everything, a little control goes a long way. Luna: Well, on that note, I think we've covered the ladder. For those listening, if you're thinking about your own exit, maybe start the conversation with your bankers early. Lucas: Good advice. We'll be back next time with another exit structure. Thanks for listening.