Latest / The Startup Exit Podcast with Fexingo: IPOs, Acquisitions, and Founder Liquidity Events / How Founders Use Structured Liquidity Tiers for Exit Flexibility
Transcript
- Lucas: So we've talked a lot on this show about the mechanics of a single exit event — the IPO, the SPAC, the acquisition. But what I've been noticing more and more is that founders aren't treating their exit as a single event anymore. They're layering it. Luna: Layering how? Like multiple rounds of selling? Lucas: Exactly. Instead of cashing out all at once — or, more commonly, being forced to hold a giant block of stock post ipo with a lockup — savvy founders are building what I'd call structured liquidity tiers. They sell some in a pre ipo tender, they pledge some for a loan, they structure an earnout on the back end. Each tier has a different risk profile and tax treatment. Luna: It sounds like they're hedging their personal balance sheet against the company's outcome. Lucas: That's exactly what it is. And the data is starting to back this up. A few years ago, maybe one in ten founders did any kind of pre ipo liquidity. Now it's closer to one in three, especially for companies that go public via SPAC where the earnout structure is baked in. Luna: Remind me — what's the classic mistake founders make when they don't tier? Lucas: The classic mistake is what I call the 'all-in trap.' They take zero liquidity before the exit, they go public, the stock pops, they feel like geniuses — and then they're locked up for six months, the sector rotates, and they're left holding shares worth half the peak. Apple right now is down 5.6% in a week. NVIDIA dropped almost 7% this week. If you're a founder whose entire net worth is in one stock, that kind of swing is terrifying. Luna: And it's not just the mega-caps. Look at the ARK Innovation ETF — down 1.3% this week, but it's been a rollercoaster all year. Lucas: Right. So the tiered approach gives you breathing room. Let me give you a concrete example. Take Agility Robotics — we talked about their SPAC deal a few episodes back. Their earnout structure was actually pretty smart. Luna: Refresh my memory — what did they do exactly? Lucas: They had a traditional earnout where founders and early investors got additional shares if the stock traded above certain thresholds — 12 bucks, 14 bucks, 16 bucks — for 20 out of 30 consecutive trading days. But they also structured a secondary sale at the merger close. So the founders took some cash off the table immediately, but left a big chunk tied to the earnout. Luna: So they created two tiers: immediate liquidity from the secondary, and upside potential from the earnout. Lucas: Exactly. And that's just one version. Some founders are adding a third tier: a stock pledge loan against their remaining shares. They don't sell, but they get cash to diversify into a rental property or a venture fund. The loan is non-recourse, meaning if the stock tanks, they just hand back the shares. Luna: That's been getting more popular. I've seen a few fintechs offering these pre ipo pledge loans at pretty aggressive rates. Lucas: Yeah, rates have come down a bit from the peak, but they're still in the 6 to 8 percent range for a solid company. The trade-off is you're paying interest on cash you could have had tax-free if you just sold — but you avoid triggering a capital gains event. For a founder sitting on a cost basis of pennies, that's huge. Luna: That's the kind of thing that makes sense when you're in a bull market and you expect the stock to keep climbing. Lucas: Right. But in this environment — with the NASDAQ down, tech stocks getting whacked — the earnout structure becomes riskier. If the stock never hits those thresholds, the earnout shares are worthless. So you really have to think about the probability of hitting those targets. Luna: What about the tax receivable agreement monetization we covered a few episodes back? Is that another tier? Lucas: Absolutely. That's like a fourth tier. A TRA lets you sell your future tax benefits to a third party for cash today. It's complex, but for founders who expect a massive capital gains tax bill, it can unlock millions. The downside is you're giving up future deductions, so it's a bet on your own tax rate. Luna: So really, a founder's exit plan now looks like a portfolio of liquidity instruments, not a single event. Lucas: Exactly. And each instrument has a different trigger — time-based, price-based, event-based. The art is sequencing them so you don't create conflicts. For example, if you sell a big secondary block before the earnout period starts, the market might interpret that as a lack of confidence, and the stock could dip — hurting your earnout. Luna: So you have to be careful about signaling. Lucas: Yeah, and that's where having a good advisor matters. A lot of founders wing it, and they end up with a suboptimal mix. But we're seeing more boutique firms that specialize in 'liquidity architecture' — basically designing the tiers for you. Luna: I've heard some of those firms are charging flat fees instead of a percentage, which is interesting. Lucas: That's a good development. Aligns incentives. If they charge a percentage, they want you to do the biggest transaction possible. A flat fee means they optimize for what's best for you. Luna: It reminds me of something — we talk a lot about liquidity strategies for founders, and I think the reason we can dig into this stuff is because we don't have to chase ad revenue. The show is supported directly by listeners who find value in it. Lucas: Yeah, that's a fair point. If these conversations are useful for what you're building or running, the easiest way to keep them coming is to throw a couple bucks at the tip jar. Buy me a coffee dot com slash fexingo — that's buy me a coffee dot com slash fexingo. Luna: And it really does make a difference. We don't do ads, so listener support is what keeps the show going. Lucas: Right. So, back to liquidity tiers — let's look at what happens when the market turns against you. Say you're a founder who did a tiered exit, but the stock drops 40% in three months. Your earnout is underwater, your pledge loan might get a margin call. How do you protect yourself? Luna: I'd imagine you need a floor — some kind of downside protection. Lucas: Exactly. Some founders use collar strategies. They buy put options to set a floor on their stock, and sell call options to finance the puts. That way, if the stock tanks, they're protected down to the strike price. The downside is they cap their upside if the stock moons. Luna: But in a volatile market like this — with Apple, NVIDIA, Tesla all down double digits in the past month — a collar might be cheap relative to the risk. Lucas: Exactly. The implied volatility is high, so puts are expensive, but calls are also expensive, so the net cost can be manageable. I've seen some founders set collars at 20% downside protection with 30% upside cap. That's a reasonable trade-off. Luna: So the tiered approach isn't just about the pre-exit and exit — it extends into the post-exit period too. Lucas: Yes. And that's the part a lot of founders overlook. They think once the deal closes, the hard part is over. But actually, managing your personal exposure in the year after a SPAC or IPO is where wealth gets preserved or destroyed. Luna: We've seen some horror stories — founders who had everything in one stock and lost 80% of their net worth because they didn't hedge. Lucas: Right. The classic case is the 2021 SPAC cohort. A lot of those companies never hit their earnout targets. Founders who had done a small secondary at merger got something, but those who held out for the earnout got nothing. Luna: So the lesson is: take some chips off the table, even if it's painful to sell at what feels like a low price. Lucas: Exactly. And that's the psychological hurdle. Founders are wired to be optimistic about their company. Selling feels like betrayal. But the smart ones separate emotional attachment from financial prudence. They treat their stock like any other asset — part of a diversified portfolio. Luna: It's almost like they need to think of themselves as a fund manager for their own life. Lucas: Yeah. And the best ones do. They set a liquidity plan years in advance, with trigger points based on stock price, time, and personal goals. They review it quarterly, just like a board would review a company's capital allocation. Luna: So if I'm a founder listening, what's the one thing I should do today? Lucas: Map out your liquidity tiers. Write down: what's my baseline liquidity need for the next three years? What's my upside scenario? What's my downside scenario? Then figure out which instruments fit each bucket. Tender offer for the baseline, earnout for the upside, pledge loan for the middle. Luna: And don't forget the tax implications. Each tier has a different tax treatment. Lucas: Right. Secondary sales are immediate capital gains. Pledge loans are tax-free until you sell the shares to repay. Earnouts are taxed as compensation if they're structured as options, or as capital gains if they're stock. It's a maze. Luna: So you need a good accountant and a good lawyer. Lucas: Absolutely. But the framework is straightforward. Think of it as a personal balance sheet with different risk buckets. The goal is to avoid having 100% of your net worth in one illiquid, volatile asset. Luna: I think that's the key takeaway — tier your liquidity so you're not betting the farm on a single outcome. Lucas: Yeah. And the market right now is a good reminder of why that matters. We're not in a crash, but we're in a correction for some names. A founder who tiered properly is sleeping a lot better than one who didn't. Luna: Well said. Thanks, Lucas. Lucas: Thanks, Luna. That's our show for today. We'll be back with more on startup exits.