Pre-IPO Profits

Don’t Be Tempted by More Liquidity

Don’t Be Tempted by More Liquidity
By Adam Sharp
Date September 29, 2020

AngelList is rolling out a new feature called Transfers, which will make it easier to sell private startup equity. 

This has been in the works for a while now. Multiple platforms are working on similar “secondary platforms” to make it easier to sell your startup equity.

However, I urge you to avoid this trap. If you have a startup on a rocketship trajectory, cashing out early is usually going to be a huge mistake. Sure, you might be able to sell for a 5x, 10x or even 20x gain within a few years. But imagine if the company keeps growing at the same pace. You could miss out on a 100x or even 500x gain. 

As early-stage investors, we are shooting for 100x returns. If you take profits at 5x, I don’t think that will be enough to make up for the inevitable losses in any startup portfolio. The only way to realize those 100x gains is to keep holding equity until a startup reaches its full potential.

If you do decide to take advantage of AngelList Transfers, I strongly recommend keeping at least half the equity on the table. If you’re getting an offer to buy early-stage equity, there’s a good reason. The person buying sees a major opportunity for long-term growth. 

More liquidity in private investing is coming. I am going to keep holding despite the temptation.

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