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Ask HN: Would you sell or diversify your startup equity if you could?

2 points by thruflo22 ↗ HN
VCs and accelerators take a portfolio approach and focus on high-risk high-return unicorns, while founders and employees are encouraged to give 100% to one company at a time.

This leads to founders and employees having all their eggs in one very high risk basket, typically until exit.

So, if you could, would you trade or swap your shares on a secondary market in order to get liquidity / diversify your “portfolio”?

Has anyone done this successfully or got any alternative strategies to mitigating / diversifying the risk?

9 comments

[ 4.9 ms ] story [ 36.2 ms ] thread
rayvy
Funny you mention this, I was just reading [1]this article related to the quote on "putting your eggs in one basket". Conventional wisdom says "diversify". However, I'm of the belief that you'll need high risk for a high return (can't have your cake and eat it too).

[1] https://www.themoneyhans.com/how-to-get-really-rich-put-all-...

adventured
Premature diversification is a great way to avoid ever getting rich.

You diversify to retain or safeguard wealth, you concentrate to first create wealth. The second best way to destroy a great investment/ownership position, is to diversify the returns away with other mediocre positions. Conventional wisdom about diversification is bumper sticker investment advice, it's worthless advice without context. It gets repeated generically so often for two reasons: it's easy to repeat to amateur investors for their comfortable digestion and it's safe advice that incompetent investors (bloggers, authors, journalists, talking heads on tv, etc.) can give out everywhere.

Andrew Carnegie was right: "The way to become rich is to put all your eggs in one basket and then watch that basket."

That's also advice that Warren Buffett followed to get rich. He didn't do it through rampant diversification, rather, through intense concentration into a small number of investments that he understood exceptionally well. Nearly everyone on the Forbes 400 list followed that path in one manner or another, with few exceptions. Once you get rich, you diversify to avoid losing it (no need to get rich twice, if you hold onto it the first time; doing it once is hard enough for most people).

rayvy
> You diversify to retain or safeguard wealth, you concentrate to first create wealth.

That'll do it

throwaway-1283
Why is "swapping" shares better than selling for cash (and then investing that in something less risky), which you can already do through secondary markets like Sharespost...
thruflo22
Can you really?

Firstly sharepost is curated. You need an interview and to be accepted.

Secondly, most (nearly all?) investment agreements prevent share sales that aren’t approved by the other shareholders. So unless your investors agree to a secondary, you’re out of luck.

throwaway-1283
What is your point? In a swapping scenario the same would apply.

Plenty of people sell on secondary markets. If everyone was restricted then those businesses wouldn't exist.

thruflo22
My point is / question was: if those restrictions didn’t exist, would you want to?

[edit] not getting much of a sample size on this thread atm though!

corklabs
I think what you are asking is whether there's another way to recapitalize your business without selling 100%. The answer is a definite yes. Founders do it all the time. The difficulty, in the past, was for investors to be ok with the founders taking risk off the tables. However, that's more prevalent and acceptable now days for later-stage series to be a way to provide founders with liquidity.

Dean at CorkLabs (https://www.corklabs.com) - We help early-stage companies develop business strategy that is acquisition and funding ready.

muzani
Almost always, lol. Most people don't have the high stakes "all in" gambling it takes to run a startup from 0 to billions. Often founders can waver when they can just cash out for millions, but this is against the VCs optimum.

Sometimes VCs do realize this and encourage the founder to take a high salary past a certain stage or sell some shares. I think Softbank does this to some extent, among others.