Say no to early liquidity

“Compound interest is the eighth wonder of the world; never interrupt it unnecessarily.” — Charlie Munger

The AngelList Blog
4 min readMay 4, 2018


Founders and investors will face buyout offers for their equity at every point in a company’s lifecycle. It can be tempting to sell.

Our advice? Don’t. If an investment is doing well, people will try to buy it from you. Say ‘no’ unless you can return your fund for a small piece of the stock.

Instead, consider doubling down with your pro rata. Offers are a signal to hold onto the investment — not sell it. Selling early eliminates the startups at the head of the power law.

The market wants to steal your winners

The market doesn’t want your dogs, it wants to steal your winners before they’ve realized their potential.

Inbound offers are often from insiders with more information than you. Recently, investors in a unicorn got an offer to buy their stock at a $2B valuation. But the people making the offer secretly knew that the company was closing a round at an $8B valuation.

Offers are a signal to hold onto the investment — not sell it. The market thinks there’s upside in the stock.

Don’t kill the power law

Your strategy is to create a portfolio with a power law distribution. Most of your returns will come from a few outsized winners. Selling early eliminates the startups at the head of the power law.

The goal is to get one 1000x return in your portfolio. Getting a 20x return from selling early isn’t the plan. It’s okay if this startup goes to zero; there are other ones in your portfolio.

This strategy is ‘risky’. But that’s how you make money: with concentrated risk. You protect money with diversification in a large pool of safe investments — but that’s not how you make a lot of it.

So don’t sell on the way up. You don’t know how high it will go.

Sell if you can return your fund

You may want to sell ~20% of your stock if:

  1. You know the price is fair because you know a lot about the company,
  2. Other good investors are selling at the same time, and
  3. You can return at least 1x your fund and make your LPs happy in the process.

Learn more about this in Taking Money “Off The Table” by Fred Wilson.

Another strong reason to sell is if you’re going to take the returns and invest in more compelling startups.

If you’re tempted to sell because you want life-changing cash right now, consider waiting. If the market wants the stock now, it will probably want it later too. And they’ll pay more later if the company keeps doing well.

Double down with your pro rata

Instead of selling, consider doubling down with your pro rata. If you don’t have the money, you can always raise it with an SPV on AngelList if the company’s a winner.

You didn’t start investing to make a quick return, you’re investing to build monster franchises that help society and spawn new investment opportunities. Supranormal returns in venture capital are built with conviction and a steadfast grip on your winners. Hedging results in industry standard returns. Be bold.

Rebalance your portfolio at exit

You can rebalance your portfolio when the company goes public. Sell all your stock or hold on to some if you think the company is still undervalued.

If the startup is acquired by a breakout company, convert your stock into the acquirer if that’s an option and the price is right. The price is often right because it’s anchored on the breakout’s last round valuation, which is often undervalued in the first few rounds. Congratulations, you just got a free ride on a rocketship.

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Disclosure: This is not investment advice — don’t blame us if you lose all your money with this strategy.



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