Soon I’ll have spent more time on cap tables than org charts. That’s a 2025 milestone as Homebrew turns 12.5 years old, surpassing my combined working tenure across Second Life, Google and YouTube. I entered venture capital with some beliefs – many of which still hold true (such as ‘your LPs are your business partners, not your customers’). But I’ve also seen a few change quite dramatically based upon the progressing ‘game on the field’ and my own VC experiences. One example is whether it’s assumed that seed VCs maximize outcomes by religiously holding their shares until the company itself exits. I mean, we’re investors, not traders, right? You’re told ‘illiquidity is a feature, not a bug’ and ‘let your winners ride.’ But when the physics of the model shift, you often need to with it. [While I’m going to focus on investor secondary here, I support common share sales as well – for example, back in 2014 writing “Getting Some Founders Early Liquidity Can Benefit VCs” during a period where many founders were being shamed for even asking about taking some money off the table.]
Ok, so what has changed by opinions about seed stage and secondary and why will the best early stage investors know when to sell, not just when to buy? Here’s the logic underpinning why ‘buy and hold’ is being replaced by ‘buy and maybe sell.’
Was
Now
Impact on Early Stage
Timelines to Startup Exit
On average 7-10 years to IPO, M&A
10-12 years+ as founders want to keep companies private; narrative that ‘bar is higher’ to go public; more grow/crossover capital to support private companies; periods of slower M&A due to private company valuations and/or regulations
Delayed liquidity hurts LPs who manage to an IRR and even for Cash-on-Cash returns slows distributions which can be reinvested in VC and other classes
For the earliest funds (pre-seed, seed) this means instead of 10 year fund cycles for LPs, you’re seeing closer to 15, which fundamentally changes LP calculations about the asset class
CoInvestor Alignment
Mostly structural alignment across the venture sector. Everyone largely underwriting to the same outcome goals.
Growth investors were the ones who added structure to deals and best companies typically just raised a single growth round ahead of IPO.
The dominance (in scale) of the multibillion dollar AUM holders, who are often underwriting to lower outcomes and needing to put more capital to work. That is, they rather have a 5x with $300m in the company than a 10x with only $30m invested.
The alignment gap between investors *starts* at the Series A, meaning earlier preferred investors cannot assume their interests are always aligned with the rest of the cap table. Angels and seed investors are better off thinking of themselves as common with a 1x preference once tens and hundreds of millions of dollars have been raised by a company.
How Investment Rounds Are Priced
Price discovery and valuation by within a relatively small community, with an independent new investor setting market price
A global auction filled with investors who have all sorts of objectives, experience, and return goals
I’m not bemoaning higher prices – the market bears what it bears and founders will make the decisions that they believe are best for their company. But this dynamic, for certain classes of companies, also means that startup pricing is often enthusiastic, optimistic and gives the company ‘credit’ for execution against forward looking plans quarters or years into the future. This decreases the penalty of ‘selling early’ to seed investors, and adds more performance risk to the investment, especially when seed investors lack the capital to protect/recap the company.
GP Incentives
You get really rich off of carry
With megafunds, you get really rich off fees regardless, which can impact all sorts of incentives to keep private marks high (TVPI!) while you raise new funds.
No Tiny s needed, but for more modestly sized pre-seed and seed funds, the returns are where you hope to strike it rich. So DPI matters sooner.
Infrastructure Around Secondary
Opaque, shady
Several large market makers, investor and company counsel have seen this before
There are now standard and trusted processes that reduce risk for all parties around these sorts of transactions. Still need to be careful working with unscrupulous parties.
Impact Upon Startup
Any VC selling is a warning sign that something must be wrong with the startup because they have inside info
Sure, there are cases where this might be true, but increasingly, and especially when the shares are bought by other existing investors/sophisticated players, it’s less of a concern
Balancing and consolidating the cap table on behalf of the founder to make sure the later investors have enough skin in the game. Sometimes we’ve seen founders proactively asking if we want to sell because they have more investor demand than they want to service.
VC Skillset
VCs are investors, not traders. We hold until the founders and company exit.
VCs increasingly *are* traders. Every venture firm who has held crypto tokens/coins have made buy/sell decisions and some even have a trading desk equivalent.
YOLO, not HODL
Now, optimally the secondary sales will always occur with the support/blessing of the founders; to favored investors already on the cap table (or whom the founders want on the cap table); without setting a price (higher or lower than last mark) which would be inconsistent with the company’s own fundraising strategy; and a partially exited investor should still provide support to the company ongoing. But even here I recognize than in some extreme situations you, as an investor, are forced to make calls about divergence in needs between your own, co-investors, and founders. The question is can you do it professionally and situationally enough to not harm the company and not develop a reputation for being a pain in the rear. As an industry peer said to me, “I think friendly secondaries are easy, everything else feels new.”
A second point of clarity is often the secondary is being performed for reasons other than just distributions to LPs, but also helps the venture firm recycle capital to support other startups in the firm’s portfolio. That is, early partial liquidity isn’t solely about investor wealth capture but is *good* for other founders in the ecosystem. Cash flow for small firms in pro rata, bridge rounds, and so on is a real challenge, and it impacts young startups disproportionately.
For funds like his, selling stock of private startups to other investors will be “75% to 80% of the dollars that [limited partners] get back in the next five years,” Hudson told me from his office in San Francisco’s brick-lined Jackson Square.
and
Hudson said majority of the capital he’s returned to LPs over the past few quarters was through secondaries, but declined to give specific names of the companies he sold.
And my former Google colleague, turned VC Tomasz Tunguz recently wrote a data driven analysis which concluded “It’s [secondary sales] not just a temporary anomaly, but a structural evolution in how venture capital will function.”
And trust me, there are many more who prefer to keep this type of activity private but are active harvesters. Secondary is quickly becoming primary for early stage VCs.
I ran into Joe Hyrkin after his company Issuu (where he’d been CEO) was been purchased by Bending Spoons. Since I’m always interested in startup outcomes – especially those where there’s a private equity-like exit, Joe was kind enough to share the backstory with me, and here with you! Five Questions with Joe Hyrkin
Hunter Walk: You sold Issuu to Bending Spoons, which has recently acquired a number of legacy products including Evernote, Meetup, WeTransfer and Brightcove. Were you already engaged in a sales process with multiple parties, or was it really more of an opportunistic conversation between your company and them?
Joe Hyrkin: I first started learning about and paying attention to Bending Spoons when they announced their acquisition of Evernote in January 2023. At the time, I thought they could be an interesting potential acquirer if we got to that point. By early 2024, we were sustainably profitable for a second time, on track to generate over $30 million in revenue and starting to get some PEs and strategics showing interest in Issuu.
We hired a strong mid-market banker, Lightning Partners to help us with the process and got an introduction to Bending Spoons in April of 2024. They [Bending Spoons] knew about us, but didn’t have extensive detail. In many ways, we fit their model, a primarily product led growth self service platform with good retention and a large global footprint of users. So we were in the early stages of a process when we had our first discussion with Bending Spoons and had a handful of seriously interested acquirers. Once Bending Spoons indicated real interest in May, discussions progressed very quickly with them, while we continued engaging with the other parties. We ultimately signed a term sheet with a short exclusive period and finalized the transaction by July 18.
Generally, I think CEOs that are interested in a future acquisition need to be building relationships or at least awareness with potential buyers at least 2-3 years in advance, especially with strategics. If you’re not on the list, it’s rare for a deal to happen, even with a good banker. In the case of Issuu and Bending Spoons, we were aware of each other a year or so before the transaction, but didn’t really have meaningful discussions until three months prior to consummating the deal.
HW: If a CEO wants to understand whether there’s a M&A market for their company, how can they ‘take the temperature’ without scaring their team or investors? When is it right to engage your stakeholders?
JH: While we don’t discuss this very often, venture backed companies are expected to contribute to their investors providing a return to their LPs in a timely fashion.. In other words, an exit of some sort is needed. Exits come in many forms, from an IPO at the high end, to secondary sales, private to private merger, strategic or PE acquisition, or sometimes, an acquihire or bankruptcy. No one wants to be in the latter two categories! While every CEO and founder wants to create the next impactful IPO oriented company, IPOs are rare, even in the best of times. In the 2021 boom, there were 215 tech and media IPOs. At the same time, there are in the range of 75,000 venture backed companies at any given moment. So that means, the vast majority of successful companies will get acquired, if they’re lucky. There is a myth in Silicon Valley that companies are bought not sold. In fact the opposite is true. Buyers need to know who you are and why you matter to their customers, product offering and how you deliver value, before they can make an evaluation about you. CEOs should be prioritizing connecting with folks in the transaction ecosystem relevant to them, so that potential acquirers have familiarity with the rationale for a potential acquisition. It doesn’t mean you hang a “for sale” sign on your front door or website, but get to know people. It can never hurt.
Go to Banker conferences, like Goldman Sachs’ PICC or AGC’s annual event, where you can meet up with dozens of PEs, Bankers and some strategic buyers. These events are organized as a conference format, so the discussions are casual and mixed with networking, planned appointments and good content. In 2-3 days, you can have dozens of conversations where you get to socialize your company and get a sense of what buyers might be looking for and how you fit. This is a good way to start exploring and getting connected and educated without spooking investors or employees.
In addition, take calls with bankers. Make them short meetings, but take the calls. Bankers that show interest in you are constantly talking to everyone in and around your industry/ecosystem. In courting you for a future engagement, they’ll often share what they are learning in the market. It’s a great way to learn both about the process of an acquisition, and more importantly about what’s happening in the market from an objective well connected source. There’s no obligation and it also allows for you to get a sense of which banker has the right expertise and connections for you.
Most importantly, identify the larger companies in your ecosystem that could be potential buyers and get to know the senior most people in Product Management, Corp Dev, BD and the management team. Help them understand why you matter to their customers and their business. Focus on a deep integrated business and real growth oriented partnership. Understand that there are dozens and maybe hundreds of other companies trying to do the same, so figure out how to stand out. The point here is to build a partnership with the companies whose products are also used by your customers. There might be half a dozen to a few dozen companies that fit this bill. Get to know the people (not just one person) in these companies, so that you’re familiar to them as they prioritize.
For Issuu, Canva was a natural potential acquirer. I went to Sydney, Australia 4 times in the 18 months prior to us getting acquired to build a relationship with a range of people within Canva. While they didn’t buy us, those trips did turn into a deep partnership, where Issuu was one of only 3 companies featured at their large developer conference, which led to being promoted, a much higher profile for us in the ecosystem and value for our joint users.
HW: Debt financing for startups can sometimes seem like ‘cheap money’ but it’s definitely more complicated than most founders realize. I saw your essay about this form of capital being a ‘Growth Engine or Growth Killer?’ Folks should read it fully but if you were going to stress one aspect of venture debt to a CEO, what would it be?
The most important aspect of venture debt is to fully understand the covenants, essentially business operations collateral, to which you are agreeing. These generally include revenue and cash in the bank commitments, and can sometimes include other elements. Do not go into a debt deal unless you have full confidence that you can exceed those commitments. I can’t emphasize this enough. Most lenders expect you to miss the covenants. It’s why they are in the agreements and they make money in the form of more interest, penalties or a larger percentage of the company when you miss. Too many CEOs go into a debt deal, thinking they’ll get pretty close and the lender will be flexible. That’s a mistake. Debt financing itself is not bad. It turns sour if you don’t take the covenant element seriously. Too many CEOs treat covenants like a company KPI. If you miss revenue by 10%, but exceed the product, NPS or number of customers, the Board generally treats the miss with some flexibility. Debt lenders don’t. Do not treat it like you’re sharing a range of possible outcomes.
HW: You’ve seen several waves of technology over the last few decades – Internet, Cloud, Mobile, etc – how have these experiences shaped your opinion on the AI boom?
JH: In each of these waves, we see a large number of companies offering very similar products and services where it’s challenging to identify who the winners will be. In every cycle, a few emerge to be dominant and sustainable. We’re in a similar mode right now. There will likely be a few foundational companies that become the primary platforms that will be used and everyone else will build applications or the equivalent on top of these models.
Facebook is a great model to use for learning from the past. When Facebook made it possible for developers to create games and other applications around 2007, they only had about 15-20 million uniques per month and they were struggling to figure out how to really grow. At the time, there were dozens of smallish social networks and community sites. The debate was around continuing to build a destination and fight for users or leverage the platforms and distribute. In 2007, it wasn’t clear which strategy was correct. Companies like Gaia where I worked or Second Life, stayed independent and companies like Zynga, Slide and Playdom built for the “containers” allowed on Facebook. These latter distribution companies grew quickly and Facebook took full advantage of the new users that these creators drew to their games and content on Facebook.
Initially Facebook allowed developers to keep the revenue generated within their product and was satisfied with the combination of monetizing around the developer’s content and huge influx of users. Over time, as we’ve seen, Facebook, now Meta, has continually updated the ways they extract revenue and value from the developers to the point that in the case of some content, like news or particular games, it was no longer worth it for the developer, but Facebook/Meta already gained the users and could start monetizing them on their own. We’ve seen the same situation with Apple where developers have to meet very specific requirements, have to pay for exposure and in many instances see their growth plateau, while Apple continues to expand their control.
I think everyone building on top of the LLMs today will be well served to pay attention to how this all unfolded with social network and marketplace ecosystems. I’m confident that the future of AI will revolve around a few powerful LLMs and a massive number of application builders. But, we don’t yet know if the real money is in applications, who will own the marketplaces or if the LLMs themselves will build applications and compete with developers. Even if they don’t compete with developers, we’re already seeing rapid business model changes. ChatGPT was free, then there was a $20 version and now a $200 version and enterprise offerings. Even as prices for access fall, it’s likely the LLMs will roll out something akin to what we’ve seen in the past in terms of extracting more of the revenue, once reserved for developers. It’s not necessarily bad. A rising tide lifts all boats. It’s just important not to overly rely on a partner’s current business model in a fast evolving ecosystem. No one wants to be the next Mic.
HW: What are one or two of your favorite questions to ask folks during job interviews?
JH:
What do you do to consciously refine your intuition and wisdom? Do you have particular practices or ways you pay attention to this.
What’s the biggest mistake you made in a job? What was the actual impact? How did you resolve or address it and how did you win confidence back?
How can you impact the evolution from SEO reliance to LLM reliance for driving awareness, and growth? And give real examples of what you know and can execute. (This is important across all disciplines in a company)
An Anonymous AI Engineer is Funding the City’s Oddest Events [Zara Stone/San Francisco Standard] – She’s 23, lives in SF, and works at an AI startup, but otherwise we don’t know much about francisco san. But she’s using $50,000 of her own money to fund ideas that organizers send her, such as a foot race where all runners carry flowers. Her website lists the status of stuff she’s funded, and the one time she was ripped off [“hot tubs on ocean beach, $2250”]. More of this please – keep SF weird.
Decision-Making [Molly Graham/Glue Club] – Molly relates her experiences as an instructor at the National Outdoor Leadership School (NOLS) and their decision making framework for groups, to her own experiences as an executive in technology companies.
A Sneaky Phish Just Grabbed my Mailchimp Mailing List [Troy Hunt/Have I Been Pwned] – Troy runs Have I Been Pwned, a useful site to check your personal information against what’s been leaked unencrypted in various hacks. Here he relates a recent story of having his own Mailchimp account hacked via a Spearphish. It’s instructive to read how ever really aware folks can fall victim to well constructed attempts (only going to get worse with AI)
GrandTheftAuto: Real Life [Jonathan Franklin/Businessweek] – Just a crazy overview of current trends in domestic car theft, and why about 10% of them end up being shipped overseas.
How the Irish Pub Became One of The Emerald Isle’s Greatest Exports [Liza Weisstuch/Smithsonian Magazine] – I usually think of the ‘self assembled bars’ as one of those Hard Rock Cafe style joints with just a bunch of memorabilia or other themed crap on the walls. But I never realized how many Irish Pubs are built this way too.
The Burren is one of the most recent projects of the Irish Pub Company, a Dublin-based design group that has created upwards of 2,000 pubs in more than 100 countries on every continent except Antarctica. Germany is its biggest European client, and Switzerland is a close second. In Russia, it has established three venues in Moscow, one in Sochi and one in Novosibirsk, in Siberia. The company’s handiwork is also found in the United Arab Emirates, Qatar, Bahrain, Japan, Nigeria and Mauritius, and at the New York-New York Hotel in Las Vegas. A project is currently underway in a new high-end shopping center in Tashkent, Uzbekistan. This year alone, the company has nine projects in various stages of completion, including in the Canary Islands and Hout Bay, a Cape Town suburb, as well as four under discussion.
People are surprised when I say “the right amount of fraud in seed stages startups is greater than zero.”
What I mean is, the community works best when we move quickly, and assume trust between parties. That will likely mean there are some founders who commit fraud (and some investors too I guess). The cost to the ecosystem for doing so much diligence and background checks to achieve zero fraud would punish the 99.9% of founders who are ethical. And punitive unfairly – there are probably people who are totally honest nice folks but you can always turn up a rumor or a mistake earlier in their lives – we don’t want these things to be disqualifying if they’re righteous now.
At each phase – Series A, B, etc – there should be *less* fraud. Because it gets discovered, stopped, or whatever. Basically, by IPO or other exit there should be aspirationally zero fraud.
Zero fraud is still likely impossible so we need mechanisms to punish those who are fraudulent at those stages. The fear of getting caught and paying the fine/doing the time is necessary alongside whatever morals/ethics they should have as individuals.
When financial fraudsters get pardoned for their crimes [Nikola, Ozy] before the punishment has been completed, it creates an environment that changes the calculation for those who might commit these crimes. This is wrong regardless of political beliefs and the two I cited above have nothing to do with regulatory policies of either party, but the rule of law.
I knew I had to meet Molly. That’s what I felt when several friends separately mentioned her to me. It was either a very well coordinated inception or independent validation. Frankly, either would have piqued my interest (I’m pretty sure it was the latter). It only took a few Blue Bottle coffees for me to become an evangelist for her too. Molly is thoughtful, always evolving and an incredible believer in people, whom she backs via Moth Fund. And I recently asked her Five Questions.
Hunter Walk:Moth Fund says it “aims to increase the agency of exceptional individuals.” Say more about what that means (you cover some in your manifesto) and how it influences your investment decision framework?
Molly Mielke: My approach to investing is singularly focused on finding and developing relationships with outlier people. I do this by being weird myself and making myself findable in the right places — namely word-of-mouth from people whose taste I respect and by sharing how I see the world online. This approach was designed around my edge; I have an innate interest in understanding human beings and as a result, have different kinds of relationships with founders than most VCs.
I talk about my investment decision-making framework in detail here — I focus on gaining an understanding of a person’s motivation, spike, commercial aptitude, and how magnetic they are.
I try to think rigorously about people and their potential, in part drawing from my experiences working with top founders over the past five years and the deep relationships I have with entrepreneurs in my cohort class.
HW:You write wonderful essays each quarter – what’s the process which goes into those? And what does ‘success’ look like for you with this energy?
MM: Each quarter I pick a (usually qualitative) “research” topic that I discuss with many of the brilliant investors, founders, and operators I meet with in the context of my investing role. I collect data points in conversation and start building my own theory of the topic, which I then write up and share with the world in the form of my quarterly essays.
I consider my writing a success if I’m able to produce words I can both stand behind/formally weave into my worldview and think are decently original/worth sharing with the world. Success also looks like having better conversations with the people I’m meeting — I find the process of truth-seeking together one that builds a lot of trust and understanding of each other. I am at my most honest and concentrated on the page, so sharing that version of myself online helps me put a stake in the ground about what I believe in and find others who resonate or disagree in interesting ways.
HW:I find you to be a thinker who uses other’s opinions to inform your own. As someone new’ish to venture capital, what’s a piece of advice you received early on that really shaped the way you think about Moth?
MM: While not an answer to your question, I want to first say that learning to relate to others’ opinions in a way that is constructive as opposed to confusing is something that took me a while to figure out for myself. I received a decent amount of advice from people more powerful than me in my first few years in Silicon Valley (mostly because of my Twitter) and while I was lucky to get the attention, it definitely made my head spin. I gradually learned to see advice as merely potent information about how the other person sees the world, which helped me take it much less personally. My goal in asking for advice now is usually in order to refine my internal model of the other person’s brain — the goal being that I could guess how they’d think through a given person/place/scenario without asking them. I like simulating other people’s perspectives in my mind and putting them in conversation with each other as a way of identifying blind spots in my own thinking.
A memorable piece of advice I received from my first LP was that: “the ideal investor is a finance bro with a dash of Engelbart.” While I didn’t change myself to become this, what I did take from this framing was that investors need to be commercially-minded no matter their stage, and that a dash of weirdness can be particularly beneficial at early-stage in order to attract other strange outlier people (hopefully some of them great founders). Another piece of advice I received from an early LP was to find a great coach who pulls from enneagram in order to better understand your own motivation and become more cognizant of your failure modes. I highly recommend doing this, especially if you’re embarking on anything solo and want to stick to something for a long time.
HW:How has your model changed between your first fund and Fund II (which I’m fortunate enough to be investing in)?
MM: My main learning from Fund I was that the area where I had the unique advantage was pre-seed rounds where I was one of the first checks in and investing with a deep understanding of the person’s potential to be venture-scale founder. The strategy of Fund II was designed around my spending as much time serving founders at this stage as possible, meaning I now write slightly larger checks and devote the majority of my investing time to building relationships with exceptional people who I think might one day start an interesting company.
More qualitatively, I’ve become much more shameless about Moth not being for everyone, while a perfect fit for the right founders (and LPs, you being one I feel especially fortunate to have on board!)
HW:Ok, something outside of work. Give me two places in San Francisco which you find delightful.
MM: I really like the Fort Mason area — strolling around the Sunday farmer’s market, getting a lemon ginger tea at The Interval, and eating sushi in the park as the sun sets.
Read while recovering from St Patrick’s celebrations
The Anti-Social Century [Derek Thompson/The Atlantic] – Is isolation a leading or lagging indication of breakdowns in community, political polarization, declining birthrates and other 21st century American challenges?
Men who watch television now spend seven hours in front of the TV for every hour they spend hanging out with somebody outside their home. The typical female pet owner spends more time actively engaged with her pet than she spends in face-to-face contact with friends of her own species. Since the early 2000s, the amount of time that Americans say they spend helping or caring for people outside their nuclear family has declined by more than a third.
Read it, preferably at a coffee shop, with a friend.
Stay Gold America [Jeff Atwood/Coding Horror] – Jeff’s a cofounder of Stack Overflow and writes here about an admirable decision his family has made: they’re going to give away half of their wealth to “long term efforts ensuring that all Americans continue to have access to the American Dream” such as Planned Parenthood, The Trevor Project, and other humanitarian organizations. Go go Jeff! Tech needs role models like this right now.
How I Used AI to Save My Life in 77 Prompts: A Debrief [Bethany Crystal/Hard Mode First] – My friend Bethany had an incredibly dangerous health scare which could have been much worse if she wasn’t a proactive, informed patient. She didn’t use Dr Google, but instead ChatGPT. She goes deep here on where and how it helped, the prompt chains, and the reaction of her medical care professionals. I
Thinking Through the Future for LLM Companies… and What This Means for B2B AI Startups [Sarah Tavel/Benchmark] – Sarah basically assumes the LLM platforms are going to evolve into competition for most of the B2B businesses built on top of them so she gives her best guess as to how to manage this as a challenger. You need either (a) a network effect, (b) proprietary or hard to access data, or (c) “execute like hell and land grab in an overlooked vertical.”
s needed, but for more modestly sized pre-seed and seed funds, the returns are where you hope to strike it rich. So DPI matters sooner. 
