The startup world celebrates stories of founders who scratch and claw for years and, finally, become multi-millionaires when the business they built goes public or is acquired. These tales of wealth are common in crypto too—though the path to a big payday is often much shorter.
Case in point: Bam Azizi founded crypto payments firm Mesh in 2020, and this year raised $82 million in a so-called Series B funding round. In the ordinary course of things, capital raised in a Series A or Series B round goes almost entirely to fund a startup’s growth. But in this case, the round included at least $20 million for Azizi himself.
The payout came via secondary sales, which entail investors purchasing shares held by the founder or others involved early in the startup’s existence. Such sales mean that, when a startup announces a funding round, the company itself often receives less money than what is touted in a headline. It also means that, rather than waiting years to convert their shares into cash, the founder is suddenly very rich.
This is not necessarily a bad thing. In response to a request for comment about Azizi’s windfall, a Mesh spokesperson pointed to recent achievements, including a PayPal tie-up and the launch of an AI wallet, to suggest the company is doing very well. Still, founders cashing out early via secondary sales—a common feature of the current bull market—enables some founders to amass fortunes before their company has really proven itself, which of course it may never do. This raises questions about whether such payouts distort incentives, and about the broader get-rich-quick culture of crypto.
A $7.3 million compound in Los Angeles
Mesh’s Azizi is not the only founder to receive an early payday in this go-go crypto market, which kicked off last year and has seen the price of Bitcoin soar from $45,000 to $125,000.
In mid-2024, a crypto-based social media platform called Farcaster raised an eye-popping $150 million Series A round led by the venture capital firm Paradigm. That figure included a purchase of at least $15 million worth of secondary shares from Farcaster founder Dan Romero. An early Coinbase employee who received equity before that crypto giant went public, Romero has not been subtle when it comes to his wealth. In an interview with Architectural Digest, he discussed extensive renovations to his family’s $7.3 million, four-building compound in Venice Beach, which Architectural Digest likened to “a small Italian village.”
While the renovations have been a success, that’s not the case for Farcaster. Despite early momentum, the startup last year reportedly had fewer than 5,000 daily users, and currently trails far behind rivals like Zora. Romero did not respond to repeated requests for comment about Farcaster’s performance or his sale of secondary shares.
Farcaster’s struggles are notable in light of the $135 million ($150 million minus $15 million) the company raised, but they are not unusual. In crypto, and venture capital more broadly, investors understand that it is far more common for startups to fail than to grow into major enterprises.
Omer Goldberg is another crypto founder to benefit from the current wave of secondary sales largesse. Earlier this year, he received $15 million as part of a $55 million Series A for his security firm Chaos Labs, according to a venture capitalist involved in the deal. Goldberg did not respond to requests for comment, nor did Chaos Labs, which is backed by PayPal Ventures and has emerged as an influential voice in blockchain security matters.
Azizi, Romero, and Goldberg are just a few examples of those who have benefited from the recent spate of secondary selling, cited by venture capitalists and a crypto founder who spoke with Fortune. These sources asked not to be identified in order to preserve relationships in the industry.
According to investors, secondary sales—which are also taking place in other buzzy startup sectors like AI—are on the uptick because of the hot crypto market, which has seen venture firms like Paradigm, Andreessen Horowitz and Haun Ventures jostle to get in on deals.
In this context, venture firms can become the lead investor of a round, or guarantee themselves a seat at the table, by agreeing to turn a portion of a founder’s illiquid shares into cash. The arrangements typically involve one or more VC firms agreeing to buy the shares in the course of a funding round, and holding on to them in hopes they will be able to sell them at a higher valuation down the road. In some cases, a startup’s early employees may also have an opportunity to sell shares—or, in other cases, they have been left in the dark when it comes to founders selling.
For investors, secondary transactions come with risk since the equity they receive consists of common shares, which come with fewer rights than the preferred shares they typically receive in a funding round. At the same time, in a crypto industry that has a history of over-promising and under-delivering, secondary sales invite a debate over how much to reward an early stage founder—or if they even affect the future success of a startup in the first place.
Crypto founders are different
For longtime crypto observers, the spectacle of founders collecting outsize sums in a bull market may trigger a sense of déja vu. In 2016, a wave of so-called Initial Coin Offerings (ICOs) saw numerous projects raise tens or even hundreds of millions of dollars by selling digital tokens to venture firms and the general public.
These firms typically promised to popularize revolutionary new uses for blockchain or to overtake Ethereum as a global computer, which in turn would increase the value their tokens as their projects attracted more users. Today, most of these projects are little more than digital dust. Some of the founders still make the rounds on crypto’s endless conference circuit, but others have disappeared altogether.
One venture capitalist recalls how investors in that era tried to impose accountability on founders by means of so-called governance tokens. In theory, these tokens provided their owners with a vote on a project’s direction, but it rarely worked that way in practice.
“They may be called governance tokens, but they don’t govern shit,” the venture capitalist observed ruefully.
By the time of the next crypto boom in 2021, startup deals began to more closely resemble traditional Silicon Valley funding rounds, with venture capitalists receiving shares of stock (though token sales in the form of warrants remain a common feature of venture deals). In some cases, they also came with early payoffs to founders via secondary sales like the ones happening right now.
This is what occurred at payments firm MoonPay, where executives raked in $150 million in the course of a $555 million funding round. This arrangement resulted in notoriety two years later when a media investigation reported that the firm’s CEO bought a Miami mansion for nearly $40 million shortly before the bottom fell out of crypto markets in early 2022.
Then there is the NFT platform OpenSea. The once-buzzy startup raised over $425 million in several investment rounds, which included a hefty portion in secondary sales to its founding executives. By 2023, however, NFTs had become all but irrelevant, leading the company to announce this month that it is pivoting to a new strategy.
‘You’re building a cult’
Given the industry’s volatile history, it’s worth asking why venture capital firms don’t insist crypto founders accept a more traditional incentive structure—one where, in the words of one VC, they get paid enough at the Series B or C stage to no longer worry about their home mortgage, but still must wait until their firm achieves a successful exit before the big payday.
Derek Colla, a partner at Cooley LLP who has helped structure numerous deals, says the norms are different when it comes to crypto. He notes that crypto firms are “asset light” compared to other startup sectors, meaning capital that would go to things like chips can go to founders instead.
Colla added that, because crypto is so driven by influencer marketing, there is an oversupply of people willing to throw money at founders. “You’re building a cult,” he observes.
At Rainmaker Securities, a firm that specializes in secondary sales, CEO Glen Anderson says a big reason founders have been receiving big early payouts is simply because they can. “We’re in a bit of a hype market in a lot of categories of stocks like AI and crypto,” Anderson says, “and when you’re in that kind of market and you tell a good story, you can sell.”
Anderson also says founders selling shares is rarely a sign they have lost faith in their startup’s big ambitions. Still, there is the question of whether founders are morally entitled to a ten-figure payday for trying to build a company that may never go anywhere.
Colla, the lawyer, says he doesn’t think these payouts extinguish the fire of a startup founder to build their company. He notes that Moonpay’s founder got drubbed in the media over his mansion, but that the startup’s business is flourishing today. Meanwhile, in his view, Farcaster may have fizzled but that was not due to any lack of effort by Romero the founder, who he says “grinds harder than anyone.”
Still, Colla acknowledged, the best entrepreneurs seek to hold onto all of their shares because they believe it will be worth far more down the road when they take their company public. “Great founders don’t want to sell on the secondary markets,” he said.
An earlier version of this story incorrectly stated the amount Mesh raised in its Series B. It raised $82 million and, months later, raised more for a total of $130 million.