A.T.S.L. (Always Take Some Liquidity)


I learned a valuable and expensive lesson about taking liquidity when the offer arises, or rather NOT doing so in my case. Earlier in my career I had the chance to sell some stock and take some liquidity and I passed. I was so preoccupied with the companies potential energy, that I didn’t think to capture any of the existing energy it was putting out. It turns out that startups are not perpetual motion machines (that’s impossible!). I have struggled with this for awhile and realized I should have written about it sooner – that is after all the purpose of my own blog – to learn in public.

I know and grok that startups can pivot on a dime, things change fast, and hyper growth (and hyper lack of growth) are constants. I know that change is the only constant. I did not apply this same logic to my financial thinking, and since things had been “going up and to the right” historically – that it would continue. (Queue the peanut gallery comments about how past performance is no indication of future gain). While all these statements and change are true I missed the fundamental question I should have been asking; what is the harm in taking a smaller X% of the total? If the company does well and hyper scales, I would have missed out on some small amount of upside that hopefully wouldn’t matter. If the company does poorly, I would have adjusted my own risk profile and taken some money off the table and been better stabilized for it. Instead I didn’t take anything.

The interesting thing about this lesson was that it taught me the true potential of exponential growth (which seems obvious in hindsight) and how fast things can go up and down.

In hindsight, I was in a good risk adjusted position to “pass” – I was not married, no kids, no owned property etc… Perfect recipe for high risk high reward. However those things were all in my near future and in looking at things today it is clear I could have (and should have!) taken some liquidity.

I have no complaints, and certainly don’t want any pity, but I like documenting these decisions – even in hindsight. In this case it made sense to me. I remember doing a pros + cons list at the time and came up with my answer. I was working at the company, interested in increasing the enterprise value of the co. and “riding the wave”.

It turns out that believing in a company and selling some of a seemingly illiquid position are two different things.

The nuance of selling some of a position, selling all of a position, and selling none of a position are obviously very personal. Looking back, selling a portion – say 10-25% – would have made a lot of sense. Its hard to tell now where the enterprise value is. I am reminded of the common thinking “its worth what somebody will pay for it”.

There are two interesting conclusions for me about this experience.

The first is that I will always take some liquidity. If for no other reason than you don’t know what the future will hold. Fred Wilson talks about this, and I saw it first hand, but its about taking some money off the table.

The second is that I have no idea how to teach this lesson to others. I talk about this often with one of my best friends and business partners and we both agree. Experiencing this is the best way to learn – but how do you convey this to someone else? Hopefully this post is a way.

If I ever have the question or start to stray from my strategy I hope to revisit this as an expensive reminder – always take some liquidity.

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