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IMO, it doesn’t happen in part because the liquidation preferences are present. If they weren’t there, a great many startup founders would find their highest expected value play to be to close up, distribute the funds, and go back to working for someone else. Maybe not the day after funding, but 3, 6, or 18 months in. “This isn’t working out, but I can cash out from the cash left in the bank.”

Just like the “declare strategic bankruptcy a few months before graduation” doesn’t happen much because student loans aren’t discharged in bankruptcy.

Both moves would “break the game” in a very similar way and so are blocked.




You have a point. However, it would be very easy to distinguish between this scenario, and a sale of the company. VCs don't make this distinction. They could.


> a great many startup founders would find their highest expected value play to be to close up, distribute the funds, and go back to working for someone else

This is absolutely correct and it SPEAKS VOLUMES about the reality of the startup world, even apart from this discussion on liquidation preferences. I'd recommend anyone looking at working for a startup to consider the above and then consider the fact that as an employee they'd be in an even worse position than those founders before turning down that far more lucrative offer from BigTechCo.




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