Key Takeaways

  • Strategic acquirers rarely bail out a bloated liquidation preference stack; they skip the cap table and hire the team directly.
  • Early paper marks disappear quickly: Ganesan learned this firsthand after watching a position in optical company Avanex crash by 90%.
  • Investors and founders should consider secondary liquidity when an investment reaches 30x to 50x paper returns.
  • Selling 10% to 15% of a winning stake locks in fund-returning gains and creates the psychological safety needed to hold the rest long term.

The Strategic Acquirer Lie

Many investors and founders justify high entry prices with a comforting story: if things go wrong, a tech giant will step in and buy the company for its liquidation preference stack.

Ganesan calls this dangerous wishful thinking. During downturns like the dot-com bust, large corporations did not rescue preferred shareholders. If a startup is struggling under a high liquidation preference, a buyer will not spend $1.5 billion to clear investor preferences. They will let the company fail and acqui-hire the founding team for a fraction of the cost.

As Ganesan puts it: “I just wouldn't take the mindset oh some large strategy is going to buy my company for preference for the professional stack because they don't care about the investors. Why would they do that? Why would they just hire the founders for the same package?”

If your downside case relies on an acquirer respecting an underwater cap table, you do not have downside protection. You have an expensive illusion.

The 90% Loss Rule: Sell 10% to Hold 90%

Paper wealth creates a false sense of security. Ganesan points to his early career experience with Avanex stock, where he watched an enormous gain turn into a 90% loss because nobody took profit on the way up.

“So I call it the most important lesson I learned from a 90% loss, which is at some point you should take some chips off the table,” Ganesan explains.

When an investment reaches a 30x, 40x, or 50x return on paper, holding 100% of the position exposes you to unnecessary market reflexivity. Taking 10% to 15% off the table during a secondary liquidity window locks in baseline performance. That move changes your psychology. Once you have banked a return, you can ride the remaining 85% to 90% through volatility without panicking.

This principle applies equally to founders and investors. Ganesan aligns secondary sales with the entrepreneur: “I think the right time to do that is when the entrepreneur is thinking about taking some right off the table. If people had taken 10, 15% off the table even if it's small, it locks in, allows you to go long. Just like when you take some chips off the table you're more likely to go long, so are we.”

What to Do With This

Look at your personal equity or your fund portfolio and identify any holding with a 30x or higher paper multiple. If a tender offer or secondary window opens in the next financing round, sell between 10% and 15% of your shares. Use that locked-in cash to remove personal financial pressure so you can comfortably hold the remaining 85% for another five to seven years.