We have sat across from hundreds of founders at every stage of growth. And one pattern repeats itself more than any other: founders treat liquidity as a finish line. Something that happens at the end, after the hard work is done. That framing costs people more than they realize, and usually by the time they figure it out, the most important decisions have already been made for them.
Liquidity is not an event. It is the result of a series of structural, legal, and strategic choices that begin on day one. The founders who understand this early are the ones who retain control, preserve optionality, and ultimately drive their own outcomes. The ones who don’t often find themselves negotiating from a position they never intended to be in.
Our thesis is simple: optionality on liquidity is intentional, or it disappears. If you have not started planning for it, you are already behind. And if you are raising capital without it in mind, you may be building a company that works against you.
The Decisions You Make Before Anyone Writes a Check
Most founders in the early life cycle of their company are rightly focused on product, hiring, and growth. But running in parallel to all of that is a set of structural choices around financing, governance, and ownership that will shape every liquidity outcome that follows. The capital structure and legal design of your company are not administrative details. They are the architecture that determines who gets paid, who makes decisions, and who controls what when things get complicated.
We often talk about getting a business valuation around three to five years in. Not because the number is the point, but because the discipline of doing it means your financials are in order, your contracts are solid, and your legal documents reflect where the company actually is. Venture capitalists typically think in terms of a seven to ten year return horizon. If you are raising a Series A without having thought through those dynamics, you are negotiating without a map.
Before any outside capital enters the picture, founders should be asking one foundational question: What is my exit strategy? The answer changes everything, from how you structure the cap table to what kind of investors you bring in. The most common paths include:
- Passing the business to a family member
- A strategic acquisition by a larger company
- A private equity transaction
- An eventual public offering
What Preferred Stock Can Do to Your Outcome
One of the most misunderstood elements of early capital structure is preferred stock, and specifically what happens when multiple rounds stack on top of each other. Consider a company that raises a Series A at $10 million, a Series B at $20 million, and a Series C at $30 million. That is a preference stack of $60 million, meaning those investors get paid first in any liquidity event before founders, employees, or common shareholders see a dollar.
If that company sells for $80 million, investors collect $60 million off the top. That leaves $20 million for everyone else. Liquidation preferences, participation rights, and anti-dilution provisions all factor into how that math plays out, and founders who do not understand those mechanics before they sign are often blindsided when a transaction they thought was a win turns out to be far less than expected.
We worked on a situation where a company had raised approximately $80 million across multiple LLCs with investors in each entity. When they decided to pursue a public offering, rolling up that structure was not only painful, it was extraordinarily expensive. If the exit strategy had been defined before the first $10 million came in, the entire architecture would have looked different.
Structural Decisions That Shape Liquidity Outcomes
- Cap table design and preferred stock terms (Series A, B, C)
- Liquidation preferences, participation rights, anti-dilution provisions
- Board composition and governance framework
- Voting share classes and founder control provisions
- Secondary liquidity planning and transfer restrictions
- Annual review cadence against projections and exit paths
Governance Shifts Are Not Always Visible Until It's Too Late
Board control starts out founder-friendly. Friends, family, early believers. Then Series A investors ask for a board seat. Series B does the same. Over time, the governance dynamics shift in ways that most founders dramatically underestimate, and by the time they realize what has happened, they no longer control the key decisions.
Preferred stock typically comes with veto rights over major corporate actions: a sale of the company, the issuance of new securities, changes to the charter, board size adjustments. Those protections are reasonable from an investor’s perspective. But for a founder who has not thought carefully about governance structure from the beginning, they become constraints that arrive at exactly the wrong moment, usually during a market downturn or when a new round is needed quickly.
“You can build into the legal structuring of the corporate documents things like control over key decisions. But if you have not thought about it early, the people who come in to invest at a later date may resist putting that structure in place.”
— John S. (Jack) Baumann, Partner, Cogent Law
Structures like super voting shares, where founders and insiders hold Class B shares with ten votes per share while public investors hold Class A shares with one, exist precisely to solve this problem. Mark Zuckerberg thought about it early. The Ford family built 16 votes per share into their structure and still controls approximately 40% of voting power collectively. When Jack was Chief Legal Officer at Public Storage, the founding family retained north of 30% voting control even as a publicly traded company, and that position gave them significant and sustained influence over corporate direction. These structures work. But they require foresight, because once outside investors are in, there is resistance to implementing them.
Secondary Liquidity and Founder Psychology
There is a moment in many companies, roughly at the midpoint of a typical venture capital life cycle of eight to ten years, where a modest liquidity event for the founder is not a sign of weakness. It is a strategic tool. A small secondary transaction that lets a founder take some chips off the table can meaningfully increase their patience and their ability to stay focused on long-term value creation. It reduces concentration risk and takes personal financial pressure out of business decisions.
That said, secondary transactions are not simple. They require investor approval, and they send signals to the market. Anytime insiders sell shares, observers consider whether the company has reached a plateau. Corporate 13D filings are watched closely. Companies with complex cap tables and restrictive transfer provisions often find that even willing sellers get blocked.
“We do a lot of background work on founders for their own protection and the company’s protection. When we see missteps or patterns starting to develop in how funds are utilized, we throw up the red flags. And a lot of times, we know it’s going to happen because we know they’ve never had $5 million in the bank before.”
— Dean DeLisle, Chief Revenue Officer, Regiment Securities
This is why the conversation about personal financial planning needs to happen before the capital raise, not after. Many founders have built extraordinary businesses but have never managed capital at the level they are now holding. Without structure and guidance, the wrong decisions follow. We have seen it happen with founders, and we have seen the same pattern play out with professional athletes receiving large contracts for the first time. The principle is the same: put the oxygen mask on yourself before you try to take care of everyone else.
Governance Infrastructure Is Not Optional
One of the most consistent patterns we observe is what happens when a business receives a meaningful capital injection and immediately accelerates. The growth is real, the momentum is genuine, and everyone focuses on executing. What gets left behind is governance. Advisory boards, board composition, annual reviews, disaster recovery planning, none of it feels urgent when everything is going well. And that is exactly when those structures should be built.
It is easy to go fast. But going fast without the right infrastructure in place is the corporate equivalent of driving at speed on the wrong tires. The faster you go, the worse the outcome when something gives.
Forming an advisory board early, before there is a revenue threshold that seems to justify it, is prudent planning. Independent board members provide objective perspective that neither founders nor investors naturally bring to a room. Annual reviews should assess performance against projections and map out multiple exit paths, including:
- A strategic sale to an industry acquirer
- A merger with a complementary business
- A recapitalization to restructure the balance sheet
- An IPO to access public markets
These reviews are what keep a company positioned to act rather than react.
The goal at every stage is to preserve optionality. That means maintaining a capital structure that is clean and understandable, governance that keeps founders engaged in meaningful decisions, and legal documentation that reflects the direction the company is actually headed.
The Bottom Line
Liquidity is designed, not discovered. The founders who arrive at strong outcomes are not necessarily the ones with the best product or the most aggressive growth trajectory. They are the ones who understood early that the legal, structural, and governance decisions they were making would determine what was possible years later.
Wherever you are in your journey, the right time to start planning was earlier. The second best time is now.
About the Authors
John S. (Jack) Baumann
Partner, Cogent Law
John S. (Jack) Baumann is a Partner at Cogent Law with more than 35 years of experience in mergers and acquisitions, private equity, complex corporate transactions, and securities offerings. His career includes senior roles at Skadden, Arps, Slate, Meagher & Flom LLP, as well as leadership positions as Chief Legal Officer at Public Storage (NYSE: PSA) and Syncor International (NASDAQ: SCOR). Jack advises founder-led businesses, family offices, and institutions on structuring transactions that balance growth, risk, and long-term outcomes.
Dean DeLisle
Chief Revenue Officer at Regiment Securities
Dean DeLisle is Chief Revenue Officer at Regiment Securities, a Chicago-based investment bank. With more than 35 years of experience in capital markets, he has raised more than $2.5 billion for clients and played a key role in five IPOs. His background spans investor education, capital markets, and strategic growth initiatives across founder-led and middle-market businesses. Dean is also the founder of Forward Progress, an investor acquisition marketing firm that has helped raise an average of $50 million per month for clients over more than two decades.