Crypto entrepreneurs can get rich without launching tokens—so who's paying for the bubble?
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Crypto entrepreneurs can get rich without launching tokens—so who's paying for the bubble?
The founder laughed, investors panicked.
Navigating Web3 tides with focused insightsBy Jeff John Roberts, Forbes
Translated by Saoirse, Foresight News
The startup world loves to tell stories of founders who toil for years, only to become millionaires when their company goes public or gets acquired. These wealth tales are common in crypto too—except here, the path to massive gains is often much shorter.
Take a typical example: Bam Azizi founded the crypto payments company Mesh in 2020. This year, the company closed a Series B round raising $82 million (later topped up, bringing the total to $130 million). Normally, the funds from a Series A or B round go almost entirely toward growing the startup. But in this case, at least $20 million from that round went directly into Azizi’s personal pocket.
This windfall came from "secondary share sales"—investors buying shares held by founders or early participants. Such deals mean that when a startup announces a funding round, the actual cash received by the company is often less than the headline figure. More importantly, founders don’t have to wait years to cash out; they can achieve financial freedom overnight.
This isn’t necessarily bad. In response to requests for comment on Azizi’s “windfall,” a Mesh spokesperson pointed to the company’s recent strong performance—including a partnership with PayPal and the launch of an AI wallet—as evidence of solid operations. Still, the trend of founders cashing out early via secondary sales—a widespread phenomenon in the current crypto bull market—means some entrepreneurs amass vast fortunes even before their companies prove their worth (or may never do so). This raises questions: Do such payouts distort entrepreneurial incentives? And is the crypto industry’s pervasive "get-rich-quick" culture justified?
A $7.3 million compound in Los Angeles
Azizi is not the only founder securing guaranteed riches in today’s hot crypto market. The current bull run began last year, with Bitcoin surging from $45,000 to $125,000, keeping industry excitement high.
In mid-2024, the crypto social platform Farcaster completed a striking Series A round—$150 million led by venture firm Paradigm. Notably, at least $15 million of that sum was used to buy secondary shares from founder Dan Romero. Romero, an early employee at crypto giant Coinbase, held equity long before its IPO and has never shied away from displaying his wealth. In an interview with Architectural Digest, he revealed he was spending heavily to renovate his Venice Beach property—a $7.3 million compound made up of four buildings, described by the magazine as resembling "a small Italian village."
While the home renovation progresses smoothly, Farcaster’s business hasn’t fared as well. Despite a promising start, reports indicate the startup had fewer than 5,000 daily active users last year and now lags far behind competitors like Zora. Romero has repeatedly declined requests for comment on Farcaster’s performance and his secondary share sale.
Despite raising $135 million ($150 million minus $15 million in founder payouts), Farcaster’s struggles are not unique. Across crypto—and the broader venture capital landscape—investors know that startups are far more likely to fail than become dominant players.
Omer Goldberg is another crypto founder who has profited from the secondary sale boom. According to a VC involved in the deal, earlier this year his blockchain security firm Chaos Labs raised $55 million in a Series A round, with $15 million going directly to Goldberg. Backed by PayPal Ventures, Chaos Labs has become a key voice in blockchain security, but neither Goldberg nor the company responded to requests for comment.
VCs and a crypto founder interviewed by Fortune say Azizi, Romero, and Goldberg represent just the tip of the iceberg among recent beneficiaries of secondary sales. For relationship-preserving reasons, these sources requested anonymity.
Investors note that secondary sales—also occurring in other hot startup sectors like AI—are on the rise, driven by crypto market enthusiasm. Firms like Paradigm, Andreessen Horowitz, and Haun Ventures are all racing to participate.
In this context, VC firms may agree to let founders cash out some illiquid shares in exchange for securing lead investor status or simply getting a seat at the table. These deals typically involve one or more VCs acquiring founder shares during fundraising, holding them long-term with hopes of selling at a higher valuation later. In some cases, early employees also get exit opportunities; in others, founder payouts remain completely hidden from staff.
For investors, secondary sales carry significant risk: they receive common stock, which offers far fewer rights than the preferred stock typically issued in funding rounds. Meanwhile, given the crypto industry’s history of big promises and poor delivery, secondary sales have sparked debate: How much should early founders earn? And could such deals undermine a startup’s future from day one?
Crypto founders are “different”
To longtime observers of crypto, the sight of founders raking in huge wealth during bull markets may feel familiar. In 2016, the ICO craze swept the industry, with numerous projects raising tens or even hundreds of millions by selling digital tokens to VCs and the public.
These projects often promised “revolutionary new uses for blockchain” or to become “the world computer surpassing Ethereum”—claiming token values would soar as user bases grew. Looking back, most of these projects have vanished. Some founders still appear at crypto events, while others have disappeared entirely.
A VC recalled that investors once tried using “governance tokens” to keep founders in check. In theory, governance token holders could vote on project direction, but in practice, such oversight proved nearly meaningless.
“They were called ‘governance tokens,’ but they didn’t govern anything,” the VC lamented.
By the next crypto bull run in 2021, startup financing had begun aligning more closely with traditional Silicon Valley models—VCs receiving equity (though token sales via warrants remained a common component of VC deals). In some cases, founders, much like today, secured large early payouts through secondary share sales.
Payments firm MoonPay is a prime example: in a $555 million funding round, its executive team cashed out $150 million. Two years later, controversy erupted—media investigations revealed that just before the crypto market crashed in early 2022, MoonPay’s CEO spent nearly $40 million on a luxury Miami mansion.
The NFT platform OpenSea followed a similar path. The once-highly-touted startup raised over $425 million across multiple rounds, with a large portion flowing to the founding management team via secondary sales. But by 2023, NFTs had cooled dramatically, becoming nearly irrelevant, and OpenSea announced a strategic shift this month.
“You’re building a cult of personality”
Given crypto’s turbulent history, one might wonder: Why don’t VCs insist on more traditional incentive structures for founders? As one VC put it, under traditional models, founders might get enough funding by Series B or C to cover mortgages and personal expenses, but major payouts come only after a successful IPO or acquisition.
Derek Colla, a partner at law firm Cooley LLP who has worked on numerous crypto deals, says the rules in crypto have always been “different.” He notes that compared to other startups, crypto companies operate with “light assets”—meaning money that might otherwise go toward hardware like chips can instead be distributed directly to founders.
Colla adds that the crypto industry heavily relies on “influencer marketing,” with many willing to pour money into founders. “Essentially, you’re building a cult of personality,” he said.
Glen Anderson, CEO of Rainmaker Securities, a firm specializing in secondary sales, believes the core reason founders can secure massive early payouts is simple: “They can.” “Whether it’s AI or crypto, many fields are in hype cycles,” Anderson said. “In such markets, if you tell a good story, you can sell high.”
Anderson also argues that founders selling shares doesn’t mean they’ve lost faith in their company’s future. But an unavoidable question remains: If the company a founder is trying to build might ultimately amount to nothing, do they morally deserve eight-figure wealth?
Lawyer Colla believes such payouts don’t kill entrepreneurial drive. He points out that MoonPay’s founder faced media backlash for buying a mansion, yet the company continues to grow. Farcaster’s struggles aren’t due to Romero “not working hard”—in fact, Colla says Romero “works harder than anyone.”
Still, Colla acknowledges that the best entrepreneurs usually choose to hold onto their shares long-term, believing their value will far exceed today’s prices by the time of an IPO. “The truly top-tier founders don’t sell in the secondary market,” he said.
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