Founder liquidity – good or bad?

The topic of founder liquidity is interesting, proponents talk about helping entrepreneurs “pay the mortgage.” or get less stress around driving the company to an exit.

In other words: A company gets founded, generates revenue, the CEO pulls a modest salary but the challenging exit environment means that they remain distracted by personal financial obligations. So VCs feel it’s often best to remove this distraction, either by buying back shares themselves or letting early employees sell shares on the secondary market.

I am a proponent of this, and it makes perfect sense to me. Being a cash starved entrepreneur numerous times (while being “rich on paper”), I know that this really works to create more focus as an entrepreneur. And sometime there is a fairness to this (you worked hard to build significant value for others, and sometimes you have given what you can to create that value (and it is time to take another role with your company), a smaller partial exit can be a good thing for everybody.

This story emerged in the morning news flow: The IPO filing of Brightcove that yesterday filed for a $50 million IPO. Brightcove was once considered one of Boston’s hottest up-and-coming tech companies (when there was a booming startup scene in Boston). Its founder Jeremy Allaire previously was credited with creating Flash (after he sold his first company to Macromedia), and Brightcove seemed to be the enterprise version of YouTube.

But then the company stumbled repeatedly, and has yet to make a profit in its seven years of since inception. However, early employees sold around $7.2 million worth of stock back to lead VC firms Accel Partners and General Catalyst. Included in these sales was CEO and founder Jeremy Allaire, who sold around 35% of his shares for $4.86 million, according to the S-1.

Good or bad for founder equity? What is your take?