Founder here who turned down an offer to secondary in our B round.
It would have brought ~$5M before tax. This would have been a material change in my financial security. I live in a high-cost US city and have been putting off starting a family. It would have removed many concerns that are holding us back from feeling like it's the right time for us.
My thinking has evolved, but is roughly:
(1) The argument from VCs in favor of a secondary is often: If the founders take some money off the table, they have downside protection and are more strongly incentivized towards only a massive outcome. This aligns their risk profile more closely to their (Seed/A/B stage) VCs who model their portfolios based on bimodal (boom or bust) outcomes. It helps prevent scenarios where the founders safely exit for $Xm leaving the Series B VC with a 1x'ish return that's against their profile.
(2) I didn't take the offer because I felt it would be unfair to our early employees who took a big risk leaving FAANG compensation to come build with us. I ruminate on this often. It would have changed my life, and the only difference to them would be some numbers in our cap table being 10% different. In retrospect, doing it pro-rata for everyone would have solved this, but I'm not sure the VC making the offer would have gone for it. Who knows.
(3) I do not think founders and early employees deserve exactly the same treatment. While early folks took a similar financial risk as I did, they aren't chained to the company in the same way. They can quit tomorrow and go back to FAANG jobs. A founder has to either find their own replacement, sell the company, or run a long and painful wind-down process and return money to the VCs. All of these options take months-to-quarters of work, create reputational risk, suck emotionally, etc. And that's in addition to still losing all your money like the employee did. I don't think it's the same.
(4) You don't get nice-guy points for turning down the offer. Nobody on my team knows that my cofounder and I turned it down, so we get no credit for doing right by them. Telling them about it feels somewhere between a humble brag and guilt tripping them into working harder. The motivation to do "the right thing" has to be purely internal.
(5) If you're starting a company I strongly suggest you give your employees the option to early-exercise / 43b their shares. Few folks seem to know enough about their options to take advantage of this but it prevents the lock-in scenario where someone wants to quit but can't because the AMT bill would devastate them. We have had this since the seed round but sadly only a few people pay attention to it, and I can only suggest it so much without creating a financial-advice legal risk.
While I feel like I did right by my team, I can put an exact price on the cost of that positive moral sensation. My team might even think I'm stupid for not taking it when they would have.
It's pretty easy to say what's obviously right and wrong in HN comments, but when all you have to do to pocket a life changing amount of money is say "ok", the decision feels much heavier.