Why Founders of High-Valuation Startups Can Still Walk Away Empty-Handed—and How to Avoid It

You’ve built something from scratch. You’ve hustled, pitched, pivoted, and finally your startup is valued at $100 million. That should mean champagne and early retirement, right?

Not so fast.

In the world of venture-backed startups, a sky-high valuation doesn’t always translate into a windfall for founders. In fact, many walk away from acquisitions or shutdowns with little to show for years of sacrifice. Why? Because they didn’t understand the fine print of their funding structure.

The Hidden Trap: Exit Waterfalls and Liquidation Preferences

When your company exits whether through acquisition, merger, or wind-down, the money doesn’t get split evenly. It flows through what’s called an “exit waterfall,” and founders are often at the bottom.

Here’s how it typically works:

• Lenders get paid first (especially if you’ve taken on venture debt)

• Investors with preferred shares come next (and they often have clauses that guarantee them a return)

• Founders and employees with common shares are last in line

So even if you technically own 20% of your company, you might walk away with nothing if the sale price doesn’t clear the debt and investor preferences.

A Wake-Up Call for Founders

One founder of a fintech startup learned this the hard way. Despite a $100M valuation and a loyal user base, a sudden market downturn forced her into acquisition talks. But when she ran the numbers, she realized the exit waterfall meant she and her team would walk away empty-handed, even if the deal closed.

This isn’t rare. It’s just rarely talked about.

How to Protect Yourself (and Your Team)

If you’re a founder, especially in Hong Kong’s fast-moving SME and startup scene, here’s how to stay in control of your future:

• Model your exit scenarios early: Don’t wait until you’re in crisis. Run the numbers at $10M, $50M, and $100M valuations. Who gets what?

• Negotiate investor terms wisely: Push for 1x non-participating preferred shares. Avoid stacked preferences or multiple liquidation clauses.

• Be cautious with venture debt: It can be useful, but it puts lenders first in line. Know the risks.

• Keep your cap table clean: Avoid too many SAFEs or convertible notes. A messy cap table weakens your negotiating power.

• Invest in legal advice: A good startup lawyer can help you understand your rights and model different outcomes.

• Maintain leverage: Don’t raise money out of panic. Explore grants, revenue-based financing, or strategic partnerships.

• Protect your voting rights: Board control matters. If you lose it, you may lose the ability to steer your own company’s future.

Hong Kong Context: Why This Matters Even More

In Hong Kong’s startup ecosystem, where funding rounds are often smaller and exits less predictable, founders must be especially vigilant. Many SMEs rely on convertible notes or angel investments without fully understanding the long-term implications. And in a market where reputation and relationships matter, it’s easy to feel pressure to accept investor terms that aren’t in your favor.

But remember: you are not just building a business, you’re building your legacy. Don’t let unclear terms or rushed decisions undermine that.

Final Thought: Know Your Numbers, Own Your Outcome

As a founder, you’re not just the visionary—you’re also the steward of your company’s financial destiny. Understanding your cap table, your investor agreements, and your exit scenarios isn’t just smart. It’s essential.

Because in the end, it’s not about the valuation. It’s about what you walk away with—and what you leave behind.