I recently got a small dividend check from a venture-funded startup.

This was unusual:  why is a startup giving out precious cash to stockholders?  It seems counter-intuitive;  the company should be (re) investing any cash into growth.

But in some cases, this move can address a real problem.  I’ve written before about the risk problems when you pair entrepreneurs (e.g. all eggs in one basket) with VCs (e.g. a whole portfolio of eggs).  For entrepreneurs with no previous exit, a startup with real traction creates a wealth concentration problem.  With 95% of her net worth tied up in the startup, the entrepreneur starts to get conservative (as she should).

This scenario is certainly a good problem to have, but is far from hypothetical:  there’s a recent unnamed but well-known startup exit, where the widely-held view is that the CEO pushed to sell out too early.  A major factor (insiders say), is the 8-figure personal outcome for the CEO — he didn’t want to risk losing that.

Unfortunately, many investors let emotions dominate, and won’t let anyone make money before they do.  A rational investor will understand founder wealth concentration.  If the company is doing well, is solidly capitalized and is cash-flow positive, it’s a reasonable idea to give entrepreneurs some diversification and re-align interests for a “go long” play.

If you want to know more about profitable selling in business read Sellers Playbook.