> Founders are free to make agreements to swap equities of their companies with each other.
Only in theory.
Firstly it depends on the shareholders agreement, and other contracts with the VC. Co-Sale rights, First Refusal rights, drag-along etcetera etcetera can easily effectively prevent selling common shares. Or clauses just put the idea into the too hard basket.
Secondly: nobody wants to give away voting rights. Small investors don't care about voting rights in public companies so they forget just how important voting is in private companies
Thirdly: the necessary diversification would need to swap more than 50% of shares to get effective diversification. Good luck with that!!
Forthly: the dynamic would be that everyone would want to swap their shares with the perceived best startup in the cohort. It just wouldn't work. The only way it could work would be if founders got some ownership of a VC fund.
> little more diversified.
Exactly: not diversified enough. VCs often own significant percentages of the companies they invest in. And they own preferential shares. Common shares have a completely different risk profile than preferential shares.
Only in theory.
Firstly it depends on the shareholders agreement, and other contracts with the VC. Co-Sale rights, First Refusal rights, drag-along etcetera etcetera can easily effectively prevent selling common shares. Or clauses just put the idea into the too hard basket.
Secondly: nobody wants to give away voting rights. Small investors don't care about voting rights in public companies so they forget just how important voting is in private companies
Thirdly: the necessary diversification would need to swap more than 50% of shares to get effective diversification. Good luck with that!!
Forthly: the dynamic would be that everyone would want to swap their shares with the perceived best startup in the cohort. It just wouldn't work. The only way it could work would be if founders got some ownership of a VC fund.
> little more diversified.
Exactly: not diversified enough. VCs often own significant percentages of the companies they invest in. And they own preferential shares. Common shares have a completely different risk profile than preferential shares.