Every startup founder who’s ever raised venture capital knows the unspoken contract: your investors expect liquidity, and you’ve implicitly promised to provide it. Yet, as Silicon Valley, and the broader global tech ecosystem, has matured, startups have increasingly delayed their entry into the public markets. This hesitation to IPO has forced venture-backed companies to continue raising private funding rounds far beyond traditional points. Series F and G rounds, once rarities, have now become commonplace.
On its surface, this might seem like a victory. After all, companies raising large, late-stage rounds appear strong and attractive. But beneath the sheen of high valuations and investor excitement lies a deeper truth: the private market is failing to deliver liquidity efficiently. Investors, founders, and employees remain locked into paper valuations, unable to access the tangible value of their equity.
Liquidity isn’t just about profit-taking, it’s about creating an ecosystem where capital flows freely, continuously fueling innovation and rewarding risk. When startups remain private too long, liquidity triggers become scarce, stagnation sets in, and the cycle of value creation breaks down.
This isn’t just theory; it’s a critical and overlooked truth of modern startup finance. Consider the recent paths of late-stage companies like Instacart, Reddit, and Stripe. Each has seen delays in their IPO timelines, opting instead to raise massive late-stage rounds. Initially celebrated as milestones, these rounds eventually proved to be liabilities: bloated cap tables, diluted early investors, frustrated employees, and skeptical public markets.
Founders today must reconsider how they approach liquidity, not just for the sake of their investors but for the long-term health of their organizations. The good news? A clear, proven, yet underutilized solution already exists, one that was explicitly designed to solve this very problem: the Emerging Growth Company (EGC) IPO model.
The case for adopting the EGC model is both strategic and financial. By embracing public markets earlier, companies can provide incremental liquidity events, retain investor confidence, reduce cap table dilution, and maintain narrative momentum. They no longer need to wait for a mythical “perfect moment” to IPO. Instead, founders can use public markets strategically, moving from private secrecy to public mastery, shaping their own narrative and liquidity cycles.
This article offers a comprehensive guide for startup leaders who want to reclaim control of their financial destiny, starting with the imperative to rethink liquidity itself.
The fundamental premise of venture investing is elegantly simple: Investors allocate risk capital into early-stage companies with the expectation of generating outsized returns. These returns are realized through two primary liquidity triggers: either a public offering (IPO) or an acquisition by another company. Historically, companies used these liquidity events strategically, IPO early for growth capital, acquisition later for strategic premiums. Yet, in recent years, Silicon Valley has rewritten this playbook, and not necessarily for the better.
Startups are now staying private longer than ever before. Once upon a time, reaching a Series D round was considered notably mature. Today, companies routinely announce Series F and even Series G financings, rounds characterized not by triumph but by necessity. These massive, late-stage funding rounds have become the norm rather than the exception, a striking indicator of stalled liquidity strategies.
While a late-stage round might temporarily boost company valuations, often reaching tens of billions of dollars, it creates two significant and interrelated issues: dilution and liquidity lock-up. Each successive late-stage round injects new investors into the cap table, pushing down the ownership percentage of early investors, employees, and even the founders themselves. In many cases, these stakeholders find themselves diluted to such an extent that even a substantial future liquidity event no longer delivers the transformational wealth they once anticipated.
Consider Instacart's well-documented journey. At its valuation peak in early 2021, Instacart hit $39 billion, attracting marquee investors who believed in its hyper-growth trajectory. But delays in going public caused a troubling downward spiral. As private market enthusiasm cooled and economic conditions shifted, Instacart's internal valuation dropped to roughly $10 billion before its eventual IPO in September 2023. The investors who entered at the peak found themselves significantly underwater, with no immediate path to recouping their investments.
Similarly, Reddit, which delayed going public until March 2025, found itself caught in an uncomfortable spotlight. Its valuation faced intense scrutiny, and the stock quickly traded down nearly 30% below its post-IPO highs. Investors who might have cashed out profitably had the IPO occurred earlier were instead left holding shares now facing skeptical public markets. Stripe, the payment juggernaut, has also famously remained private, opting for large private rounds while pushing back its IPO timeline repeatedly, leading to investor fatigue and valuation uncertainty.
These cases underscore a fundamental truth: venture capital and private equity structures are not built to withstand indefinite liquidity delays. As companies linger in private markets, investors and employees alike watch helplessly as their once promising liquidity event drifts further into uncertainty.
This late-stage funding dynamic introduces a vicious cycle. As more companies delay IPOs, private investors pour increasingly larger sums into even later-stage rounds, creating ballooning valuations unsupported by public-market fundamentals. Consequently, when these companies do finally list, they often face valuation resets, volatile share prices, and disappointed stakeholders. In many instances, the anticipated windfall evaporates into thin air, replaced by investor skepticism and stock-market turbulence.
Yet, even as these issues grow more apparent, a paradox remains. Many founders and investors continue to pursue the elusive "perfect moment" for an IPO, a market peak, an inflection point, or some arbitrary milestone. This quest for perfect timing invariably results in missed opportunities and financial inefficiencies. The result? The private markets, intended to foster innovation, have become slow, dilutive, and increasingly dysfunctional.
The good news, however, is that the regulatory environment and existing market mechanisms already contain the solution to this problem: the Emerging Growth Company (EGC) IPO model. Understanding why and how to utilize this model offers startups the opportunity to reclaim financial agility, create meaningful liquidity events, and revitalize their growth strategy.
To fully grasp the current liquidity challenges facing tech startups, we must step back and consider the regulatory foundation upon which venture capital and public markets operate. The modern financial ecosystem didn't emerge randomly, it was intentionally structured by policymakers, regulators, and financial architects to balance risk, reward, innovation, and investor protection. Crucially, the architects of this system embedded two clear liquidity triggers into venture capital investment: the Initial Public Offering (IPO) and the corporate acquisition.