How AI Startups Use Early Liquidity to Retain Talent Instead of Founder Windfalls

The Problem: Why Traditional Secondary Sales Fall Short

Secondary sales in startups have typically been seen as opportunities for founders and early investors to cash out, often at the expense of employees. This approach overlooks a growing challenge in the tech ecosystem: retaining top talent in an intensely competitive environment. Employees, especially in artificial intelligence startups, face long waits for liquidity events like IPOs or acquisitions, risking disengagement or attrition just when their skills are most valuable.

In AI startups like Clay and ElevenLabs, this problem is even more pronounced because success relies heavily on specialized talent that is hard to replace. Founders who focus on windfalls risk fracturing their teams and losing the very people who drive innovation.

Why Does Employee Retention Matter More Than Ever?

Retention is crucial when your company’s value depends on continuous innovation. The AI sector rapidly evolves, so losing key staff can stall projects, slow product launches, and ultimately dampen a startup’s competitive edge. Providing early liquidity—a chance for employees to sell a portion of their equity before an IPO or sale—is an emerging practice that aligns incentives more evenly.

This shift from founder-focused liquidity to employee-centric strategies sends a strong message: the company values its workforce’s contributions now, not in some distant future. It’s a practical solution against burnout and turnover, especially in markets where job hopping is common.

How Does Offering Early Liquidity Work in AI Startups?

Typically, employees receive stock options or equity with vesting schedules lasting several years. Traditionally, they can only monetize these shares upon a major liquidity event, which could take a decade or longer. Early liquidity programs allow employees to sell part of their vested shares through secondary markets or structured buybacks.

For example, Clay and ElevenLabs have structured secondary sales that prioritize employees over founders. This involves the startup or trusted secondary buyers purchasing shares from employees, providing immediate financial rewards without requiring a public listing or acquisition.

What Are the Technical Terms Behind This?

• Secondary sales: The sale of existing shares from current shareholders, not new shares issued by the company.
• Vesting schedule: A timeline over which employees earn their equity, preventing immediate ownership to encourage long-term commitment.
• Liquidity event: Typically an IPO or acquisition, when shares can be converted into cash.

When Should AI Startups Implement Early Liquidity Programs?

Timing is essential. Early liquidity is most effective during the growth phases when competition for talent peaks and cash flow might be tight. Introducing these programs prematurely can disrupt capitalization tables or investor confidence. Conversely, waiting too long risks losing valuable employees to companies offering more immediate rewards.

Startups should assess their capital structure, workforce needs, and investor relationships to find the right balance. Implementing early liquidity requires coordination with legal teams and secondary buyers to ensure compliance and fairness.

Real-World Evidence: Clay and ElevenLabs Leading the Way

Clay and ElevenLabs have publicly embraced these employee retention tools, shifting the secondary sales paradigm. By enabling early liquidity tailored for employees, they have kept turnover rates lower, morale higher, and innovation thriving.

These companies demonstrate the trade-offs at play: founders may delay or reduce personal returns but gain a more stable, committed team driving long-term success.

Practical Considerations for Startups

Implementing early liquidity programs involves:

• Legal and Compliance Costs: Securing approvals and ensuring securities law compliance can be expensive.
• Financial Impact: Managing cash flow to buy back shares or coordinate with secondary market buyers.
• Investor Relations: Aligning expectations with early investors about share dilution or capitalization changes.
• Risk Management: Balancing liquidity provision without compromising long-term equity incentives.

Planning and transparency are key to avoid unintended consequences.

How to Evaluate if Early Liquidity Fits Your Startup?

Ask yourself these questions:

• Is employee retention a critical risk for achieving your growth targets?
• Are competing startups offering better short-term rewards?
• Can your financial position support partnerships with secondary buyers or buybacks?
• Do investors understand and support early liquidity mechanisms?

If the answers mostly point toward risk or opportunity in retention, early liquidity could be a strategic move.

Conclusion: Balancing Trade-Offs for Sustainable Growth

The traditional mindset that secondary sales are simply founder windfalls is outdated, especially in fast-moving AI startups. Early liquidity focused on employees offers a practical way to manage retention and motivation, reducing the risk of losing essential talent.

While not a perfect solution, it balances the trade-offs between immediate rewards and long-term growth. Founders and investors can better align incentives across stakeholders, ensuring the team driving innovation remains engaged and invested.

Next Step for Founders and HR Leaders: Evaluate your startup’s retention risks, financial flexibility, and investor stance within 20 minutes using a simple checklist to decide whether an early liquidity program fits your context, avoiding costly delays or missed opportunities.