Acquired Isn’t Always a Happy Ending: A Conversation with Cintrifuse Capital’s Ilana Habib

At Cintrifuse, we spend a lot of time helping founders and startup employees understand the realities of venture-backed companies, including the parts people don’t always talk about publicly. We sat down with Ilana Habib, Principal of Direct Investments at Cintrifuse Capital, to discuss a personal experience that shaped how she thinks about startup equity, option exercises, and acquisition outcomes today. 

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Let’s start from the beginning. Can you share a bit about your background as a startup operator, angel, and now venture capital investor?

I joined this company, let’s call it “Startup X”,  full-time in early 2018, as roughly employee number ten. I helped run the Series A, wrote a ~$20k angel check into that round, and exercised my first tranche of options when I left about eighteen months later. Then I came back for three more years and, the second time around, chose not to exercise. Today I invest in early-stage companies for a living, as Principal of Direct Investments at Cintrifuse Capital.

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So “Startup X” was recently acquired, but you personally made zero dollars from the acquisition. Why is it important for you to talk about that experience with founders and operators today? 

So I’ve sat in just about every seat at this table: operator, angel, common shareholder, preferred shareholder, founder (of a different company), and now professional investor. Most of what I know about equity, I learned the expensive way, which, as educations go, is effective but not cheap. When people hear “acquired,” they assume everyone involved won. But “acquired” and “made money” are two very different things, especially for early employees and common shareholders. I want to share the mental model I wish someone had handed me before I wrote those first two checks so that future early employees, angels, and new investors fully understand the difference between the headline and the reality. 

Two quick flags before we start, as we’ll be speaking a lot about this most recent exit: I’m not here to roast anyone. The team at this startup handled their acquisition with integrity, and the lessons here are mine, not theirs. Second, and this one matters because I do this for a living: I am not here to talk you out of equity. Equity is one of the best wealth-creation tools most people will ever get access to. The entire reason a startup can potentially hire you when it may not be able to pay you what Google can is that it can offer you a slice of the upside, and sometimes that slice is genuinely life-changing. I believe in that bet. I’ve made it, I make it professionally, and I’d make it again tomorrow. What I want is for you to make it with your eyes open instead of your heart leading, because the asymmetry only works in your favor if you actually understand what you’re being handed.

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One of the biggest concepts you consistently talk about to Cincinnati founders is the “waterfall.” For people unfamiliar with venture finance, can you explain what that means?

The waterfall is essentially the order in which people get paid when a company exits.

Most people assume that if a company sells, everyone holding equity gets a payout. But venture-backed companies have capital stacks, and the money flows through them in a very specific order. Usually it looks something like this:

Debt → SAFEs/Convertible Notes → Most Recent Preferred Investors → Earlier Preferred Investors → Common Stockholders

And importantly, founders and employees usually hold common stock — meaning they’re last in line.

As companies raise additional rounds, the impacts of this structure compound. Raising at a higher valuation with a 1x (or worse!) liquidation preference means that the “clearing price” for common (the number at which those individuals would see any kind of financial return) goes up, sometimes dramatically. A company can raise $50M, sell for $30M, and generate exactly zero dollars for common stock. The individuals who put their blood, sweat, and tears into building that company get nothing in that scenario.

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You also talk about option exercises in a way that many startup employees may not have considered before.

I think employees are often taught to think of options as compensation. But exercising options is not compensation, it’s an investment decision. You are literally writing a check into a highly illiquid, high-risk private company. Sometimes that’s a phenomenal deal. Sometimes it’s a terrible one. Either way, it’s an investment, and you should evaluate it like one.

When I exercised my first tranche of options in 2019, I didn’t really understand cap tables, liquidation preferences, or how venture financing structures worked. My thought process was simply: “These are my shares. I need to buy them if I want to keep them.”

That was the entirety of the analysis.

Later, when I declined to exercise my second tranche, my intuition was picking up on things I didn’t yet know how to formally articulate: layoffs, burn concerns, strategic drift, leadership misalignment. I no longer had conviction that the company would be a good steward of my capital.

Today, I encourage employees to ask themselves a much harder question:

“If these shares weren’t already ‘mine,’ would I still write this check today?”

If the honest answer is “no, I wouldn’t write this check,” don’t let sunk-cost storytelling talk you into it.

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Another major point you make is that belief in a company’s mission is not the same thing as an investment thesis. Why is that distinction so important?

Early-stage startups are emotional environments. That’s part of what makes them special.

The same deep conviction that makes someone a great early employee can also make them very bad at objectively evaluating risk. I was absolutely guilty of this. We joked internally that I was serving the Kool-Aid to new hires, but honestly, it wasn’t really a joke. I helped onboard people and evangelize the mission because I genuinely believed in what we were building.

And to be fair, there was real momentum. We had incredible press, strong growth, and were scaling quickly. It felt like we were on a rocket ship.

But loving a company and believing in the mission is not the same thing as underwriting an investment thesis.

A real investment thesis asks:

• What has to be true about the market?
• What has to be true about the product?
• What has to be true about the team and execution?
• What exit scenarios are realistic?
• What does the capital stack look like?

Those are very different questions from “Do I love this company?”

Was there a moment when all of this knowledge really sunk in?

Yes. When I got the acquisition announcement, my first reaction was honestly the same as anyone else’s: “Wait… does this mean I actually get something?”

But by that point, I had enough investing education to ask for the waterfall analysis. What came back was very clear (and a lot of legalese): after debt, SAFEs, and senior preferred shareholders were accounted for, there wasn’t enough remaining value for Series A, or common stockholders to receive anything at closing.

That was the moment where the difference between “headline success” and “financial outcome” became very tangible.

What are the key questions startup employees should ask before exercising options or investing in their company?

There are five big ones I’d encourage people to understand before writing a check:

• How much has the company raised, and through what instruments? SAFEs, notes, priced rounds, etc. all matter.
• Where do you sit in the waterfall? Who gets paid before you?
• What exit value would actually be required for your shares to return money?
• What is the real cost of exercising? Don’t forget to consider taxes and AMT. Would you write that exact check, today, as an outside angel?
• Would you still make this investment if you didn’t work there or love the people involved?

If you can’t answer those questions, you’re probably not making an investment decision. You’re making an emotional decision with money.

Looking back now, do you have any regret or “hindsight is 20/20” thoughts around the decisions or the investments you made?

There’s a line I keep coming back to, from Brené Brown by way of Teddy Roosevelt, about the person in the arena. The credit doesn’t belong to the critic. It belongs to the person actually in the arena, face marred by dust and sweat and blood, who is actually doing the thing.

Here’s the honest truth about my job: I’m not in the arena anymore. I’m the critic now. The founders and operators I’m lucky enough to back are the ones in there every day, figuring out how to make payroll next week, taking the actual hits. I get to offer guidance from the stands, but I don’t get to pretend I’m the one bleeding. Holding onto that is, I think, the single most important piece of perspective I have as an investor.

You’re the one in the arena. You’re taking the startup bet (paid in less cash, longer odds, any sense of a life outside of work) and equity is supposed to be the thing that makes that bet pay off for you, not just for the fund whose name ends up in the press release. This story isn’t here to scare you out of the arena. It’s here so that when you take the bet, you take it with your eyes open, so the upside you’re being offered is upside you actually understand. 

And no, I don’t regret either check. I think of them as an educational expense. In exchange I got frameworks I now use literally every day, and, maybe more importantly, lessons I get to hand to the people this may hit the hardest: early startup employees. If this helps even one of you ask better questions before writing that first check into a company you love, then the tuition was worth every penny.

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Cintrifuse is a non-profit organization accelerating startup growth in Greater Cincinnati by leveraging its three branches: Cintrifuse, Cintrifuse Capital, and StartupCincy. Together, these branches create an ecosystem which aims to amplify Cincinnati’s reputation as one of the best places in the Midwest to launch and scale a business.