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We Spent $3.3M Buying Out Investors: Why and How We Did It

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Re: We Spent $3.3M Buying Out Investors: Why and How We Did It

#21

Post by dweekly »

imbusy111 wrote: post #16
dsl wrote: post #12

Earlier quoted context omitted.

Came to the comments to say the exact same thing: this is basically just a vote of no confidence in management. I can't imagine any employee joining this company from this point forward without demanding all-cash compensation. Management and the investors have effectively set the value of restricted shares at zero.

Personally, I think you should treat all stock options/common stock as a lottery ticket with near zero value anyway when joining a startup. In 99% of situations, cash is all you're going to get.

This is practically reasonable but at most companies everyone's in the same boat (including founders / management) that the big upside is going to be a potential future large liquidity event. In this case, the company seems to have transitioned to being content to operate with low growth and high margins. The right thing for an employee to ask for would actually be profit-sharing. I've heard, for instance, this is how The Mathworks (which makes MATLAB) works; employees get no equity but they don't care because the company is quite profitable and the employee profit sharing is generous.

Re: We Spent $3.3M Buying Out Investors: Why and How We Did It

#22

Post by nichochar »

sebleon wrote: post #13

> $2.5m of $3.5m was for founders and early team [of Series A money] Terms: > Series A class of shares included a protective provision which meant that Buffer was unable to offer liquidity for other shareholders > a return of 9 percent annual interest on their investment at any point So... the founders raised a series A mostly to give themselves liquidity, at the expense of a high interest loan that also threw their…

Who feels bad for VCs though? 1. they didn't have to sign the sheet 2. It's really refreshing to see founders and people with vision be in control for once, instead of the opposite

Re: We Spent $3.3M Buying Out Investors: Why and How We Did It

#23

Post by TAForObvReasons »

eldavido wrote: post #17

There's a lot of negativity here. I give Buffer a lot of credit. They seem to deeply internalize the idea of "realistic expectations" and it sounds like the buy-out was a win-win solution where everyone got (mostly) what they wanted. As he says, the investors might not have been happy about it, but at least he has the backbone to resist trying to squeeze growth out of a market where there's none to be had (in the sho…

The interesting question, if the intention was to stick it out in the long term, is whether raising VC money in the first place was a good idea. Bootstrapping the business would have probably been closer in line with the vision and allowed him to retain control without eventually souring relationships

Re: We Spent $3.3M Buying Out Investors: Why and How We Did It

#24

Post by syntaxing »

So investors put $2.3M into the company and got back $3.3M. They essentially have a ROI of 1M over a span of four years. Am I crazy to think that this is a pretty good deal for the investors?! If someone gives me a ~40% return on a crapshoot investments (like how most start ups are), I would be pretty happy!

Re: We Spent $3.3M Buying Out Investors: Why and How We Did It

#25

Post by ant6n »

dsl wrote: post #12
kayoone wrote: post #9

Seems like Joel is quite stubborn regarding his values and vision for Buffer, which i believe is a good thing but i can see how it can lead to differences with co-founders and investors once the vision does not align anymore. Felt like it was all over for him when they asked him to eventually step down and from that point he planned to remove them. In the end it also means that their investors most likely lost their…

Came to the comments to say the exact same thing: this is basically just a vote of no confidence in management. I can't imagine any employee joining this company from this point forward without demanding all-cash compensation. Management and the investors have effectively set the value of restricted shares at zero.

Well, if they actually start paying dividends, that could be interesting, I guess.

Re: We Spent $3.3M Buying Out Investors: Why and How We Did It

#26

Post by tomasien »

This is great news - it sounds like Buffer is a great company to work for and own as an operator. I do think they're a cautionary tale for trying to build a VC backed (in mission and capitalization) company the way they did, but VC backed is not and should not be the norm so that's not a big deal.

Re: We Spent $3.3M Buying Out Investors: Why and How We Did It

#27

Post by dionna767675 »

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Re: We Spent $3.3M Buying Out Investors: Why and How We Did It

#28

Post by tomasien »

syntaxing wrote: post #24

So investors put $2.3M into the company and got back $3.3M. They essentially have a ROI of 1M over a span of four years. Am I crazy to think that this is a pretty good deal for the investors?! If someone gives me a ~40% return on a crapshoot investments (like how most start ups are), I would be pretty happy!

It's fine for the VCs if they can recycle and re-invest that. Otherwise it's a 0.

Re: We Spent $3.3M Buying Out Investors: Why and How We Did It

#29

Post by Ceredron »

goseeastarwar wrote: post #8

This is the oft-cited dream of founders that think they’ll just pay back the VC’s if the relationship isn’t working out. The reality is that no investor in their right mind would take that deal if they had any confidence in a more successful outcome down the line.

Any reasonable investor would gladly take that money from Buffer if they believed the money would give them better chances of more return elsewhere. That does not mean Buffer is worthless. It's not black and white.

Re: We Spent $3.3M Buying Out Investors: Why and How We Did It

#30

Post by devcpp »

dsl wrote: post #14
rajacombinator wrote: post #10

Article explains somewhat about the hows but not really the why, other than alluding to “differences in vision.” Maintaining transparency about these things is a bit tricky!

In any other situation it would be the CEO leaving. The investors clearly didn't have enough votes to boot him, and took a cashout to avoid it being a total loss.

Yep, the key figure in this piece is the CEO owning 45% of stock. Hard to beat in any vote.
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