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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!
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You are permitted to run the company your way when you are wildly successful and can raise money at obscene valuations (see Facebook). Otherwise it is a delicate dance with the investors.
You can run your company however you please until you no longer have 51% voting control. And don't think for a second that your investors won't do whatever the heck they please once they have controlling interest, up to and including kicking you out of your own company if it serves them better.
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True, and the risk here would probably make this a "bad investment" in reality.
There’s no reason on earth why anyone would consider having their money returned plus a mil a “bad investment,” even if they are a VC looking for 100x unicorn returns.
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You are thinking from the perspective of an individual investor. For VCs, this kind of return is abysmal since it won't cover the 7/10 companies that went completely bust. In order to VCs to take high risks on early stage companies, they need the winners to return 100x so the fund even makes financial sense. It's one of the main reasons why VCs constantly push startups for hyper growth. This is certainly better than…
It means the three that have a liquidity event only need to cover 5/10 instead of 7/10. Is that not a helpful result?
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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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How did you get there from here? This appears to be an A-round startup that just paid $3MM to gain the flexibility to award liquid equity to (among other people) it's employees. Doesn't that make it better than the average equity-issuing startup?
When VCs (companies that make their money by betting on long shots) and two cofounders walk away, that is a really bad sign for a company. As I mentioned in another comment, if he hadn't had 45% of voting shares, the CEO would be gone. It sounds like he just wants to turn it into a lifestyle business. Which is cool, they just need to be upfront about bonuses or profit sharing, and ditch equity. Quick edit: I just re-…
To me it sounds like he's trying to establish Buffer as a business, and not a startup. Let's make that distinction, and drop the "lifestyle" part.
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!
You are thinking from the perspective of an individual investor. For VCs, this kind of return is abysmal since it won't cover the 7/10 companies that went completely bust. In order to VCs to take high risks on early stage companies, they need the winners to return 100x so the fund even makes financial sense. It's one of the main reasons why VCs constantly push startups for hyper growth. This is certainly better than…