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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

#81

Post by throwaway2048 »

dahdum wrote: post #71
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…

I don't think this sounds like a win-win, the founder moved the goalposts and bought the Series A out for the minimum possible (9%) so he could start paying himself. I read the fluff around core values, but my first thought is that Joel would rather not risk his personal fortune by growing the company further. Better to ride the 25% margin as long as possible, giving himself enough liquidity to retire wealthy, than t…

I bet you can name 20+ big name startups off the top of your head that made their product substantially worse and/or completely folded due chasing growth at any cost.

I guarantee you this has annoyed you more than a few times as a user of their products.

In a market where VC style multi billion dollar exists just isn't going to happen, trying to force it is just going to ruin everything good about your product and company.

And VCs would rather see you ruin it, with a tiny chance of succeeding, than see you have a successful small/medium sized company.

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

#82

Post by delinka »

tptacek wrote: post #78
dahdum wrote: post #71

Earlier quoted context omitted.

I don't think this sounds like a win-win, the founder moved the goalposts and bought the Series A out for the minimum possible (9%) so he could start paying himself. I read the fluff around core values, but my first thought is that Joel would rather not risk his personal fortune by growing the company further. Better to ride the 25% margin as long as possible, giving himself enough liquidity to retire wealthy, than t…

As an operator or employee of a company that doesn't plan to raise further money from a VC, you want them to pay the minimum possible. Every dollar that goes to the VC is a dollar that can't go to the team. Meanwhile, if the investor didn't want to sell at the number they came up with, they could presumably just say "no". You are, yes, probably being too cynical here.

"...they could presumably just say "no"."

I wouldn't imagine that's the case. Especially if the investor came up with the number and agreed to it in a legally binding contract. It'd be an uphill battle in court to get around that. (yeah, you still need the funds to defend your company...)

Also, my anecdata says that most corporations have in their corporate bylaws (or whatever the right document is) the provision that they can forcibly recall shares at any time (presumably for current fair market value/409A valuation.)

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

#83

Post by lxe »

> creating a unique culture with a fully remote team and high levels of transparency, it now started to feel like we had to choose between those things. It was suggested that some of the fundamentals that I had come to value could be removed to create a productivity environment that would increase the growth rate. I refused to compromise on the transparency and remote work aspects of our culture, so we started to explore slower growth goals

In what way did "remote culture" specifically negatively affect productivity? How was this measured against the more traditional way of working? Or was this just a perception/bias issue, like "oh hmm the team is remote, so I guess that can be blamed on slow growth"

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

#84

Post by tptacek »

delinka wrote: post #82
tptacek wrote: post #78

Earlier quoted context omitted.

As an operator or employee of a company that doesn't plan to raise further money from a VC, you want them to pay the minimum possible. Every dollar that goes to the VC is a dollar that can't go to the team. Meanwhile, if the investor didn't want to sell at the number they came up with, they could presumably just say "no". You are, yes, probably being too cynical here.

"...they could presumably just say "no"." I wouldn't imagine that's the case. Especially if the investor came up with the number and agreed to it in a legally binding contract. It'd be an uphill battle in court to get around that. (yeah, you still need the funds to defend your company...) Also, my anecdata says that most corporations have in their corporate bylaws (or whatever the right document is) the provision tha…

Huh? No, the investor agreed to an annual 9% interest rate, not a lump sump their equity could be purchased for.

It would be pretty funny if the legal norm among startups was that they can acquire their own equity back from investors based on their 409A valuation.

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

#85

Post by delinka »

tptacek wrote: post #84
delinka wrote: post #82

Earlier quoted context omitted.

"...they could presumably just say "no"." I wouldn't imagine that's the case. Especially if the investor came up with the number and agreed to it in a legally binding contract. It'd be an uphill battle in court to get around that. (yeah, you still need the funds to defend your company...) Also, my anecdata says that most corporations have in their corporate bylaws (or whatever the right document is) the provision tha…

Huh? No, the investor agreed to an annual 9% interest rate, not a lump sump their equity could be purchased for. It would be pretty funny if the legal norm among startups was that they can acquire their own equity back from investors based on their 409A valuation.

"...at the number they came up with..."

Maybe I've misread you here. Is this not a number the investors came up with?

As for the 9% interest rate, that starts sounding more like debt than ownership.

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

#86

Post by ChuckMcM »

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…

It seems to me that the nature of venture funding is such that it would be unusual for the investor and the CEO to be aligned with respect to the company's financial performance. This is true in public companies where activist investors push management to extract more value out of the business even when the CEO feels this will compromise employee morale and customer value.

I have seen companies in the same position described by Joel in this post where they fired the CEO, installed a "seasoned team" to get the numbers up, and then sold the carcass to BigCorp as an acquihire bailout.

So with that experience of one of the other ways this story could play out, I found Joel's story one of "success" in terms of sticking with the plan as opposed to selling out. I certainly respect that and wish him continued success.

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

#87

Post by tptacek »

delinka wrote: post #85
tptacek wrote: post #84

Earlier quoted context omitted.

Huh? No, the investor agreed to an annual 9% interest rate, not a lump sump their equity could be purchased for. It would be pretty funny if the legal norm among startups was that they can acquire their own equity back from investors based on their 409A valuation.

"...at the number they came up with..." Maybe I've misread you here. Is this not a number the investors came up with? As for the 9% interest rate, that starts sounding more like debt than ownership.

Yes. That is the idea. As downside protection, Collaborative Fund's investment was to begin behaving as if it were debt (issuing interest, that is) after 5 years. I assume the expectation was that if Buffer maintained hypergrowth and reached the inevitable Series B, part of the series B negotiation would eliminate that downside protection clause. But they didn't; they charted a course that didn't involve an imminent second round, and so that protection clause was problematic.

Again: it would be really weird if companies could simply demand their equity back. The whole point of investing in a startup is that their equity will end up wildly more valuable --- not 40% more, but 10x more --- than the money put in.

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

#88

Post by tptacek »

mcny wrote: post #76
tptacek wrote: post #41

Earlier quoted context omitted.

Close-held profitable companies make their shares liquid by buying them back or by distributing dividends (as "profit sharing"). Remember: to a first approximation virtually all startup equity from all startups is illiquid.

How do stock buybacks work (especially in a private company)? Do I as a shareholder access to all the information that the company does? Not trying to sound smart but wouldn't a market with only one buyer mean they will pay the least possible amount? I'm not trying to trash talk buffer. Just wanted to see if there's another angle to this.

You should talk to someone who works at Bloomberg. Bloomberg is a gigantic private tech company with an internal exchange where vested equity can be bought and sold among employees and the company.

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

#89

Post by chx »

dcole2929 wrote: post #80
freeone3000 wrote: post #75

Earlier quoted context omitted.

This is a completely legitimate way to run a company. Heck, I wish more did this.

Agreed, but the question is if that is how he sold the company to investors and to employees? Employees at this point all know, or should know that stock grants are lottery tickets. But that said there is a very clear distinction between working for a company for that lottery ticket and working for the same company where management is actively negating the value of that ticket. Not to mention he slashed salaries 8 mo…

> Agreed, but the question is if that is how he sold the company to investors and to employees?

Employees obviously I can't know but the article includes him telling investors there might not be an exit.

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

#90

Post by jedberg »

nodesocket wrote: post #79
jedberg wrote: post #72

Earlier quoted context omitted.

I would. The whole point of a risky investment like that would be to get a better return. 10% per year is something I can get almost risk free, if I'm starting with $2MM.

Tell me about this 10% per year risk free investment? Owning S&P historically has returned 8% annual, by no means is risk free.

Real estate. There are plenty of multi-unit dwellings in the country with a 10% IRR. If you have a few million cash to buy one, you'll get 10% a year on the rent fairly risk free, depending on the market.
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