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

open.buffer.com

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

#151

Post by puranjay »

sushid wrote: post #38
tptacek wrote: post #32

Earlier quoted context omitted.

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?

How are you going to cash that out? Do you want to hold onto a lifestyle company shares when there's no potential liquidity event in discussion? I'm not going to exercise my options in that situation and you'd be crazy to pay taxes on this year after year.

Buffer's current salaries:

https://docs.google.com/spreadsheets/d/1l3bXAv8JE5RB9siMq36-...

Personally, I think the salaries are more than reasonable. A senior engineer with a $175k compensation seems fair enough.

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

#152

Post by sytse »

"Whereas in the past we’d “had it all” and achieved growth alongside 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, and what that would mean for the future of Buffer."

I respect the commitment of Joel to all remote and transparency, he's an inspiration. Personally I think that high growth can be compatible with all remote and transparency. For example both us at GitLab and InVision are all remote with high growth rates.

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

#153

Post by ig1 »

One of the under-appreciated facets of SaaS economics is that you have to grow your growth constantly, regardless of whether you're bootstrapped or VC funded.

If you're steadily adding 100 customers/month you might think thats great because of the accumulating nature of subscription revenue - but actually that's a death sentence.

Your churn will grow as your customer base grows.

If you've got a 5% monthly churn rate then at 1000 customers you'll lose 50 customers/month. At 2000 customers you'll be losing 100 customers/month - and all of a sudden your 100 new customers a month will net out to zero. After that point you'll start losing customers.

From a quick look at Buffer's baremetrics board that's what happened here.

You either have to have net negative dollar churn (which is very very hard if you're selling to SMEs) or you have to have an exponential growth rate that means you can escape the churn effect and that almost always require external capital to fuel the growth.

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

#155

Post by svantana »

ig1 wrote: post #153

One of the under-appreciated facets of SaaS economics is that you have to grow your growth constantly, regardless of whether you're bootstrapped or VC funded. If you're steadily adding 100 customers/month you might think thats great because of the accumulating nature of subscription revenue - but actually that's a death sentence. Your churn will grow as your customer base grows. If you've got a 5% monthly churn rate…

> If you've got a 5% monthly churn rate then at 1000 customers you'll lose 50 customers/month. At 2000 customers you'll be losing 100 customers/month - and all of a sudden your 100 new customers a month will net out to zero. After that point you'll start losing customers.

Actually, in this scenario the number of users will asymptotically grow towards growth/churn = 100/0.05 = 2000 in perpetuity. So it's not a "death sentence" but will lead to growth stagnation.

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

#156

Post by owens99 »

tptacek wrote: post #49
dsl wrote: post #43

Earlier quoted context omitted.

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-…

No. All things being equal, the VC and cofounders leaving is a bad sign. But all things aren't equal: Buffer is so profitable that it can buy out its investors without impacting operations. That's an extraordinarily good sign, one few startups ever find themselves in a position to do. The Buffer post is extraordinarily clear (almost numbingly so) about the mechanics of their Series A and why they needed to buy their…

Thanks for taking the time to explain to this guy the big obvious perspective he is missing here. So frustrating reading one-sided comments like that.

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

#157

Post by lorenzobr »

scarface74 wrote: post #118
mprev wrote: post #50

Earlier quoted context omitted.

Can we please stop using “lifestyle business” as a pejorative for everything but hyper-growth companies? Outside our bubble that’s pretty much just what everyone else calls a business.

There are way too many commenting as if a profitable business is actually a negative thing.

It's because we are growing up with VCs teaching us that you have to burn money for 10 years before you can be profitable.

Honestly, I'd sign with my blood if I could get my business to make £5M a year in profit and own nothing to VCs or banks.

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

#158

Post by mmt »

icelancer wrote: post #140
mmt wrote: post #138

Earlier quoted context omitted.

> Only very myopic VCs would think this way globally. Might this be a (converse version of a) No True Scotsman fallacy? Elsewhere in the thread, a comment [1] referenced an article [2] that details the return imperatives that VCs face. In particular, it details how small returns "don't move the needle". OTOH, the article asserts that only 5% of VCs (misleading, if a percentage of number of firms instead of AUM) succe…

>> In particular, it details how small returns "don't move the needle". You never want small returns. But when you can choose a small return over basically a near-zero chance of losing all your money, it isn't that difficult of a choice - or it shouldn't be.

The point is that, to a VC, a small return is indistinguishable from losing all the (not "your", since they rarely have much, if any of their own money in it) money.

Given their economics, VCs have a very strong incentive (or an imperative, according to that article) for "forcing everyone to 10X+" (and I would argue it's more like 20x+), no matter how small the likelihood of that outcome. Without at least one outsized exit, they're a failure.

Put another way, their LPs aren't paying them to, in any way, play it safe. Near-zero chance isn't the same as zero.

So, yes, the choice for a typical VC isn't difficult. It's just the opposite of what you're proposing.

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

#159

Post by owens99 »

Kiro wrote: post #154

I don't understand. Who owns the shares now if they were bought with the company's own money?

No one. There are now fewer shares outstanding.

ie. before there were 10M shares outstanding which represents all the shares owned by employees founders investors etc, now (as an example, these are not real numbers) there are 8M shares outstanding because the Series A investors no longer have shares those shares are taken off the market by the cash.

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

#160

Post by hobofan »

paragpatelone wrote: post #104
zminjie wrote: post #37

Earlier quoted context omitted.

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…

Who cares if it's bad for VCs. They already get paid over 200k+ in carry every year for over 10 years. They are also not investing their own personal money.

The point is that if all startups behave like that, thr VC business model doesn't work out, will vanish, we will all have to stop playing the startup game since there is no one providing that kind of funding anymore.
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