Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

open.buffer.com

Post reply on HN
Print view View original

161–170 of 177 posts

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

#161

Post by ricardobeat »

godzillabrennus wrote: post #130
paragpatelone wrote: post #109

Earlier quoted context omitted.

I think it is a bold move. In their situation it seems like the right move. I am seeing a lot of sentiment on HN that feels sorry for VCs. VC already get paid above 200k/year; no need to feel sorry for them. People should feel sorry for the founders & the employees who did all the work. Now if they get liquidation, then that is good.

Big VC funds pay like that. Entrepreneurs turned VC often don’t have the dry powder to pay themselves well when they use their own cash to start fund 1. Not all Vc’s are equal.

If you have cash to start a VC fund, are you really worried about how much you can pay yourself from your own money?

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

#162

Post by IMTDb »

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…

The idea is to manage your company so that you generate profits at 2000 customers. At that point you have several options:

- Be happy with cash piling up in the bank, and redistribute it to employee/investors/founders.

- Lower the churn.

- Increase your ARPU.

- Use the profits to create anew product/offering that generates new growth.

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

#163

Post by ig1 »

svantana wrote: post #155
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…

Yes.

Plenty of SaaS businesses (both bootstrapped and VC financed) end up flatlining. How sustainable this is depends on what space you're in, generally if you're revenue flat you become much more vulnerable to external factors (competitors coming into market, CAC increasing, recession, etc).

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

#164

Post by T2_t2 »

ig1 wrote: post #163
svantana wrote: post #155

Earlier quoted context omitted.

> 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…

Yes. Plenty of SaaS businesses (both bootstrapped and VC financed) end up flatlining. How sustainable this is depends on what space you're in, generally if you're revenue flat you become much more vulnerable to external factors (competitors coming into market, CAC increasing, recession, etc).

This is just a weird concept. Sure, not growing is risky in the existential, everything is risky sense. Profitability makes that far less scary.

The biggest cost for most SAAS business is salaries. If times get tough, letting people go is always an option, and if a company makes a 30% margin - which $1.5M and 500K profit is almost exactly - that means the non-salary costs likely need to grow by a few thousand percent before there is a profit pinch.

I'd take $500K profit and control over loss making and hope. But that's just my personal risk profile.

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

#165

Post by T2_t2 »

hobofan wrote: post #160
paragpatelone wrote: post #104

Earlier quoted context omitted.

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.

No it won't. One case in either direction means anything.

The game is that VCs will adjust, then founders. Then VCs. Then founders ad nauseam forever. This is just one small piece of a giant play being performed by many in different ways every day.

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

#167

Post by ig1 »

T2_t2 wrote: post #164
ig1 wrote: post #163

Earlier quoted context omitted.

Yes. Plenty of SaaS businesses (both bootstrapped and VC financed) end up flatlining. How sustainable this is depends on what space you're in, generally if you're revenue flat you become much more vulnerable to external factors (competitors coming into market, CAC increasing, recession, etc).

This is just a weird concept. Sure, not growing is risky in the existential, everything is risky sense. Profitability makes that far less scary. The biggest cost for most SAAS business is salaries. If times get tough, letting people go is always an option, and if a company makes a 30% margin - which $1.5M and 500K profit is almost exactly - that means the non-salary costs likely need to grow by a few thousand percent…

Revenue can collapse fast in SaaS if you don't have churn under control. Let's say there's a downturn (for economic or competition) reasons and new user acquisition falls to 80/month and churn goes upto 7%.

You're now losing 60 customers/month. In three months you'll be down 10% on revenue and your costs will likely be the same.

This isn't a VC funded vs bootstrapped issue, it's a fundamental dynamic of the subscription mode - I've seen plenty of VC funded startups struggle with the same challenges.

Living on the edge where your best efforts only net out churn is hard. Everything becomes harder from recruiting to sales. It's super demotivational to a sales and marketing team when their best effort essentially nets out to zero.

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

#168

Post by baq »

godzillabrennus wrote: post #130
paragpatelone wrote: post #109

Earlier quoted context omitted.

I think it is a bold move. In their situation it seems like the right move. I am seeing a lot of sentiment on HN that feels sorry for VCs. VC already get paid above 200k/year; no need to feel sorry for them. People should feel sorry for the founders & the employees who did all the work. Now if they get liquidation, then that is good.

Big VC funds pay like that. Entrepreneurs turned VC often don’t have the dry powder to pay themselves well when they use their own cash to start fund 1. Not all Vc’s are equal.

What kind of money are you taking about here? I have a cognitive dissonance after reading your post

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

#169

Post by icelancer »

mmt wrote: post #158
icelancer wrote: post #140

Earlier quoted context omitted.

>> 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 outsize…

If VCs actually think that, they are pretty bad at math. It is not indistinguishable. But even if it is (and I repeat, it is not, otherwise it wouldn't be so hard to get funding for $1-2MM), then they are unethical, terrible people who have no conscious about other people.

Which I suppose is just repeating what most people say here, but worth connecting it to numbers.

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

#170

Post by mmt »

icelancer wrote: post #169
mmt wrote: post #158

Earlier quoted context omitted.

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 outsize…

If VCs actually think that, they are pretty bad at math. It is not indistinguishable. But even if it is (and I repeat, it is not, otherwise it wouldn't be so hard to get funding for $1-2MM), then they are unethical, terrible people who have no conscious about other people. Which I suppose is just repeating what most people say here, but worth connecting it to numbers.

> they are pretty bad at math

You've been couching your assertions in hyperbolic judgmental-sound terms, which I fear detracts from your point, but this seems to be the crux of it.

You have not, however, demonstrated the "math" in your viewpoint. Specifically, how does it work out, being sure to include risk (or probability) as a factor?

> otherwise it wouldn't be so hard to get funding for $1-2MM

That doesn't follow, as any difficulty can be adequately explained by (perceived) likelihood of an outsized return (100X+).

Are you sure you're not confusing VCs with lower (e.g. average) risk investors?

Post reply on HN