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Boards are dangerous to founder/CEOs

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Re: Boards are dangerous to founder/CEOs

#181

Post by deckard1 »

somerando7 wrote: post #75
rsweeney21 wrote: post #48

I always thought stuff like this happened to OTHER founders, but would never happen to me. But my board fired me six months after closing our series A. The advice in this article is 100% spot on. I didn't know any of this. I was totally focused on building my company. But if you raise money you can't do that anymore. 50% of your time will always be occupied with working on your next round of funding or managing your…

Question from someone uneducated on this topic: is it impossible to get VC levels of investment without giving away board seats? Is a board even required for private companies?

> is it impossible to get VC levels of investment without giving away board seats?

Microsoft, interestingly, was after the opposite. They took a rather nominal $1M VC funding to get someone knowledgeable on their board. Probably helped when it came time to IPO. They definitely didn't need the funding. VCs would love for the world to believe that their funding is necessary. But often that sort of rocket fuel is detrimental to the growth of a company. It puts immense sudden pressure on a company, relationships are strained, and really weird things start to happen as your headcount shoots past 20-30 people.

Re: Boards are dangerous to founder/CEOs

#182

Post by GDC7 »

deckard1 wrote: post #181
somerando7 wrote: post #75

Earlier quoted context omitted.

Question from someone uneducated on this topic: is it impossible to get VC levels of investment without giving away board seats? Is a board even required for private companies?

> is it impossible to get VC levels of investment without giving away board seats? Microsoft, interestingly, was after the opposite. They took a rather nominal $1M VC funding to get someone knowledgeable on their board. Probably helped when it came time to IPO. They definitely didn't need the funding. VCs would love for the world to believe that their funding is necessary. But often that sort of rocket fuel is detrim…

> Microsoft, interestingly, was after the opposite

Microsoft is like Marylin Monroe, or Michael Jackson or that person who lived to 123 years old.

You'll never see a company like that ever again in your lifetime.

They did what Standard Oil did, in perhaps an even cleaner and uncontroversial manner.

Tons of talent and luck aligned in the exact right way for it to be the phenomenon it became.

Re: Boards are dangerous to founder/CEOs

#183

Post by tomp »

javajosh wrote: post #179
tomp wrote: post #174

Earlier quoted context omitted.

You probably could make a good point but this makes no sense: > It's an iterated game that they play a lot, and you play once, and they have no incentive to play fair. The player who plays multiple times ("iterated game") has more of an incentive to play fair. That's basic game theory. If you only play once, noone can "punish" you in the next game if you cheat.

I didn't mean iterated game in the game theory sense, because that implies both counter-parties play against each other repeatedly. It's like when you get a mortgage - it's a once-in-a-lifetime for you, and a Tuesday for them. They know exactly how to (and have mechanisms in place) enforce every part of a contract they've been using and improving for decades; you barely understand the contract because its the first t…

Yeah, the correct terms for these would probably be "diversification" and "information asymmetry".

I think the main reason for these onerous terms is the fact that without them, the founders would cheat (not people like you or me, but rather, they would attract cheaters if they didn't work so hard to prevent them for succeeding)

Re: Boards are dangerous to founder/CEOs

#184

Post by qaq »

ryanSrich wrote: post #169
qaq wrote: post #82

So with crowdfunding cap now at 5 mil. in US sounds like a good way to avoid this whole thing?

If you can crowdfund to $5m then yes. I’m guessing that’s orders of magnitude harder for something like a B2B SaaS business than raising traditional VC though.

Thats actually a good question given the paper overhead non-accredited investors prob. don't get access to any decent opportunities.

Re: Boards are dangerous to founder/CEOs

#185

Post by jiveturkey »

Cymen wrote: post #167
hinkley wrote: post #111

Earlier quoted context omitted.

They don't have to value the company at $0 to fuck you over once you're gone. The current board can depreciate all of the shares by 50% and then issue themselves twice their original shares so they break even. Then do the same thing a couple of rounds later. I haven't seen $0 but I knew a few people who got diluted to a joke. It doesn't take but a factor of 2-4 dilution of your outlook to drastically change your opin…

I experienced dilution as a former employee of a startup. Teespring did a 13:1 down round a year or so after I left (2015?). If you weren't an accredited investor that could afford to invest in the round, you had 1/13 of your original shares after the round finished. I experienced both being pushed into AMT when exercising the options (they didn't offer early exercise) along with having 1/13 of my shares later on. No…

well to be fair, you should never exercise if it isn't early exercise. the odds are very much against you. I mean, by the odds you shouldn't early exercise either but at least you don't get hit by the AMT bullet.

Re: Boards are dangerous to founder/CEOs

#186

Post by lmeyerov »

boringg wrote: post #84
nabla9 wrote: post #43

Earlier quoted context omitted.

Good board needs to be able to act independently from the CEO. One reason for bad corporate governance in America is boards made from the friends of the CEO.

That's a high minded goal not really connected to the minutiae of the situation. Also relates to larger companies as opposed to early stage VC companies. Think about it from a founder perspective with a bit of reality: who in their right minds would you hire an antagonistic board for the high-minded goal of making corporate governance in America better when you don't even know if your company is going to make another…

I'm mixed: Hard to have it both ways

Tech grows big & fast, and a lot of today's problems can be traced to VC-backed boards noping out of ethical responsibilities.

Startup board members are generally (rightfully) worried about growth or survival, until that's on rails and by then it's too late to fix the monster they've grown.

Today's trends of founder friendliness, wide participation, and big checks makes these trade-offs even more extreme. Startups are so messy that the industry hasn't figured out how to juggle it all yet, or even if the relevant stakeholders even want it to.

Re: Boards are dangerous to founder/CEOs

#187

Post by atestu »

0des wrote: post #36
StriverGuy wrote: post #28

Earlier quoted context omitted.

Interesting you avoided calling them basecamp given the recent media fallout. Not saying you did it intentionally, but just rare anyone refers to them as 37Signals much anymore.

It was my impression Basecamp is more associated with the product of the same name, rather than the group (37signals) associated with it. Correct me if I'm wrong, others may have a different opinion and I'm not the foremost expert on that.

They formerly renamed the company to Basecamp a few years ago and shut down / spun off other products (campfire and highrise).

Re: Boards are dangerous to founder/CEOs

#188

Post by engineeringwoke »

mritchie712 wrote: post #107
bluGill wrote: post #96

Earlier quoted context omitted.

It isn't unheard of for banks to get someone on your board as part of the debt agreement. Though probably only in deals far larger than anything in the VC range.

Many of the debt players are realizing their advantage over VC is lack of control over your company. For example, check out https://timiacapital.com/ . A lot of their marketing is around "Retaining control" and "No warrants and no harsh covenants".

What kind of competent investor does a debt deal that doesn't place them higher in the cap structure?

Re: Boards are dangerous to founder/CEOs

#189

Post by jiveturkey »

breischl wrote: post #133
rsweeney21 wrote: post #48

I always thought stuff like this happened to OTHER founders, but would never happen to me. But my board fired me six months after closing our series A. The advice in this article is 100% spot on. I didn't know any of this. I was totally focused on building my company. But if you raise money you can't do that anymore. 50% of your time will always be occupied with working on your next round of funding or managing your…

Had this happen on a much smaller scale as an employee. I (foolishly) bought out some of my options when I left the company. Years later they sold it, but structured the deal such that the major investors got paid out all the proceeds, leaving zero for the common shares. Yes, I realize preferred shares and payout preferences and so forth. The really galling part is that the exec team (who had themselves acquired, not…

What you're describing, though, is normal. The vast majority of deals happen this way. (We only hear about the tiny fraction where rank and file do make a dime or two, like we hear about the 10 heart conditions / COVID complication and suddenly the sky is falling.)

Whereas, while the situation described by the GP is not unheard of, it's uncommon.

Anyway, your situation is why the common mantra, value your stock options at $0.

I think that's a wrong statement though. Stock options should have a binary value. $0 or IPO/exit value. If the company doesn't go all the way to IPO, you won't get a partial payout. So then guesstimate the IPO valuation of your options and factor the risk.

Re: Boards are dangerous to founder/CEOs

#190

Post by tptacek »

lmeyerov wrote: post #166
tptacek wrote: post #80

Earlier quoted context omitted.

I'm not the most informed person on HN who can respond to this but as a general rule it's within the bounds of normality to raise single-digit millions in unpriced rounds ("seeds") that don't generally have board seats attached, but your first significant priced round (your "A" round) will essentially always give up board seats. Formal boards are not required for private companies.

Yeah somewhere around Series A and esp Series B chances are, unless the founders really lucked out (eg, equity funding that could have been a debt round due to insane profits), they'll have lost control

I don't think losing control after an A round is totally normal.
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