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Boards are dangerous to founder/CEOs

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Re: Boards are dangerous to founder/CEOs

#201

Post by CapitalistCartr »

magicalhippo wrote: post #192
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…

> On the bright side, the new CEO ran the company into the ground. I've seen this up close several times, and countless times afar. Successful company gets bought by bigger company, new owners replace the successful management, new management runs company into ground in short order. Remains possibly sold for scraps to former competitors. Like... is there something they're getting out of this I don't fathom? Or are th…

It's often hubris, but I have personally seen it done to dispose of competition. They could have decided to be better at running their own company, but, of course, big corporations don't work that way. Nope, buy that troublesome startup, run it out of gas, problem solved.

Re: Boards are dangerous to founder/CEOs

#202

Post by [deleted] »

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…

[deleted]

Re: Boards are dangerous to founder/CEOs

#203

Post by seattle_spring »

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…

This happened with Premise Data in their last round. Prospective employees beware.

Re: Boards are dangerous to founder/CEOs

#204

Post by Digory »

repomies69 wrote: post #150
Digory wrote: post #49

Never stand between people and a pile of money. Your Board doesn't fire you when you're the best guide to a pile of money. Your Board will fire you if they think you're slowing their progress toward a pile of money. If you think your skills as a guide to piles of money are imperfect, don't put your life in the hands of people who need you to rapidly increase their pile of money.

Actually, the board has to believe that the replacement CEO they find from the market, will generate better returns than the current CEO. So, it is not that the CEO has to be "the best", it has to be good enough so that if he is fired, the likelihood of the new one succeeding should be lower than with him. Note that there should be quite many advantages for the current CEO to do the job well compared to some external…

I didn't say boards are capricious. They just have a clear motive: more money, now. This should not be a surprise to funded CEOs. Don't let your happiness depend on making a board happy, if that's not what you bring to the table.

If you're the best person to achieve more money, now you stay. But if you cease to be the best person to achieve more money, now, you are susceptible to replacement.

Of course, there are transaction costs that might make a particular pivot too expensive. McDonalds isn't going to pivot to Elon Musk, even if Elon Musk is objectively the world's best CEO. In that case, the current CEO may still the "best" guide to more money, now, all things considered.

But no CEO can adopt a long term position inconsistent with their Board's two goals (more, now) without risking replacement.

Re: Boards are dangerous to founder/CEOs

#205

Post by sulam »

throwaway894345 wrote: post #195
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…

Does anyone have a good idea about the laws for valuation tricks and the ways companies skirt them? A company for which I had stock options recently was sold to a larger company, but the deal seems to have been coordinated such that the investors with privileged shares (or whatever they're called) got their money, but the peasant shares (again, I forget the terms) were worthless--all of the "key employees" got genero…

The structure you describe is 1) legal and 2) typical.

Preferred shares cost more, but for that extra money they come with preference. What is preference? It can vary, but the term that matters most is that they get to earn their money first. A 1X Preferred share (very generous) will be paid their investment back before anyone else sees a dime. Often shares are not 1X, they can be 2X or 3X, which means they will get more than they put in before anyone else sees a dime. There are more variations, but this is what matters in the story you’re telling.

Common shares, which is what employees receive, are much, much cheaper (the strike price will often be pennies on the dollar compare to preferred shares that investors receive). However they simply convert to common stock when they’re exercised, with no special treatment.

How does anyone make money then? The answer has to do with liquidity events that are large enough that everyone is getting their money. If money is limited, the investors get it first.

Re: Boards are dangerous to founder/CEOs

#206

Post by redshirtrob »

jiveturkey wrote: post #185
Cymen wrote: post #167

Earlier quoted context omitted.

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.

That's certainly not true. You should evaluate the investment just like any other investment and decide if you can afford to lose the money and stomach the risk.

Part of your evaluation should be consulting a tax professional to determine if there are any immediate, negative tax consequences. You're not guaranteed to get hit by AMT just because you exercise some stock options.

Re: Boards are dangerous to founder/CEOs

#207

Post by distribot »

jasode wrote: post #147
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…

>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. Mark Zuckerberg tried a variation of that game to cut out Eduardo Saverin's shares when they changed the company from a Florida LLC to a Delaware Inc. Well, Saverin sued and Facebook lost that lawsuit; they se…

Anyone know how Zuckerberg avoided the same thing happening to him?

Bezos was a 30 year old with a decade of experience in finance, I assume he was quite savvy. But Zuckerberg was a teen.

Re: Boards are dangerous to founder/CEOs

#209

Post by secondaryacct »

javajosh wrote: post #148
buryat wrote: post #73

Earlier quoted context omitted.

2017-10-04 Series A - Numetric $13M Insight Partners — lead investor Hack VC EPIC Ventures Draper Associates Aaron Skonnard https://www.crunchbase.com/funding_round/numetric-series-a--...

If firing the CEO is a (the?) major degree of freedom for investors/boards, why are these events not recorded on crunchbase? That would seem to be a natural addition. I'd also like to see events related to dilution using valuation and any other major DoF that a board might have.

But firing the CEO, even a founder, is the right of investors who paid for it... I mean what else do you sell them?

If they like the business but not the guy, why should they forever be forced to have him as a parasite in their mind ?

Dilution seems wrong though, because they were supposed to buy something, not steal it.

Re: Boards are dangerous to founder/CEOs

#210

Post by secondaryacct »

amelius wrote: post #199
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…

Why didn't it happen to Bezos or Musk?

Tesla is an MBA case study of CEO-aligned board (which is bad for public companies, Im sure you can see why now), probably because Musk had most of the seed capital. As to how he kept enough out of his previous ventures, I dont know.
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