Boards are dangerous to founder/CEOs • Hacker News Board

Re: Boards are dangerous to founder/CEOs

#271

Post by nowherebeen » Wed, Nov 24, 2021, 5:24 AM UTC

ganeumann wrote: post #239

nowherebeen wrote: post #110

Earlier quoted context omitted.

"The shareholders elect the Board which has the responsibility to hire and fire the CEO. The Board has the right and the responsibility to fire the CEO if they believe it is in the best interests of the company. If the shareholders don’t like the decision, they can call a special meeting of the shareholders to fire the Board and appoint new Directors. The new Board may re-hire the recently fired CEO. So the majority…

That may be true in many companies, but venture capital funded companies almost always have something called a "Voting Agreement". I pulled a random one from my folder of docs, it is below. The upshot, if you are not used to reading these, is that all of the shareholders signed an agreement that says they will vote their shares to elect certain directors. In the absence of an agreement like this you are right, the bo…

Thank you for this. It is educational.

Re: Boards are dangerous to founder/CEOs

#272

Post by MeinBlutIstBlau » Wed, Nov 24, 2021, 5:27 AM UTC

daenz wrote: post #42

I'm happy and appreciative that this advice exists, but as a tech person who just wants to build new things, it makes running a company sound like a massive drain on the psyche.

You're not required to have a board. You can have an LLC or S Corp (or C, I mix them up) all with you as the sole member/shareholder. You can legally even write in the Operating Agreement/Bylaws "X Member can never be ousted from the board until death" if you honestly wanted to. You can even have a one page agreement that says "X owns 100% of the company shares and we will have meetings once a year on x date" and signed.

I worked as a commercial lending processor for a while and got to learn how many businesses operated. The majority are family or sole proprietors. The few that are with others usually get really drawn out with lots of legal jargon. Typically, one person retains 51% and has sole rights to act without the full boards approval.

In all running a business isn't really difficult. It's the exact same as personal budgeting. It's just high level stuff warrants these types of situations because some moron VP is upset they don't get to destroy part of the company they contribute no value to.

Re: Boards are dangerous to founder/CEOs

#273

Post by MeinBlutIstBlau » Wed, Nov 24, 2021, 5:29 AM UTC

_qzu4 wrote: post #114

flenserboy wrote: post #58

1. Avoid going public if at all possible. 2. Avoid outside investors if at all possible. 3. Avoid having a board if at all possible. 4. Control the shares or the shares will control you.

> 1. Avoid going public if at all possible. This is basically what Bloomberg has done. Despite selling financial terminals to bank traders, the company still hasn't gone public after all these years.

Valve as well. I believe they also have the highest profitability/employee ratio of American companies.

Re: Boards are dangerous to founder/CEOs

#274

Post by throwawaythekey » Wed, Nov 24, 2021, 5:32 AM UTC

hinkley wrote: post #219

low_common wrote: post #165

Earlier quoted context omitted.

How does share dilution work? Does that mean issuing more shares? How does depreciating shares happen?

It's not a publicly traded company so the paper is worth exactly as much as the people who hold most of the paper decide it's worth. They need some sort of majority to vote to change the rules, and since the employees with unexercised shares control exactly 0.0 repeating percent of the company, you're going to lose that vote. It's a democracy where the wolves vote that the sheep will be dinner.

Employees with full (exercised and vested) shares at my company don't have any voting power until after an exit event. The paperwork these days is truly ridiculous.

Re: Boards are dangerous to founder/CEOs

#275

Post by asdfasgasdgasdg » Wed, Nov 24, 2021, 5:38 AM UTC

distribot wrote: post #207

jasode wrote: post #147

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. 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.

He had more power, because Facebook was an obvious rocket ship. So he could make better deals for himself when it came time to finance, and retain a controlling share in the company. If the board tried to fire him, he could just fire the board.

Re: Boards are dangerous to founder/CEOs

#276

Post by asdfasgasdgasdg » Wed, Nov 24, 2021, 5:43 AM UTC

freejazz wrote: post #230

ajkjk wrote: post #215

Earlier quoted context omitted.

You sell them.. returns on their money. That's the whole point, right?

Then don't sell voting stock?

Unless your company is a rocket ship already off the launch pad and accelerating to orbit, it's hard to make a deal that doesn't involve voting stock.

Re: Boards are dangerous to founder/CEOs

#277

Post by bagels » Wed, Nov 24, 2021, 5:53 AM UTC

lumost wrote: post #243

redshirtrob wrote: post #206

Earlier quoted context omitted.

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.

There are very few times where the finances work out for options. Most employees lack access to the necessary company financials to make an informed financial decision, there is a 100% downside risk and barring early stage founder equity stakes - it's unlikely that the equity will do better than getting lucky on a top stock pick. I have yet to hear a single case of an employee purchasing their options when they left…

I purchased options. Some didn't pan out. Some did. Was an early employee on all of them, purchase price was relatively low, and I don't regret any of them.

Re: Boards are dangerous to founder/CEOs

#278

Post by aledalgrande » Wed, Nov 24, 2021, 6:10 AM UTC

gp wrote: post #71

drno123 wrote: post #67

Earlier quoted context omitted.

Who was your investor? So other startups know who to avoid.

Don't want to dox, but you should be able to find it on crunchbase. I'm not surprised about the story given who's in that round.

email the fun details XD

Re: Boards are dangerous to founder/CEOs

#279

Post by [deleted] » Wed, Nov 24, 2021, 6:22 AM UTC

kragen wrote: post #244

munificent wrote: post #138

Earlier quoted context omitted.

I intensely dislike the cynicism of this and other similar statements. It's a truism of American culture that any group of people is somehow stupider, meaner, and more hurtful than any of its individual members. Yet our lived daily experience is that often our most rewarding, beneficial, and joyful experiences come when being a member of a group. I mean, we are a group right here and right now in this thread and I as…

> I assume everyone participating still feels it is a net positive for them to do so. No, I don't, and I think some of the other people who think that are probably wrong.

[deleted]

Re: Boards are dangerous to founder/CEOs

#280

Post by JanisL » Wed, Nov 24, 2021, 6:46 AM UTC

martinald wrote: post #149

mritchie712 wrote: post #107

Earlier quoted context omitted.

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".

It seems quite crazy that this hasn't happened earlier. It seems to me most VC rounds are usually used to mostly finance sales and marketing growth, which if they have a positive RoI should really be debt, as that's the whole point of it! Equity funding to me should be used less for that and more for R&D and product development where the RoI is harder to calculate, or may not exist at all.

I think the reverse repo situation sheds some light on why this wasn't happening as much earlier: https://fred.stlouisfed.org/series/RRPONTSYD/

Put simply there's now a glut of money that is waiting to be invested via loans in anything that has a good ROI with low enough risks. In the past due to higher interest rates and various other factors (including regulatory) this glut of money just didn't exist before.