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Boards are dangerous to founder/CEOs

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Re: Boards are dangerous to founder/CEOs

#301

Post by lumost »

ido wrote: post #289
mavelikara wrote: post #249

Earlier quoted context omitted.

> I have yet to hear a single case of an employee purchasing their options when they left and thinking it was the right decision later on. I know at least a dozen ex-colleagues of mine who fit this criteria. When the company in question exited, it created 400 millionaire employees.

that's the problem with anecdotal evidence - you can't really tell for sure a company is going to become a massive unicorn often until very close to the point it does. I've worked at companies that raised many millions of $s and seemed very promising and a few years later went out of business. Who becomes a winner is also not always completely "fair" (as in it depends somewhat on circumstances/fortunate happenstance)…

aye - latecomers to a company may have massive financial/product impact but have less equity when the IPO happens vs. those who were there initially and left after 12 months. On the other side the board and others can dilute early equity holders at their leisure.

At the end of the day you're really throwing money into a black box which may turn out to contain a trash can. There is more financial transparency in penny stocks.

I've personally had great success with RSUs, but those are ultimately part of your comp even if you discount them to zero - there is no requirement to put in additional money.

Re: Boards are dangerous to founder/CEOs

#302

Post by javajosh »

jacquesm wrote: post #268
javajosh wrote: post #146

Earlier quoted context omitted.

All the horror stories around VC money and shennanigans like this make bootstrapping look not just appealing, but required. It's an iterated game that they play a lot, and you play once, and they have no incentive to play fair. I'm glad some of them were named and shamed in this thread, though. Like, why would anyone take money from someone who has acted in bad faith many times in the past? It reeks of unaccountable…

It's all about who you do business with. Some VCs are ethical, some aren't. Some are horrible and turn around to become a pest the day after they invest, some go out of their way to help the companies they invest in succeed.

Yes, but it seems that the terms give the VC the power to do whatever they want, and so you are really just hoping they won't hurt you, and you have no way to protect yourself if they choose to. Why would a VC not strike a deal with a founder, fund 2 years of your blood/sweat/tears and then when they feel like they've got enough value from you, simply take away your equity and fire you? Isn't that just good business? They get to have their cake and eat it too. If the only thing preventing this from happening is the good will of your counterparty, when would it ever be a deal worth making? Even if you like your investor, or they like you, they could always sell their interest to someone who doesn't.

Re: Boards are dangerous to founder/CEOs

#303

Post by wayoutthere »

robocat wrote: post #170
wayoutthere wrote: post #20

Earlier quoted context omitted.

If you look at the most valuable tech companies today, most made it a significant way along the path without outside investment due to the financial position the founders were born into. While there are a few notable exceptions, nearly every one of them relied on early loans from parents to build their fortunes rather than early stage VC.

Privileged access to powerful people probably matters more than the $. I recall Bill Gates got trusted access to IBM decision makers. A recent example is Elizabeth Holmes, where the $ amounts were probably low hundreds of thousands: https://arstechnica.com/tech-policy/2021/11/holmes-parents-s... “The family’s wealth, power and political connections date to the 1890s, when Christian Rasmus Holmes, a Danish immigrant a…

I think people underestimate the cascading effect that avoiding a seed / angel round can have on cap tables in later rounds. It allows the founders to retain control for much longer, which in my opinion is a critical factor for success of a rapid-growth product company. A founder has a clarity of vision that, when it aligns with the market, delivers outsized results and delights customers. You can avoid decision-making by committee for a lot longer, which gives you a much better shot at success.

Their companies are more successful as a result (when the vision aligns with the market — things can go to shit just as quickly if the vision is off). And we see this story of parental financial resources reflected in nearly every case. The fact that these were technically “loans” is largely an artifact of tax law.

Re: Boards are dangerous to founder/CEOs

#305

Post by moneywoes »

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…

Can someone please elaborate how that is possible?

Re: Boards are dangerous to founder/CEOs

#306

Post by mavelikara »

ido wrote: post #289
mavelikara wrote: post #249

Earlier quoted context omitted.

> I have yet to hear a single case of an employee purchasing their options when they left and thinking it was the right decision later on. I know at least a dozen ex-colleagues of mine who fit this criteria. When the company in question exited, it created 400 millionaire employees.

that's the problem with anecdotal evidence - you can't really tell for sure a company is going to become a massive unicorn often until very close to the point it does. I've worked at companies that raised many millions of $s and seemed very promising and a few years later went out of business. Who becomes a winner is also not always completely "fair" (as in it depends somewhat on circumstances/fortunate happenstance)…

> you can't really tell for sure a company is going to become a massive unicorn often until very close to the point it does.

I don't contest this point.

> I've worked at companies that raised many millions of $s and seemed very promising and a few years later went out of business.

The only narrative I contest with my anecdata is drawing a universal truth from this experience of yours.

As a sibling comment said:

> Salt of the Earth folk love to share their stories of financial misery, but generally keep quiet about their embarrassment of riches.

Re: Boards are dangerous to founder/CEOs

#307

Post by H8crilA »

streetcat1 wrote: post #242
hinkley wrote: post #115

Earlier quoted context omitted.

When the orders of magnitude change, so does the correct solution. In other words: Stop comparing your startup to FAANG. You are not FAANG. If you were, everyone else would know it. Since you aren't, their strategies don't work for you.

Well, the FAANG did not know that they will be a FAANG in the first years.

Actually they often knew they're exceptional.

This is a bit later than the first few years, but all of Microsoft, Facebook, Google, Apple were very highly profitable (on gaap, not some xxx-adjusted ebidta bullshit) at their IPO, and for a while before, with hockey stick revenue growth. And the IPOs happened much earlier in the company lifecycle back then. Look up old S-1s.

Re: Boards are dangerous to founder/CEOs

#308

Post by boringg »

lmeyerov wrote: post #186
boringg wrote: post #84

Earlier quoted context omitted.

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 trad…

I would agree that I am mixed about it. It's not binary but it does seem to be difficult to build a board around a hypothetical fantastic growth trajectory.

That said I don't think it's the boards sole responsibility on ethical choices - that's the management team and rolling up to the board.

It feels a bit how HR is complicit in the company outcome and is a fraught position. The board of directors is the same. Maybe the rest of the world has thought about the board of directors in the wrong way in that they have assumed that they represent an ethical, independent thinking group of people with different incentives then how boards are actually set up.

Not using this as a scape goat of responsibilities but more observing how things seem to be in the real world.

Re: Boards are dangerous to founder/CEOs

#309

Post by tim333 »

dangrossman wrote: post #18
0des wrote: post #16

It may be gauche to express this opinion on HN of all places and I hope it doesn't come off as tonedeaf disrespect, but does anybody notice VC is falling out of favor unless absolutely necessary? I am noticing a lot of bootstrappers that are emerging with the ethos that VC isn't what it used to be for some markets, and often a poor choice of the right VC can be a detriment to a project's longevity, with some teams ch…

I don't think that's a new sentiment around here. Anything published by 37Signals and its founders used to be mandatory reading on HN, and they were all about small teams eschewing outside investors. Their Getting Real book was published in 2006.

Also the founder of HN wrote an essay on VC suckage http://www.paulgraham.com/venturecapital.html

Re: Boards are dangerous to founder/CEOs

#310

Post by sandbags »

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…

Something I don't understand from here in the UK: if they did a new round wouldn't you have pre-emption rights? So, if they set the valuation to $0 you'd be able to afford to take them up and avoid dilution? What am I missing?
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