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VC Decries Airbnb’s Recent Funding for Founder Control and Cashout

allthingsd.com

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Re: VC Decries Airbnb’s Recent Funding for Founder Control and Cashout

#11

Post by ssx »

canistr wrote: post #4
gojomo wrote: post #3

The special one-time-dividend to vested early stockholders seemed a little fishy when I noticed in Groupon's S-1... but maybe it's just an efficient way to reward existing value without larger dilution/valuation. If employees with unexercised but vested options were given a heads-up that such an unusual early dividend was coming – so that they too could choose to qualify – that might address much of Palihapitiya's co…

I'm probably wrong or misunderstanding the whole issue, but if it is true that new investors are simply paying early stockholders a special dividend, then wouldn't that make this a Ponzi Scheme?

This is not the definition of a Ponzi Scheme, you should probably look it up on wikipedia.

But I do agree with the article, dividend's like this are not the spirit of building a good company. Just founders who want a huge pay-day. I would have understood 1m-4m, but not 21m, thats a huge percentage of their investment.

Re: VC Decries Airbnb’s Recent Funding for Founder Control and Cashout

#13

Post by gojomo »

sunir wrote: post #5
gojomo wrote: post #3

The special one-time-dividend to vested early stockholders seemed a little fishy when I noticed in Groupon's S-1... but maybe it's just an efficient way to reward existing value without larger dilution/valuation. If employees with unexercised but vested options were given a heads-up that such an unusual early dividend was coming – so that they too could choose to qualify – that might address much of Palihapitiya's co…

Not really. I am not a lawyer but it seems to me that is not the case. Employee stock options are meant not to be exercised until they are saleable. When you can them early in a private company your capital is locked up in a dead asset yet you have to pay capital gains taxes. The dividend would have to be huge. Further watch out for insider trading. The value of the stock when the option was struck has to price in th…

My hunch is that for early-enough employees the dividend value could dwarf the exercise price, making the decision to exercise a no-brainer.

Re: VC Decries Airbnb’s Recent Funding for Founder Control and Cashout

#14

Post by staunch »

sek wrote: post #12

A founder who believes in his business, will never cash out early. period. He would always get more after an IPO or exit. So why would he? I assume the founders are not stupid, they know their valuation is not justified.

This line of thinking has been thoroughly discredited. Many of the most successful companies today had founders that took money off the table early.

If they didn't believe in the company they could just sell it today for $500 million (or whatever) and put $50 million in their pockets instead of $5 million.

Re: VC Decries Airbnb’s Recent Funding for Founder Control and Cashout

#15

Post by veyron »

paulkoer wrote: post #9

I think the interesting question here is who leaked this email to allthingsd. If the VC really wanted to give the Airbnbs a heads up (as he makes it sound in the email ... take care, let's keep in touch, etc) then I don't think there was any necessity to leak this and I am quite sure the Airbnbs wouldn't want it out in the open either. And then... the Groupon comparison kind of sticks in your mind, doesn't it? I don'…

Here's what probably happened:

1) Chamath talked with airbnb, and he felt that he was scoffed or otherwise disregarded

2) Chamath talked with Reid Hoffman, and both concur on the matter

3) Reid and others talk with AirBNB but the airbnb people stuck to their guns

4) Chamath believes that he is right in his view, and hopes that by going to the public, others (i.e. PG) will pressure airbnb to reconsider (especially with the groupon comparison)

Now, I don't know the airbnb founders directly, but I'm certain that if they felt that other investors were concerned about the arrangement, they would either change the terms or decline to take the opportunity. If Chamath doesnt want to participate, its his prerogative, and expressing his concern to the public really doesn't help his prospects of investing with airbnb or any other yc company.

Re: VC Decries Airbnb’s Recent Funding for Founder Control and Cashout

#16

Post by colinplamondon »

sek wrote: post #12

A founder who believes in his business, will never cash out early. period. He would always get more after an IPO or exit. So why would he? I assume the founders are not stupid, they know their valuation is not justified.

What? It's a whole lot easier to swing for the fences when you're already a millionaire.

Selling 5% of your total shares for $3,000,000 sets you up well for life. Not great, but well. At 4% interest that's $120k/year. After that, it's gravy.

Re: VC Decries Airbnb’s Recent Funding for Founder Control and Cashout

#18

Post by gojomo »

ssx wrote: post #11
canistr wrote: post #4

Earlier quoted context omitted.

I'm probably wrong or misunderstanding the whole issue, but if it is true that new investors are simply paying early stockholders a special dividend, then wouldn't that make this a Ponzi Scheme?

This is not the definition of a Ponzi Scheme, you should probably look it up on wikipedia. But I do agree with the article, dividend's like this are not the spirit of building a good company. Just founders who want a huge pay-day. I would have understood 1m-4m, but not 21m, thats a huge percentage of their investment.

No, it's not a huge percentage of their stake. They still retain massive stakes in a risky private company with a $1.2B+ valuation.

They're just diversifying a little. You wouldn't ask an investor to prove their commitment by putting 100% of their net worth in a single venture. Investors are diversified. Smart founders should be, too, as soon as they are able.

Re: VC Decries Airbnb’s Recent Funding for Founder Control and Cashout

#19

Post by polymath21 »

trim wrote: post #17

Didn't Chamath make most of his money cashing out Facebook stock early? Does anyone remember the story about him from a few weeks ago?

From what I understand, Chamath is okay with cashing out by selling your stock, but what the AirBnB founders are doing is just paying themselves a dividend of $20M (essentially just paying themselves a lump sum out of their funding round and not affecting any of their stock). Please correct me if I'm wrong.
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