VC Decries Airbnb’s Recent Funding for Founder Control and Cashout • Hacker News Board

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

#21

Post by sek » Sat, Oct 01, 2011, 9:42 PM UTC

colinplamondon wrote: post #16

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.

It also takes a lot of pressure from you and maybe distracts from building the company.

On Wallstreet they call this "fuck you money".

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

#22

Post by angryasian » Sat, Oct 01, 2011, 9:43 PM UTC

colinplamondon wrote: post #16

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.

it also makes it a whole lot easier if the company is on shaky ground and built up by hype, when everything does happen to implode in on itself. I'm not saying that this is airbnb's case but ...

I'm not saying twitter is a failure by any means, but none of the people that built the company are still there ( Jack Dorsey started square so maybe he is that small percentage of people that can juggle two amazing startups ). When all the founders cash out early, it just makes it questionable.

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

#23

Post by steve8918 » Sat, Oct 01, 2011, 9:48 PM UTC

polymath21 wrote: post #19

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.

This is my understanding as well. Chamath says that it's fine if all employees have access to this ability to cash out shares, but it sounds like AirBnB is essentially withdrawing money directly from the company, with no opportunity from employees to participate. He says it's basically a cash-grab that only the founders are participating in. I have a hard time disagreeing with him.

Did any founders of great companies ever do something like this? From my recollection, I don't believe Bezos, Jobs, Gates, etc ever did anything like this.

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

#24

Post by brandnewlow » Sat, Oct 01, 2011, 9:50 PM UTC

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.

Zuckerberg, Moskovitz, and Parker each got $1m from Accel when they raised their $12.7m Series A according to David Kirkpatrick's The Facebook Effect.

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

#25

Post by ssx » Sat, Oct 01, 2011, 9:50 PM UTC

gojomo wrote: post #18

ssx wrote: post #11

Earlier quoted context omitted.

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.

It is a huge percentage of their funding, around 1/6th. If a company where to raise 6m and the founders got 1m not by equity, but by dividends! That just doesn't happen.

If the founder's want to sell some of their equity, I'm fine with that, but that is NOT what happened here. This is purely a pay-day.

If I knew my company was going to be the next eBay for realestate, why would you hamper your company by taking 21m off the table. This signals greed and/or being unsure of your future success.

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

#26

Post by Murkin » Sat, Oct 01, 2011, 9:51 PM UTC

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.

You missed the point, they take the money as dividens.

They are not selling their stock for that $20M lump.

The only 'foul' thing here, is that their employees (option holders) will probably get nothing.

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

#27

Post by jtbigwoo » Sat, Oct 01, 2011, 9:53 PM UTC

gojomo wrote: post #18

ssx wrote: post #11

Earlier quoted context omitted.

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.

The difference here is that the founders are somehow diversifying without actually parting with any of their investment. This is simply a massive bonus to the founders treated as a dividend (probably for tax-avoidance purposes.) The fact that it's not available to most employees, even those with stock options, if problematic, if you ask me.

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

#28

Post by patio11 » Sat, Oct 01, 2011, 9:53 PM UTC

I must have missed the post where a VC said "Guys, sorry, love your company but I couldn't in good conscience participate in a round where the rich people get paid and the poor people are told to wait for an exit." I must have missed that post quite frequently, because that describes every VC round ever.

A $120 million investment round means that about $2.4 million in cash money just moved from the limited partners (universities, pension funds, wealthy families) into the pockets of the VC firm's partners. Not stock, not options: cash money. This is the way the system has always worked, since time immemorial. VCs get paid a management fee (about 2%) win or lose, and a percentage of the profits when they win.

Just something to keep in mind when someone mentions their strong principles in the course of a discussion over how dang expensive butter is these days.

[Edit to add: My description of management fees is slightly simplified and ignores salient things like the fact that they recur annually.]

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

#29

Post by JoachimSchipper » Sat, Oct 01, 2011, 9:54 PM UTC

gojomo wrote: post #13

sunir wrote: post #5

Earlier quoted context omitted.

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.

Hence the mention of capital gains taxes.

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

#30

Post by todojunkie » Sat, Oct 01, 2011, 9:56 PM UTC

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.

"A founder who believes in his business, will never cash out early. period."

That is just not true.

You have zero clue of any one founders back story. How many years have they been building their business and not taking a pay check? Not taking health insurance? Struggling... Taking a payout, in some cases, can motivate someone who has been putting in 24/7 for year(s) to keep going. It can also allow the people in your life (family) to support you in pushing forward with your passions.