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

#61

Post by keeptrying » Sat, Oct 01, 2011, 11:26 PM UTC

vladd wrote: post #47

grellas wrote: post #44

A few thoughts: 1. It is bad form for this sort of thing to be aired publicly. It may give us a voyeuristic fascination on something that is depicted as an internal intrigue within a prominent up-and-coming startup but this is fundamentally company confidential information that is not capable of being aired publicly without significant distortion. Who can answer the implied charges of impropriety? Those most directly…

The 3 points you make forget the little guy: that early employee, whose employee number has 1 digit, who trusted the founders when he accepted the option grant and put 60 hours of work or more each week in the hope of not being screwed when the founders negotiate confidentially with the investors on how the company will move forward. There's no SEC for privately-held companies, there is basically no oversight and the…

Your "little guy" has been earning a salary for the last 3 years in the startup - in fact he makes more money than the founders.

I still think its okay to compensate the founder for getting the app to this point.

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

#62

Post by [deleted] » Sat, Oct 01, 2011, 11:27 PM UTC

jtbigwoo wrote: post #27

gojomo wrote: post #18

Earlier quoted context omitted.

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.

[deleted]

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

#63

Post by staunch » Sat, Oct 01, 2011, 11:28 PM UTC

patio11 wrote: post #46

jack7890 wrote: post #36

Earlier quoted context omitted.

No, that money doesn't go directly into the partners' pockets. It also goes to pay the VC firm's rent, travel cost, salaries of associates and support staff, legal/accounting costs associated with the deal, and a bunch of other things. It is generally accepted that a vast majority of a VC partner's income comes from their share of the fund's return, not from the management fee. It is not unheard of for a VC firm's co…

legal/accounting costs associated with the deal Industry standard practice is that startups pay for costs associated with deals, not capitalists. That one is virtually universal. The grapevine tells me that it is not uncommon to see VCs travelling as board members. Some of them don't exactly fly coach.

The management fees do pay for the swanky offices, assistants, expensive meals, strippers, golf, computers, very significant travel expenses (unrelated to board meetings), etc.

And fees are not necessarily split equally across partners. One senior partner might take 20-50% in some cases.

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

#64

Post by staunch » Sat, Oct 01, 2011, 11:29 PM UTC

ebaysucks wrote: post #59

sek wrote: post #31

Earlier quoted context omitted.

The reason there was competition between VCs, this is a different motivation and the amount is not that high.

$3M on 12.7M investment is higher percentage wise than what the Airbnb guys are asking. Plus, it's earlier stage.

And the Airbnb deal is probably a lot more competitive. Facebook was hot, but the market wasn't.

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

#65

Post by keeptrying » Sat, Oct 01, 2011, 11:31 PM UTC

sunnydaynow wrote: post #40

vladd wrote: post #37

Earlier quoted context omitted.

VCs are guys handling money, they need entrepreneurs (guys getting things done) and vice-versa. They sign a contract which mainly defines how each gets to profit from the other one and the boundaries of their interactions afterwards. It's well-known and the web is full of articles about preferred stock, liquidation preference, convertible debt and similar topics. But this article is about something new - a dividend t…

>It's about entrepreneurs screwing early-employees, Yes, that surprised me a lot! Especially from founders that are somewhat "famous" and are connected to YC. I expected they don't play these tricks. Greed? Anyone knows how their employees reacted to this news? If I would have worked 50+ hours for year(s) and then read this... :(

But the employees are getting salary and have been for the last 3-4 years. Infact all those employees have been making more than the founders for the last 3-4 years.

And if on joining, you were told about 2 classes of stocks - one for the founders and one for the employees then you should have understood that this was a distinct possibility.

This VC is just using this small soapbox to warn Airbnb not to eff with him. And to try to stem the tide in Silicon Valley where successful founders are compensated for getting a company upto a $1 billion valution WITH revenue.

If an employee had written this, I would have been a little (tiny) bit sympathetic but for a VC to act like he cares for the employees -- you HAVE TO BE KIDDING ME!!!

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

#66

Post by staunch » Sat, Oct 01, 2011, 11:33 PM UTC

steve8918 wrote: post #55

staunch wrote: post #14

Earlier quoted context omitted.

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.

Taking money off the table implies selling their stake, ie. shares. They didn't sell their shares. They gave themselves a one-time dividend.

You're right that selling shares is far more common, but the concept is the same. The founders raised an extra $20 million so they could sock it away themselves.

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

#67

Post by fukeeptrying » Sat, Oct 01, 2011, 11:40 PM UTC

keeptrying wrote: post #61

vladd wrote: post #47

Earlier quoted context omitted.

The 3 points you make forget the little guy: that early employee, whose employee number has 1 digit, who trusted the founders when he accepted the option grant and put 60 hours of work or more each week in the hope of not being screwed when the founders negotiate confidentially with the investors on how the company will move forward. There's no SEC for privately-held companies, there is basically no oversight and the…

Your "little guy" has been earning a salary for the last 3 years in the startup - in fact he makes more money than the founders. I still think its okay to compensate the founder for getting the app to this point.

you are a douchebag!!.. the "little guy" works his ass off for 80-90 hrs and potential upside off some more money if they get to IPO. I am sure the employees in airbnb didn't make 20-30 millions. The app is built together by founders and the employees not only by founders..

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

#68

Post by steve8918 » Sat, Oct 01, 2011, 11:43 PM UTC

keeptrying wrote: post #61

vladd wrote: post #47

Earlier quoted context omitted.

The 3 points you make forget the little guy: that early employee, whose employee number has 1 digit, who trusted the founders when he accepted the option grant and put 60 hours of work or more each week in the hope of not being screwed when the founders negotiate confidentially with the investors on how the company will move forward. There's no SEC for privately-held companies, there is basically no oversight and the…

Your "little guy" has been earning a salary for the last 3 years in the startup - in fact he makes more money than the founders. I still think its okay to compensate the founder for getting the app to this point.

You should probably read this prescient thread a few weeks back. If you go through the comments, the majority of early employees got screwed by the founders. The ones that benefited are the best-of-breed companies like AMZN, GOOG, etc. They took care of their employees.

http://news.ycombinator.com/item?id=2958766

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

#69

Post by trevelyan » Sat, Oct 01, 2011, 11:43 PM UTC

jack7890 wrote: post #36

patio11 wrote: post #28

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…

No, that money doesn't go directly into the partners' pockets. It also goes to pay the VC firm's rent, travel cost, salaries of associates and support staff, legal/accounting costs associated with the deal, and a bunch of other things. It is generally accepted that a vast majority of a VC partner's income comes from their share of the fund's return, not from the management fee. It is not unheard of for a VC firm's co…

Honestly, why should anyone here care that the VC has to pay rent or salary expenses? Are they eating ramen or living in the office?

As a founder, I'm delighted the AirBNB guys are charging for admission to their equity sale. Call the payout back wages paid at market rates and call it a day. And if investors are reacting in shock to the sticker price they can get out of the showroom. Sorry you won't be joining us - perhaps there is a cheaper model you can lease somewhere else?

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

#70

Post by mikebo » Sat, Oct 01, 2011, 11:46 PM UTC

patio11 wrote: post #28

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…

The way I read it, Chamath doesn't think the company will be as successful if this is the way employees are treated. That's a perfectly valid reason to pass -- it doesn't seem like a right vs. wrong stance.