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

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

#91

Post by gavanwoolery »

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…

Founder's can cash out without screwing employees. I had almost no stock as an employee in my first startup, but the founders took care of me post-acquisition.

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

#92

Post by gojomo »

vm wrote: post #86
gojomo wrote: post #85

Earlier quoted context omitted.

You don't know if any 'little guys' were hurt. If the same amount of money had been taken in through sales of additional stock, at the same pre-money valuation, everyone with vested or unvested options would be more diluted. So treating cash-to-early-shares this way (rather than equity sales) can be a slight benefit to all employees and stockholders. Meanwhile, investors are diversified and have great counsel, so the…

Secondary transactions don't cause the company to issue more shares. They transfer shares from one party to another, so the total number of shares does not change and existing shareholders take no dilution.

If the only alternative being considered is for founders to sell their existing shares, yes.

But other approaches to limiting founder dilution and rewarding early shareholders could have included new offsetting stock awards to key staff, or selling even more shares to pay bonuses taxed at ordinary income rates. Those could have been more dilutive to smaller shareholders than this dividend approach.

Dividends are legal, tax-favored, and exist to reward actual shareholders-of-record (even though they're rarely used at this growth-needing-capital stage). Closing that alternative wouldn't necessarily benefit the employee-optionholder 'little guy'... but it might benefit the new-money sophisticated investors who would then have more control.

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

#93

Post by prodigal_erik »

patio11 wrote: post #77
jsnell wrote: post #58

Earlier quoted context omitted.

You must be interpreting this article very differently from many others since you're trying to turn this into an example of VC greed, but I don't quite understand how. My reading is that the VCs for this round are not getting screwed in any way, they know exactly what they're getting (X% of the company for $Y, with $Z ending up in the company's accounts). For them it doesn't really matter whether all the shares they…

The delta between this deal and every other deal ever is not "Employees are uniquely getting screwed." Employees always get diluted. Three things you can count on: death, taxes, and employees getting diluted. You've got to come up with a fairly elaborate scenario to make this particular marginal dilution sound morally significant for me, since it is likely to be on the order of "We stopped stocking one particular bra…

But here the founders may be finding an incentive to do the equivalent of not negotiating well, making it dramatically more likely. I'd have even greater reservations about the whole early-employee thing if it were commonplace that nobody at the bargaining table has interests aligned with mine. I don't even think it was a very good idea to allow the vastly different treatment of share classes we do.

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

#94

Post by tworats »

It's important to note that the VC is not objecting to the founders taking cash off the table. He's objecting to the method (dividends as opposed to a secondary sale). His arguments are convincing to me - and I'm a founder so my bias is naturally for the founders.

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

#95

Post by veyron »

staunch wrote: post #43
sek wrote: post #21

Earlier quoted context omitted.

It also takes a lot of pressure from you and maybe distracts from building the company. On Wallstreet they call this "fuck you money".

In Silicon Valley all the best people aren't in it just for the money. Can't say that about Wall Street.

As a person in Wall Street who isn't in it just for the money, I resent your remark.

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

#97

Post by megablast »

nerfhammer wrote: post #56
shawnee_ wrote: post #45

Separately, when you look at successful tech companies, it seems that dividends are an approach used by cash rich operations to distribute excess earnings — in fact, the most successful, cash rich tech company in the world, Apple, hasn’t issued a dividend and they have more than $75B in cash! The fact that companies can get away with something like this is absolutely ludicrous. It illustrates just how far the stock m…

Ah, but if they paid it out in dividends, it would be taxed! Apple's cash hoard is functioning as a giant insurance policy against Apple's stock price, which if you buy and hold, never gets taxed.

Also a lot of Apples "cash" is overseas, where it would lose a lot to be bought back in.

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

#98

Post by prodigal_erik »

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... :(

I would like to think that YC mostly funds ethical people, but that makes AirBnB the worst exception so far. After http://news.ycombinator.com/item?id=2603844 I would expect them to stoop to anything not likely to lead to prison time (and unfortunately the CAN-SPAM act is is pretty useless).

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

#100

Post by abalone »

steve8918 wrote: post #23
polymath21 wrote: post #19

Earlier quoted context omitted.

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…

But there is a $9.6M secondary component to the deal as well. Employees can participate in that, no?
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