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

#161

Post by rdl » Mon, Oct 03, 2011, 9:39 PM UTC

jroseattle wrote: post #158

rdl wrote: post #152

Earlier quoted context omitted.

They're just being honest. If a company sells for $150mm, and you have 1%, and there has been $20-40mm in financing (i.e. certainly not a great outcome for later investors, but ok for early), it's possible your equity will be worth $0 (due to preference), or maybe $200-300k. The odds of the company going from early to this are maybe 20%. Getting 1% isn't all that common either; 0.1% is a lot more likely unless you're…

I'm afraid we're getting off on a tangent on this thread, but your math is correct, and I agree with your probabilities. > As an employee, what I'd want from a prospective employer is full visibility into the financials/cap table, and help running through various assumptions about the future. Misleading people about the value of compensation, up or down, isn't reasonable. I think that's the crux of it. Most startups…

I generally agree with you, but I think most engineers, even really good ones, would rather have extra cash at the current investor valuation, vs. more stock. Assuming your startup can raise 5mm on a 20mm pre, raise 7mm on a 20mm pre with a smaller options pool, and pay people slightly above market vs. slightly below market.

If your startup is a rocket with no problems, either approach works, but if it gets bumpy, having cash extends your runway, and helps you retain key people better than increasing amounts of declining stock.

Plus, having investors put more cash in keeps them motivated to help you longer, sort of like an author's book advance.

There is definitely under appreciated value to being "rich" in your 20s; driving a nice car, living in a nice place that you like, being able to go out to eat... and it really only takes making a marginal extra 10-20k to make a big difference.

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

#162

Post by trevelyan » Tue, Oct 04, 2011, 3:10 AM UTC

philwelch wrote: post #155

trevelyan wrote: post #148

Earlier quoted context omitted.

Early-stage investors aim for a 10x return on capital, yet AirBNB has consistently delivered 15-20x compound annual growth. That makes ten million per founder significantly less than their first few months of foregone salary if you compound the investment at the same rates investors are getting. This guy is getting skittish that 1/100th of the valuation of the company is going in a payout to the founders? That's only…

Yes, it does look a lot better based solely on made-up numbers. Back in the real world, there's a 120 million dollar "investment" of which 1/6 is actually a no-strings-attached gift of cash money. That's an atrociously bad deal for the investor, and it's totally sensible to balk.

Phil,

If the deal doesn't make sense, it doesn't make sense because the company is overvalued. But for a VC to agree that a company is worth X and then complain when 2% of that is used to de-risk founders is hypocrisy: the payout constitutes a smaller percentage of deal value than the VCs charge for allocating capital.

Any VC that finds these compensation figures absurd should have balked at the proposed valuation LONG before this point. This is in principle no different than de-risking founders 100k each out of a round valuing their company at over 10 million.

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

#163

Post by philwelch » Tue, Oct 04, 2011, 6:41 PM UTC

trevelyan wrote: post #162

philwelch wrote: post #155

Earlier quoted context omitted.

Yes, it does look a lot better based solely on made-up numbers. Back in the real world, there's a 120 million dollar "investment" of which 1/6 is actually a no-strings-attached gift of cash money. That's an atrociously bad deal for the investor, and it's totally sensible to balk.

Phil, If the deal doesn't make sense, it doesn't make sense because the company is overvalued. But for a VC to agree that a company is worth X and then complain when 2% of that is used to de-risk founders is hypocrisy: the payout constitutes a smaller percentage of deal value than the VCs charge for allocating capital. Any VC that finds these compensation figures absurd should have balked at the proposed valuation LO…

VC's take 2% of invested funds as a fee. The Airbnb founders are apparently taking 1/6 of invested funds as a "one-time dividend". You're not comparing like with like. VC management fees end up being less than 2% of the valuation of the VC portfolio assuming the portfolio earns any money at all.

The point of investment is that the money is supposed to allow the company to grow. When 1/6 of that investment isn't even invested in the company, but rather given as a no-strings gift, it's not an investment anymore.