I can't help at being annoyed at the part where he has a group of programmers churning out 5 iPhone apps a day.
An app could be anything. The last 2 apps I downloaded on my tablet are nothing more than web pages with "swipe" functionality.
The Forgotten Founder: A Silicon Valley Tale of Humiliation and Revenge
31–40 of 112 posts
Re: The Forgotten Founder: A Silicon Valley Tale of Humiliation and Revenge
#32It seems to me that the lesson to learn here is to be careful about agreeing to vesting. Pre-series A, the three founders owned most [1] of a company which had a $6M pre-money valuation and was "on track to hit $1M in revenue" for the year. Post-series A, they each owned less than 3% of the company outright, with the rest of their shares vesting over four years [2]. What sort of idiot takes a deal which reduces them…
The article pretty much states that it was likely a mistake to take that much funding when they had no idea how much they needed (or if they even needed funding). It seems like there is this messed up idea that a successful startup is when you get a ton of funding, the founders cash out and then who cares if company goes down the toilet (well, except the investors of course). I suppose that is successful in the sense that the founders get rich, but it seems like it's a selfish, thoughtless strategy.
The idea of a lifestyle company is totally unattractive to venture capitalists to the point where you'd think that only total losers would aspire to create a stable company. If it's not a rocketship to the moon, then investors don't want to touch it. But a lifestyle company founder can get equally rich - just not one huge pile of money at one time. They can be paid handsomely though and create a great company that provides a great life for a lot of people instead of burning out and creating a miserable life for everybody except the founder.
Re: The Forgotten Founder: A Silicon Valley Tale of Humiliation and Revenge
#33One of the very few looong HN stories i read completely. :)
Nice read,feel for that guy.
Re: The Forgotten Founder: A Silicon Valley Tale of Humiliation and Revenge
#34Great read. I feel for the guy. It was a foolish decision, but I sympathize with his continued struggles and wish he and his family all the best.
Can't help but feel some sympathy for him, but it's tempered by the fact that he doesn't see the big deal with attacking servers to bring down a company. Not even going into the whole part of flipping stolen websites and the app spam.
Ethics seems to be more of a problem for him than the social awkwardness.
Re: The Forgotten Founder: A Silicon Valley Tale of Humiliation and Revenge
#35It seems to me that the lesson to learn here is to be careful about agreeing to vesting. Pre-series A, the three founders owned most [1] of a company which had a $6M pre-money valuation and was "on track to hit $1M in revenue" for the year. Post-series A, they each owned less than 3% of the company outright, with the rest of their shares vesting over four years [2]. What sort of idiot takes a deal which reduces them…
The article pretty much states that it was likely a mistake to take that much funding when they had no idea how much they needed (or if they even needed funding). It seems like there is this messed up idea that a successful startup is when you get a ton of funding, the founders cash out and then who cares if company goes down the toilet (well, except the investors of course). I suppose that is successful in the sense…
Vastly many more people get rich with 'lifestyle' companies than get rich with moonshots.
They won't be as obscenely rich but several million is definitely nothing strange (Euros or Dollars, pick your poison).
VC's won't touch such businesses (and they shouldn't) because the return rate is not worth the hassle for them but that is just a matter of perspective.
For founders the life style businesses are typically a safer bet and a life that is more conducive to having a family and a more or less normal life besides the business.
For a VC babysitting a small but profitable company is just as much work as one that might hit out of the park. And the chance of a return multiplied by the return itself is way larger than it is for a life-style business.
The risk profile of a VC is much different than the risk profile of most business people and they only come out ahead because they make multiple bets, which is something most business people can not do.
Re: The Forgotten Founder: A Silicon Valley Tale of Humiliation and Revenge
#36It seems to me that the lesson to learn here is to be careful about agreeing to vesting. Pre-series A, the three founders owned most [1] of a company which had a $6M pre-money valuation and was "on track to hit $1M in revenue" for the year. Post-series A, they each owned less than 3% of the company outright, with the rest of their shares vesting over four years [2]. What sort of idiot takes a deal which reduces them…
The article pretty much states that it was likely a mistake to take that much funding when they had no idea how much they needed (or if they even needed funding). It seems like there is this messed up idea that a successful startup is when you get a ton of funding, the founders cash out and then who cares if company goes down the toilet (well, except the investors of course). I suppose that is successful in the sense…
"But a lifestyle company founder can get equally rich - just not one huge pile of money at one time."
True. Especially when you consider that investment isn't income. When an investor gives you one huge pile of money at one time, it's not for you, it's for the business.
Re: The Forgotten Founder: A Silicon Valley Tale of Humiliation and Revenge
#37I really don't get why you'd take money off the table while at the same time growing like crazy and diluting the stock significantly.
Porsches and houses worth well over a million $US within 6 months of picking up $250K funding in a year when revenues were projected to hit 1M makes absolutely no sense.
They should have simply matched growth to income and ridden the growth-curve instead of diluting and splurging on luxury goods.
Lots of bad decisions here, including vesting for founders, a culture of blame and so on.
Re: The Forgotten Founder: A Silicon Valley Tale of Humiliation and Revenge
#38Earlier quoted context omitted.
The article pretty much states that it was likely a mistake to take that much funding when they had no idea how much they needed (or if they even needed funding). It seems like there is this messed up idea that a successful startup is when you get a ton of funding, the founders cash out and then who cares if company goes down the toilet (well, except the investors of course). I suppose that is successful in the sense…
Vastly many more people get rich with 'lifestyle' companies than get rich with moonshots. They won't be as obscenely rich but several million is definitely nothing strange (Euros or Dollars, pick your poison). VC's won't touch such businesses (and they shouldn't) because the return rate is not worth the hassle for them but that is just a matter of perspective. For founders the life style businesses are typically a sa…
On top of everything you said, folks should step back and realize that VCs or VC-related interests have historically powered all the most-read startup media (TechCrunch, HN, AVC, etc). This has an influence.
According to Dow Jones Venturesource, there were only 522 M&As, buyouts, or IPOs in 2011 among venture-backed companies. 522. By contrast, over 300 people are injured by lightning strikes per year, in the US.
Re: The Forgotten Founder: A Silicon Valley Tale of Humiliation and Revenge
#39Earlier quoted context omitted.
I don't know... You should probably subject everyone to vesting everyone at incorporation - to keep people from ditching early with a huge slug of equity. Good investors know this, and will often rightfully insist on some sort of vesting reset - depending on circumstances. It doesn't make you an idiot to take that deal. It makes you a part of the VC machine. It's just how it works. That said, I've seen people raise (…
Our series A investors wanted vesting and we said no. They were cool with it. Vesting for founders is insane. Never accept it. Vesting for execs is mandatory and has saved me once already, ironically because our investors demanded it. Once again I'm surprised at how very very few founders have a thorough knowledge of what they're signing up for and how to get what they want. It's your company. Act like it. You don't…
Vesting for founders is insane. Never accept it.
This depends a bit on the maturity of the company. For example, at the seed stage, where the founders may only have known each other for 3 months of their lives, very credible people are going to tell you that they can name dozens of reasons why you should have vesting. If money first comes into the company around month 5 and you have a seed round closed around month 8, there's quite a window where acrimonious breakups can happen.
In the event of an acrimonious breakup, fast forward four years. In the event you manage to pull the company back from the brink, do you want someone from two lifetimes ago in startup years a) owning ~1/4 of your company and b) looking like Huge Unknown Risk Factor every time you raise a new round or make similarly consequential decisions?
That's why smart people who have seen bad breakups before are going to suggest vesting and it won't really be a suggestion.
Now, on the flipside, if I hypothetically brought on my best friend to work on AR and took investing at the two year mark, any conversation beginning with "You should really give all your shares back" would be pretty darn brief.
Re: The Forgotten Founder: A Silicon Valley Tale of Humiliation and Revenge
#40This was a good read. I try to read one or two startup horror stories for each startup fairy tale I hear. Though I've not yet considered simply abandoning startup life, so perhaps I should up the ratio? :-p