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The Hacker's Guide to Investors

paulgraham.com

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Re: The Hacker's Guide to Investors

#11

Post by Sam_Odio »

pg wrote: post #8
ecuzzillo wrote: post #6

Earlier quoted context omitted.

That might be bad; it means that this community will grow in the same way as Reddit did. Which was fine for a while, and maybe it'll be fine here because the powers that be here are less religious about not messing with the content.

We're determined to keep the site focused, however many users we get. We kill submissions that are egregiously off-topic.

While seeing News.YC grow is fantastic, it's a little disheartening to watch the community loose its "small town" feel. It seems that as things become bigger, the comments become more anonymous and users loose their sense of social restraint.

This is actually why I left reddit. As the site grew, I became increasingly frustrated that anything I said contrary to popular opinion was mercilessly downvoted & derided, regardless of the actual quality of the comment.

Reddit now cultivates one set of values & opinions. Anyone who disagrees is hounded & ridiculed until they leave.

Re: The Hacker's Guide to Investors

#12

Post by Alex3917 »

pg wrote: post #8
ecuzzillo wrote: post #6

Earlier quoted context omitted.

That might be bad; it means that this community will grow in the same way as Reddit did. Which was fine for a while, and maybe it'll be fine here because the powers that be here are less religious about not messing with the content.

We're determined to keep the site focused, however many users we get. We kill submissions that are egregiously off-topic.

Maybe there should be a Sunday morning off-topic thread or something for people to get it out of their systems. DailyKos has something like that and it seems to do a reasonably good job at allowing member-bonding while still maintaining the central site identity.

Re: The Hacker's Guide to Investors

#13

Post by wmorein »

mynameishere wrote: post #10

_That means they're less likely to stick you with a business guy as CEO, like VCs used to do in the 90s. If you seem smart and want to do it, they'll let you run the company_ "Let you run the company" ? Surely a single round of funding doesn't take majority ownership from the founders?

There are a number of ways that a VC who owns less that 50% of the company can still push through changes like this.

In some cases this will flat out be a condition of investment, so it is agreed on in advance. If you are really anxious to close the deal it is easy to see why you might agree.

In other cases the composition of the board might be such that a majority might vote for a CEO change. This can be the case when, in addition to the founders and the VCs on the board, there are "independent" directors who might vote with the VCs. If the independents+VCs is greater than 50% of the board, they can usually make a change of CEO.

If the VC does not have 50%, but no individual founder does either, it is possible for the VCs to convince some of the non-CEO founders that it would make sense to bring on "professional" management to increase the possibility of success. Particularly if the founders have some disagreements, this can be tempting.

One other thing that can happen is that as a company goes out to pursue additional rounds of financing, the existing VCs can use that process as leverage to force a change. For example, if they say that they won't invest their pro-rata share in a new round, that can often be a warning sign to other investors. So, the VC might threaten to withhold that investment to convince the CEO to step down.

Majority ownership means a lot, but it is not everything.

Re: The Hacker's Guide to Investors

#14

Post by ashu »

The essay says "You should not start a startup which requires a lot of money". But some startups genuinely require much more money than webapps do. What should a person do in that case, other than being at the mercy of the investors?

Re: The Hacker's Guide to Investors

#15

Post by owinebar »

johnmartin78 wrote: post #2

'Most investors are "bottoms" in the sense that the startups they like most are those that are rough with them. When Google stuck Kleiner and Sequoia with a $75 million premoney valuation, their reaction was probably "Ouch! That feels so good."' I don't think I've read a funnier paragraph about venture investing. Brilliant observation.

It's not just investors. This is a good practice anytime you're trying to sell a big ticket item to a potential customer. It gives them permission to believe the price is worth it.

Re: The Hacker's Guide to Investors

#16

Post by rms »

ashu wrote: post #14

The essay says "You should not start a startup which requires a lot of money". But some startups genuinely require much more money than webapps do. What should a person do in that case, other than being at the mercy of the investors?

You just can't do it until you're old enough to either have a lot of money or you have enough connections to get a lot of money.

Re: The Hacker's Guide to Investors

#19

Post by sethjohn »

ashu wrote: post #14

The essay says "You should not start a startup which requires a lot of money". But some startups genuinely require much more money than webapps do. What should a person do in that case, other than being at the mercy of the investors?

I suspect there's a hidden upside to a startup that require a lot of money...it's going to be more difficult for competitors to get off the ground as well.

Re: The Hacker's Guide to Investors

#20

Post by boris »

I remember a few years ago Paul was proclaiming that as the cost of starting a company keeps going down, VCs will become extinct. It is interesting to see how the perspective is changing. Now Paul says you need investors to gain advantage over competition even though, oftentimes, a startup needs very little to make a product that people want.
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