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Sell for half a billion and get nothing (2021)

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Re: Sell for half a billion and get nothing (2021)

#11

Post by pclmulqdq »

BobbyTables2 wrote: post #9

I’ve always wondered what it means to be a “founder” when it is done with everyone else’s money. Are they not just effectively employees at that point? I fear such abuse of such just feeds a narcissistic species that focuses mainly on executive headshots and snazzy websites. Too many startup websites scream, “look, we have a website, $$$ millions, and an executive board — we’re all grown up now!” without actually hav…

Having bootstrapped and also founded VC-backed companies, the VCs are effectively making you an employee. But you get to gamble some of your paycheck, so it's a bargain a lot of people are interested in. A lot of my friends who are in the VC space see "X person sold company Y for $500 million" and sort of assume that X made at least $100 million from that transaction, when they very often didn't.

The bootstrapping/small money path is so much more like actually starting a business, but it's a lot harder. On top of the investment, you get a lot of free publicity and some legitimate street cred from having gotten VC investment.

Re: Sell for half a billion and get nothing (2021)

#12

Post by AndrewKemendo »

I wrote this in 2015 in response to Mark Suster suggesting that founders "Run" from liquidation preference and preference overhang in early deals:

"Run where? When I talk to my fellow early stage east coast founders, the majority aren’t beating away founder friendly term sheets. Even seed stage companies with revenue and traction raising relatively small amounts are giving away board seats and agreeing to multiple preferences because they have nowhere else to go. For founders, these deals can be make or break. For investors they can hold out and the only downside is slightly lower yield. So there is asymmetry in needs which means founders have little leverage."

https://medium.com/@andrewkemendo/first-time-founders-and-th...

Re: Sell for half a billion and get nothing (2021)

#13

Post by lupire »

ackbar03 wrote: post #10

of course, hindsight is 20/20, but... Why did they accept the deal with the investors?? That seems like a horrible deal? Google search shows they only raised $416mio total, roughly speaking anything above that and below $559mio the investors could have accepted, pocketed a quick and tidy profit, screw everyone else, and nobody can do anything about it. Or is that too naive of me?

Time value of money. You don't get paid to sit on money. You ar paid of you grow the money.

The founders wasted investor money on a non profitable enterprise. Employees got paid for doing non profitable work for investors. No one screwed anyone,they just flopped at their business and got rescued by a buyer.

Re: Sell for half a billion and get nothing (2021)

#14

Post by jmward01 »

I have a friend that has given up on options. Even if he were to be #10 somewhere he would take any extra pay over any options. Stories like this show the wisdom of that. Are there really that many success stories for people other than for VCs and (maybe) founders out there anymore? Even if your options (eventually) get you 200k, how much did they cost you in years of lower pay. Even with a payout, considering interest on that missing pay was it worth it?

Re: Sell for half a billion and get nothing (2021)

#15

Post by ralph84 »

ldjkfkdsjnv wrote: post #8

I think the perception of raising venture capital has soured. You really are an employee. Many founders of well known companies make far less than you would expect. Generate and own a SAAS business that does 1M in ARR, and you can almost walk away with 5-10M. This can be done in a few years. Do that with a venture backed business, they will force you to raise a series A and shoot for a 200M+ outcome. If you dont incr…

It’s not a great time to be a VC investor either. Megacap tech stocks have outperformed most VC funds as of late.

Re: Sell for half a billion and get nothing (2021)

#16

Post by petesergeant »

ackbar03 wrote: post #10

of course, hindsight is 20/20, but... Why did they accept the deal with the investors?? That seems like a horrible deal? Google search shows they only raised $416mio total, roughly speaking anything above that and below $559mio the investors could have accepted, pocketed a quick and tidy profit, screw everyone else, and nobody can do anything about it. Or is that too naive of me?

Because the founders assumed they'd be able to turn the money invested into more than a 2x return

Re: Sell for half a billion and get nothing (2021)

#17

Post by frfl »

ralph84 wrote: post #4

If you can’t find investors who will invest at 1x preference, it’s a sign that you should seriously consider shutting down rather than raising more funding.

What you say sounds reasonable. Can you provide any anecdotal evidence or case study that would make your comment less random-dude-on-HN-said-this and more grounded in fact/evidence.

Edit: I mean specifically something like this article that was linked in another comment on this thread, https://medium.com/@andrewkemendo/first-time-founders-and-th... Just to help ground what you suggest in your comment to something concrete.

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