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We Spent $3.3M Buying Out Investors: Why and How We Did It

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Re: We Spent $3.3M Buying Out Investors: Why and How We Did It

#101

Post by paulie_a »

dsl wrote: post #12
kayoone wrote: post #9

Seems like Joel is quite stubborn regarding his values and vision for Buffer, which i believe is a good thing but i can see how it can lead to differences with co-founders and investors once the vision does not align anymore. Felt like it was all over for him when they asked him to eventually step down and from that point he planned to remove them. In the end it also means that their investors most likely lost their…

Came to the comments to say the exact same thing: this is basically just a vote of no confidence in management. I can't imagine any employee joining this company from this point forward without demanding all-cash compensation. Management and the investors have effectively set the value of restricted shares at zero.

I honestly can't understand why an employee would insist on anything other than straight cash. Stock options are a joke. I'll take the cash.

Re: We Spent $3.3M Buying Out Investors: Why and How We Did It

#102

Post by swyx »

rloomba wrote: post #96
jVinc wrote: post #51

Earlier quoted context omitted.

Sounds a lot like the CEO gauging the company growth and employee pay in order to build up enough cash to push out investors, get a majority so he could "provide liquidity" for himself. I can't say if this is close to the mark, but if so it makes perfect sense why the other founders left. Being at the head of a ship with a captain trying to slow down so he can line his own pocket is a special kind of hell.

I actually had the same thoughts. I'm surprised he's being so transparent about this. I feel for the employees at this company -- just because a company is profitable, doesn't mean that employees are being paid fairly/market rate. I wouldn't be surprised if the founder tries to sell the company in the new few years a discount of the current valuation. With 45% ownership, that's a very large chunk of change.

buffer's salaries are posted here fyi https://docs.google.com/spreadsheets/d/1l3bXAv8JE5RB9siMq36-...

make of it what you will but doesnt seem low

Re: We Spent $3.3M Buying Out Investors: Why and How We Did It

#103

Post by sahillavingia »

swyx wrote: post #102
rloomba wrote: post #96

Earlier quoted context omitted.

I actually had the same thoughts. I'm surprised he's being so transparent about this. I feel for the employees at this company -- just because a company is profitable, doesn't mean that employees are being paid fairly/market rate. I wouldn't be surprised if the founder tries to sell the company in the new few years a discount of the current valuation. With 45% ownership, that's a very large chunk of change.

buffer's salaries are posted here fyi https://docs.google.com/spreadsheets/d/1l3bXAv8JE5RB9siMq36-... make of it what you will but doesnt seem low

This is out of date, as Joel now lives in Boulder, CO.

Re: We Spent $3.3M Buying Out Investors: Why and How We Did It

#104

Post by paragpatelone »

zminjie wrote: post #37
syntaxing wrote: post #24

So investors put $2.3M into the company and got back $3.3M. They essentially have a ROI of 1M over a span of four years. Am I crazy to think that this is a pretty good deal for the investors?! If someone gives me a ~40% return on a crapshoot investments (like how most start ups are), I would be pretty happy!

You are thinking from the perspective of an individual investor. For VCs, this kind of return is abysmal since it won't cover the 7/10 companies that went completely bust. In order to VCs to take high risks on early stage companies, they need the winners to return 100x so the fund even makes financial sense. It's one of the main reasons why VCs constantly push startups for hyper growth. This is certainly better than…

Who cares if it's bad for VCs. They already get paid over 200k+ in carry every year for over 10 years. They are also not investing their own personal money.

Re: We Spent $3.3M Buying Out Investors: Why and How We Did It

#107

Post by tptacek »

gamblor956 wrote: post #95
tptacek wrote: post #87

Earlier quoted context omitted.

Yes. That is the idea. As downside protection, Collaborative Fund's investment was to begin behaving as if it were debt (issuing interest, that is) after 5 years. I assume the expectation was that if Buffer maintained hypergrowth and reached the inevitable Series B, part of the series B negotiation would eliminate that downside protection clause. But they didn't; they charted a course that didn't involve an imminent…

Once the interest (aka "downside protection") kicks in, the shares effectively converted to debt, meaning the company was simply repaying a liability.

Did I miss the part where they said that? The post suggests their counsel said it was a unique clause.

At any rate: they bought out their investors years before interest became due. It was a negotiated sale.

Re: We Spent $3.3M Buying Out Investors: Why and How We Did It

#108

Post by icelancer »

dsl wrote: post #12
kayoone wrote: post #9

Seems like Joel is quite stubborn regarding his values and vision for Buffer, which i believe is a good thing but i can see how it can lead to differences with co-founders and investors once the vision does not align anymore. Felt like it was all over for him when they asked him to eventually step down and from that point he planned to remove them. In the end it also means that their investors most likely lost their…

Came to the comments to say the exact same thing: this is basically just a vote of no confidence in management. I can't imagine any employee joining this company from this point forward without demanding all-cash compensation. Management and the investors have effectively set the value of restricted shares at zero.

What? This is a vote of no-confidence in chasing unicorn-type results. That's fine. Lots of people want to work for a company that produces slow and steady gains.

Re: We Spent $3.3M Buying Out Investors: Why and How We Did It

#109

Post by paragpatelone »

eldavido wrote: post #17

There's a lot of negativity here. I give Buffer a lot of credit. They seem to deeply internalize the idea of "realistic expectations" and it sounds like the buy-out was a win-win solution where everyone got (mostly) what they wanted. As he says, the investors might not have been happy about it, but at least he has the backbone to resist trying to squeeze growth out of a market where there's none to be had (in the sho…

I think it is a bold move. In their situation it seems like the right move.

I am seeing a lot of sentiment on HN that feels sorry for VCs. VC already get paid above 200k/year; no need to feel sorry for them.

People should feel sorry for the founders & the employees who did all the work. Now if they get liquidation, then that is good.

Re: We Spent $3.3M Buying Out Investors: Why and How We Did It

#110

Post by icelancer »

tptacek wrote: post #41
sushid wrote: post #38

Earlier quoted context omitted.

How are you going to cash that out? Do you want to hold onto a lifestyle company shares when there's no potential liquidity event in discussion? I'm not going to exercise my options in that situation and you'd be crazy to pay taxes on this year after year.

Close-held profitable companies make their shares liquid by buying them back or by distributing dividends (as "profit sharing"). Remember: to a first approximation virtually all startup equity from all startups is illiquid.

>> Close-held profitable companies make their shares liquid by buying them back or by distributing dividends (as "profit sharing").

Yes, this is exactly what we do with our equity and our employees.

It is ridiculous around Hacker News that this idea has been completely lost and almost everyone focuses on RSUs and unicorn valuations and longshots, rather than simply... I don't know, making a business that very calmly makes a few million dollars per year with double digit growth rather than insanity.

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