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Earlier quoted context omitted.
Is contributing to the fund a taxable contribution? I would assume so since it's a diversifying event.
Contribution is done through a note. Not taxable until the transfer of shares upon some liquidity/exit event in the future.
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> a round raised within the last 3-6 months If a company has raised capital and done so recently, how would you compare this to the founder selling an equivalent amount of their shares in into that round (secondary)? IOW, if a founder has liquidity and a priced round, in which situations is this better or worse?
Priced round is for indexing the value of stock being assigned to the pool. If the founder has liquidity, before joining the pool, he would be joining the pool right? Or did I misunderstand?
I’d get cash rather than shares in a fund (and later, cash), but for someone interested in doing this, getting cash seems like the goal and is still investable elsewhere.
So, why not take the shares I’d contribute to FounderPool and sell them into my B round? If I want outsized exposure to a small set of equities other than my own, I could invest that cash in 10 smaller public equities and still get high-variance outcomes - maybe I pick a future Shopify, probably I don’t - but for someone after liquidity anyway, that part doesn’t seem like a feature.
If I were a VC and I found out one of the founders in my portfolio had become involved with FounderPool I would immediately drop them and cut my losses.
Being a founder takes a huge amount of confidence: You have to believe, against all odds, that you will be successful. If you really do believe you'll be successful then it wouldn't make sense to trade your soon-to-be valuable equity for a blend of equity which is certain to contain soon-to-be-failed startups.
Being an investor takes an even larger leap of faith in many regards. Swapping your equity for what is essentially "startup insurance" sends the signal that you do not actually believe in your startup and that's a strong indicator of imminent failure.
Compounding the issue: Since founders who believe they will be successful will generally be likely to avoid the equity pool, we can surmise that FounderPool will actually contain a who's-who of failing startups.
It's a bad bet no matter how you slice it.
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We are using this as a screening for adverse selection, but founders who are bootstrapped can also apply if they have proven traction (we have a few stellar startups who were highly ranked but never raised money)
How about 409A valuations for those who've bootstrapped? (You probably know what it is, but for non-founders or others who haven't been through it - https://carta.com/blog/what-is-a-409a-valuation/ )
edit: I see, bootstrapped is their own pool so the two valuations never get compered against each other.
How do you overcome the adverse selection problem? ie. only founders who know their startups are duds want to diversify their holdings?
This is the worst idea I've ever heard. If I were a VC and I found out one of the founders in my portfolio had become involved with FounderPool I would immediately drop them and cut my losses. Being a founder takes a huge amount of confidence: You have to believe, against all odds, that you will be successful. If you really do believe you'll be successful then it wouldn't make sense to trade your soon-to-be valuable…
I think the main argument against it is that there's many, many unexpected factors that could derail any small company's ambitions. This is just like an insurance policy. It's not meant to signal you doubt your own capabilities (though some of course, do -- and that's where there need to be safeguards).
This is the worst idea I've ever heard. If I were a VC and I found out one of the founders in my portfolio had become involved with FounderPool I would immediately drop them and cut my losses. Being a founder takes a huge amount of confidence: You have to believe, against all odds, that you will be successful. If you really do believe you'll be successful then it wouldn't make sense to trade your soon-to-be valuable…
This is the worst idea I've ever heard. If I were a VC and I found out one of the founders in my portfolio had become involved with FounderPool I would immediately drop them and cut my losses. Being a founder takes a huge amount of confidence: You have to believe, against all odds, that you will be successful. If you really do believe you'll be successful then it wouldn't make sense to trade your soon-to-be valuable…
I don't think people should be downvoting you. Whether or not they share the sentiment or disagree, this is a worthy opinion to raise for discussion. And refute if appropriate, but not downvote. I think the main argument against it is that there's many, many unexpected factors that could derail any small company's ambitions. This is just like an insurance policy. It's not meant to signal you doubt your own capabiliti…
Earlier quoted context omitted.
Priced round is for indexing the value of stock being assigned to the pool. If the founder has liquidity, before joining the pool, he would be joining the pool right? Or did I misunderstand?
My question was a little different. FounderPool provides a lot of diversification (relative to shares in 1 company) and potentially, earlier liquidity. But if I’m able to sell shares into a funding round, don’t I get that anyway? I’d get cash rather than shares in a fund (and later, cash), but for someone interested in doing this, getting cash seems like the goal and is still investable elsewhere. So, why not take th…