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FounderPool: A community for founders to share risk and diversify their equity

founderpools.com

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Re: FounderPool: A community for founders to share risk and diversify their equity

#171

Post by geoburke »

bonobo886 wrote: post #149

Does your platform accept early employees as well? The first 10 employees are essentially founders and while they typically do not receive as much of the upside as a founder, they do bear the same risk. Allowing an early employee to diversify that risk would be a huge value add to a much wider potential network.

It's something we're looking into. Would be a great market But for clarity, it's generally understood the employees do not bear the same risk as the founders, who contributed months/years of sweat equity as well as actual capital. Oh and risk of lawsuits.

An employee is paid day 1 and the risk beared does not surpass opportunity cost of a paid job at a successful startup vs a failed startup.

Re: FounderPool: A community for founders to share risk and diversify their equity

#172

Post by csentropy »

dehrmann wrote: post #153
nmfisher wrote: post #146

A few months' back, someone on Twitter criticized a similar platform, calling it an outright scam. I said that was totally unfair, and that it's one thing to call it a bad deal (which really depends on the percentage given up and the quality of the companies in the pool), it's another thing to call it a scam. That prompted the "pro-VC crowd" to start calling me stupid and naive - "startups need cash, not equity", "if…

> Unsurprising, given the pool makes founders less reliant on them How? The startup still need VCs for funding. If I were a VC, one gripe would be that it might hurt a founder's motivation. At 1% of a founder's equity, it's not so much that they're not working to make the next big thing, but in the back of their mind, they know they might get $1M for it. My other concern is that this almost freerides on the VC model.…

Entrepreneurs free riding on the VC model is the opposite of what really happens: VCs free ride on founder risk.

We see VCs themselves encourage founders to take money off the table with a secondary sale in rounds as early as series A. They also look for founders with previous exits, and usually pay a premium for their startups or invest with a much lower threshold.

This idea that "founders that are not starving are going to be less motivated to succeed" is one of several silicon valley mythologies that don't stand up to scrutiny empirically or otherwise.

Most people don't start companies to sit back and chill as soon as they are financially secure. If they did, and you had invested in them and now have to force them to stay hungry, you should reconsider being a VC.

Re: FounderPool: A community for founders to share risk and diversify their equity

#173

Post by geoburke »

ojbyrne wrote: post #167
kumarski wrote: post #2

I have questions buzzing through my head. How does this work? If it's this good, why aren't VC's already doing this amongst portfolio founders? How do you catch companies founded at the same time with close valuations to do "shared pools" equitably given all parameters?

It’s been done before: http://ebexchange.com/

This is secondary market liquidity, yes? If so, there's unfortunately no demand till series C, and the board needs to allow secondary sales, which competes with the company's own ability to raise capital. We're seeing VCs at later rounds include cash payouts to founders to dissuade secondary market activity.

Also it's not either/or. Participating in a pool does not block the founder from liquidating shares on the open market.

Re: FounderPool: A community for founders to share risk and diversify their equity

#175

Post by geoburke »

marcinzm wrote: post #118
vladislav wrote: post #116

Earlier quoted context omitted.

Not advocating for the pool idea but that reasoning is generally incorrect. Decreasing personal capital/timing risk actually increases founder risk tolerance for bigger outcomes for their startup. Investors should want founders to be hungry for big capital, not small.

Yup, all that excessive risk incentives founders to do is to take a guaranteed early exit rather than go for a big future payout. And a VC who wants that probably shouldn't be a VC as they lack the risk tolerance.

Well said. This safety net is meant to help founders make better long term success decisions.

Re: FounderPool: A community for founders to share risk and diversify their equity

#177

Post by khazhoux »

geoburke wrote: post #171
bonobo886 wrote: post #149

Does your platform accept early employees as well? The first 10 employees are essentially founders and while they typically do not receive as much of the upside as a founder, they do bear the same risk. Allowing an early employee to diversify that risk would be a huge value add to a much wider potential network.

It's something we're looking into. Would be a great market But for clarity, it's generally understood the employees do not bear the same risk as the founders, who contributed months/years of sweat equity as well as actual capital. Oh and risk of lawsuits. An employee is paid day 1 and the risk beared does not surpass opportunity cost of a paid job at a successful startup vs a failed startup.

> who contributed months/years of sweat equity as well as actual capital

Very often not true in silicon valley. The only sweat equity most founders contributed was toiling through coffees and get-togethers on University Ave or SOMA for a few months until they got the seed money. Then they hire engineer #1 at 1/80th their own equity.

Founders at funded startups pay themselves.

During an acquihire, founders get executive roles, salaries, bonuses, and equity, while "non-founders" are just back to the grind.

The notion of "founder risk" in SV-style startups just doesn't exist like it did a generation or two ago.

Re: FounderPool: A community for founders to share risk and diversify their equity

#178

Post by bonobo886 »

geoburke wrote: post #171
bonobo886 wrote: post #149

Does your platform accept early employees as well? The first 10 employees are essentially founders and while they typically do not receive as much of the upside as a founder, they do bear the same risk. Allowing an early employee to diversify that risk would be a huge value add to a much wider potential network.

It's something we're looking into. Would be a great market But for clarity, it's generally understood the employees do not bear the same risk as the founders, who contributed months/years of sweat equity as well as actual capital. Oh and risk of lawsuits. An employee is paid day 1 and the risk beared does not surpass opportunity cost of a paid job at a successful startup vs a failed startup.

oh I completely disagree, early employees are often not paid on day 1, and when they are paid, they still do bear a huge risk - often taking much lower salary than market for the opportunity of equity upside. The risk the early employee takes is often the same as the founder's, with less upside.

Re: FounderPool: A community for founders to share risk and diversify their equity

#179

Post by bilifuduo »

This is a really interesting model that has been tried a couple times in venture. Probably most notable is Upside (https://www.upsidevc.com). Curious to get your thoughts on them + why you decided to go the founder exchange approach as opposed to raising a fund?

Re: FounderPool: A community for founders to share risk and diversify their equity

#180

Post by csentropy »

zhoujianfu wrote: post #165
geoburke wrote: post #159

Earlier quoted context omitted.

Much of our research has been with founders at YC & 500 (cohorts who represent the Beyond Meats of the world). The majority we spoke to, including the breakout unicorns, stated they would have have participated in equity pooling with their batchmates during the batch. We also learned the darlings of their batch were often not the breakout successes, and later upstaged by others in the batch.

I actually had exactly this idea with my YC knock-off, HMC INQ. The first cohort (5 cos in 2017) I offered them to all pool some of their equity. But first I polled how much each would be willing to give. The results were 0%, 0%, 2%, 5%, and 20%. So, I abandoned it. Ironically the one that offered 20% is doing the best so far.

Maybe, just may be a realistic assessment of the chances of success is an under appreciated entrepreneurial trait.

Maybe this trait can co-exist independently with the ability to forge ahead DESPITE knowing how low the odds are, because you want to see something happen.

Maybe it is that silicon valley groks this as "an irrational belief" when in fact, it is the compulsion to forge ahead despite knowing the odds.

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