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Boards are dangerous to founder/CEOs

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Re: Boards are dangerous to founder/CEOs

#171

Post by anandrew »

hinkley wrote: post #111
rsweeney21 wrote: post #48

I always thought stuff like this happened to OTHER founders, but would never happen to me. But my board fired me six months after closing our series A. The advice in this article is 100% spot on. I didn't know any of this. I was totally focused on building my company. But if you raise money you can't do that anymore. 50% of your time will always be occupied with working on your next round of funding or managing your…

They don't have to value the company at $0 to fuck you over once you're gone. The current board can depreciate all of the shares by 50% and then issue themselves twice their original shares so they break even. Then do the same thing a couple of rounds later. I haven't seen $0 but I knew a few people who got diluted to a joke. It doesn't take but a factor of 2-4 dilution of your outlook to drastically change your opin…

Could you explain more? Because this sounds like it should be very illegal. My understand is that shares represent partial ownership of the company. So what gives one set of shareholders the right to reduce others' ownership share?

In fact, why don't the boards of all companies do this? Devalue everyone else's shares so they become the sole owners?

Re: Boards are dangerous to founder/CEOs

#172

Post by robocat »

repomies69 wrote: post #150
Digory wrote: post #49

Never stand between people and a pile of money. Your Board doesn't fire you when you're the best guide to a pile of money. Your Board will fire you if they think you're slowing their progress toward a pile of money. If you think your skills as a guide to piles of money are imperfect, don't put your life in the hands of people who need you to rapidly increase their pile of money.

Actually, the board has to believe that the replacement CEO they find from the market, will generate better returns than the current CEO. So, it is not that the CEO has to be "the best", it has to be good enough so that if he is fired, the likelihood of the new one succeeding should be lower than with him. Note that there should be quite many advantages for the current CEO to do the job well compared to some external…

The VC cares about their portfolio, so if removing the CEO gives gains elsewhere in their portfolio, then their financial incentive can be against the startup. Edit: also the financial incentives of the most influential board member might not be aligned with the company valuation.

Or the “nobody gets fired for buying IBM” theory where it is better to put in a known respected CEO (John Sculley), because fault can be blamed on the founder and LPs will believe the future VC spin.

Usually the startup is one of the failing investments to consider changing CEOs, and I suspect that there are a lot of other human motivations that come into it.

Re: Boards are dangerous to founder/CEOs

#174

Post by tomp »

javajosh wrote: post #146
breischl wrote: post #133

Earlier quoted context omitted.

Had this happen on a much smaller scale as an employee. I (foolishly) bought out some of my options when I left the company. Years later they sold it, but structured the deal such that the major investors got paid out all the proceeds, leaving zero for the common shares. Yes, I realize preferred shares and payout preferences and so forth. The really galling part is that the exec team (who had themselves acquired, not…

All the horror stories around VC money and shennanigans like this make bootstrapping look not just appealing, but required. It's an iterated game that they play a lot, and you play once, and they have no incentive to play fair. I'm glad some of them were named and shamed in this thread, though. Like, why would anyone take money from someone who has acted in bad faith many times in the past? It reeks of unaccountable…

You probably could make a good point but this makes no sense:

> It's an iterated game that they play a lot, and you play once, and they have no incentive to play fair.

The player who plays multiple times ("iterated game") has more of an incentive to play fair. That's basic game theory. If you only play once, noone can "punish" you in the next game if you cheat.

Re: Boards are dangerous to founder/CEOs

#175

Post by staunch »

bluGill wrote: post #118
staunch wrote: post #22

Selling equity is one thing. Selling control is another. When the founders have control, they're the leaders and directors have to follow. When the directors have control, they lead and the founders have to follow. Generally, founders are more successful leaders of their own companies.

> Generally, founders are more successful leaders of their own companies. Is that just because bad companies remove their founders in a last ditch effort to survive? Is that because bad founders can screw the company before they are removed?

Founders are the ones with the experience, skills, and knowledge to lead the companies they create.

Generally, VCs are equity portfolio managers and not qualified to lead a company. Even when they are successful founders themselves, they're almost never the right people to lead another founder's startup.

Re: Boards are dangerous to founder/CEOs

#176

Post by WastingMyTime89 »

interroboink wrote: post #44
anthropodie wrote: post #26

Earlier quoted context omitted.

“A group experience takes place on a lower level of consciousness than the experience of an individual. This is due to the fact that, when many people gather together to share one common emotion, the total psyche emerging from the group is below the level of the individual psyche. If it is a very large group, the collective psyche will be more like the psyche of an animal, which is the reason why the ethical attitude…

While I do think there's something of value in the idea here, boy do I find that quote unconvincing (: The second sentence essentially says "This is due to the fact that that's how it is." I'm sure Jung has a larger context and basis for these claims, but this quote just struck me as super hand-wavy.

> I'm sure Jung has a larger context and basis for these claims, but this quote just struck me as super hand-wavy.

No, no, don’t worry. Jung was already dismissed as completely unscientific and not to be taken seriously while alive. Sadly, psychology as a field mostly remains in a dire state and still has to shed part of its let’s generously say less than rigorous past.

Re: Boards are dangerous to founder/CEOs

#177

Post by wellthisisgreat »

scrollaway wrote: post #93
gp wrote: post #71

Earlier quoted context omitted.

Don't want to dox, but you should be able to find it on crunchbase. I'm not surprised about the story given who's in that round.

> I'm not surprised about the story given who's in that round. Care to elaborate?

I am also very interested

Re: Boards are dangerous to founder/CEOs

#178

Post by vmception »

elliekelly wrote: post #14
bgroat wrote: post #3

Earlier quoted context omitted.

Headline - I agree with you. Just retire, or do something else. You own the shares. Fine Print: There's still some screwy stuff they can do diluting your shares in particular.

And often it’s not about a financial bruise so much as the ego/emotional bruise. Losing control is not a comfortable feeling for the CEO-type.

which is why my point carries weight: don't get married to the company/project/IP anything

go in with a precision strike and leave. don't stay for 20 years and act surprised when the Taliban takes over the board again in 10 days.

leave that to the disillusioned employees and sycophants. yourself and the external contractors extracted generational wealth for decades. and if you didn't nobody to blame but yourself.

Re: Boards are dangerous to founder/CEOs

#179

Post by javajosh »

tomp wrote: post #174
javajosh wrote: post #146

Earlier quoted context omitted.

All the horror stories around VC money and shennanigans like this make bootstrapping look not just appealing, but required. It's an iterated game that they play a lot, and you play once, and they have no incentive to play fair. I'm glad some of them were named and shamed in this thread, though. Like, why would anyone take money from someone who has acted in bad faith many times in the past? It reeks of unaccountable…

You probably could make a good point but this makes no sense: > It's an iterated game that they play a lot, and you play once, and they have no incentive to play fair. The player who plays multiple times ("iterated game") has more of an incentive to play fair. That's basic game theory. If you only play once, noone can "punish" you in the next game if you cheat.

I didn't mean iterated game in the game theory sense, because that implies both counter-parties play against each other repeatedly.

It's like when you get a mortgage - it's a once-in-a-lifetime for you, and a Tuesday for them. They know exactly how to (and have mechanisms in place) enforce every part of a contract they've been using and improving for decades; you barely understand the contract because its the first time you've ever seen anything like it, and you have no machinery in place to understand or enforce your side of it. They have one contract they enforce against 1M counter-parties; meanwhile you have 100 different contracts you're supposed to enforce ...at the same level of care and capability? That's never going to happen, and so all you're left with is heuristics like "surely they'll treat me fairly!"

It honestly seems extremely foolish to take VC money under these circumstances.

Re: Boards are dangerous to founder/CEOs

#180

Post by repomies69 »

robocat wrote: post #172
repomies69 wrote: post #150

Earlier quoted context omitted.

Actually, the board has to believe that the replacement CEO they find from the market, will generate better returns than the current CEO. So, it is not that the CEO has to be "the best", it has to be good enough so that if he is fired, the likelihood of the new one succeeding should be lower than with him. Note that there should be quite many advantages for the current CEO to do the job well compared to some external…

The VC cares about their portfolio, so if removing the CEO gives gains elsewhere in their portfolio, then their financial incentive can be against the startup. Edit: also the financial incentives of the most influential board member might not be aligned with the company valuation. Or the “nobody gets fired for buying IBM” theory where it is better to put in a known respected CEO (John Sculley), because fault can be b…

That is true, but I don't see how firing the CEO typically would give gains somewhere else in the portfolio. For example VC's very rarely invest in competing companies.

However what affects the situation is that VC's want a lot of risk, and the risk preferences of the CEO could be considerably lower - eg. the CEO would be fine with moderately profitable company, while the VC wants all or nothing.

I don't think it is common to change CEO's for truly successful companies which actually show good numbers. No one wants to change the CEO, they do it because they think that it clearly increases their possible returns so they basically have to do it because otherwise they would look incompetent as board members.

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