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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)

#301

Post by grvdrm »

offices wrote: post #158
aetherspawn wrote: post #66

Earlier quoted context omitted.

Yeah I have a small business and I sway strongly towards being contempt with letting the business grow at its own rate. No, it won’t have a 1 bil payout, but you make your own rules and you’ll get a healthy cash out from the dividends after only 1 year or so. It also forces you to keep pivoting and finding a cash cow rather than assuming your initial plan was any good. We’re on like plan #10 now and in hindsight if w…

>It also forces you to keep pivoting and finding a cash cow rather than assuming your initial plan was any good. Formative experience: working at a startup, coming upon a fundamental technical problem that will prevent delivery of any of our revenue generating projects & realising that anyone who has spent a meaningful amount of time working on the software would notice the same problem. Noticing nobody else has brou…

I feel you. In a similar experience now.

Valuation (I’m told) depends on ARR. Company not really set up to generate meaningful ARR from its core business. I keep hearing “it will get better” but as far as I see, the problem is squarely at the top and some specific deputies. So, why do I keep hearing that?

It sounds like very poorly messaged religion some days.

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

#302

Post by Dayshine »

petsfed wrote: post #279
vidarh wrote: post #250

Earlier quoted context omitted.

Were they? Do you have inside info? I have done many startups, and in none apart from one did I accept a lower salary whether as regular staff or as a founder [EDIT: to be clear: after a funding round, as a full time employee; as a founder/co-founder I've of course done work for free on the side, but with according amount of stock]. In the one where I did, I forced in a clause in the investment agreement guaranteeing…

Isn't that the broadly accepted value proposition for working at a startup? You accept greater job insecurity than more established companies, and lower salary than more established companies, but in return you get the opportunity to receive a larger slice of the proceeds from a "good" exit. It's like buying a lottery ticket. You don't sign on with Meta expecting a great exit, but you gamble that you might see a grea…

Uh, I'm working for a startup because it pays more then more established companies and provides better benefits.

I'm not sure why I would work for less unless I was founder, or it was a charity or other public good.

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

#303

Post by weinzierl »

n2d4 wrote: post #218
weinzierl wrote: post #195

Earlier quoted context omitted.

Be aware of the story of Dr. Janet an Dr. James Baker, the founders of Dragon Naturally Speaking, which has been discussed here several times. They seemingly did everything right and still go screwed in the end.

What they did wrong was accepting an all-shares transaction in the acquiring company. Those come with risks, and sometimes the risk is that the company goes bankrupt a year later and you'll be left with nothing. My understanding is that they were badly advised by Goldman Sachs. Still, "doing the right thing" sometimes includes ignoring bad advice.

The way I see it is that they did not stand a chance and for me the moral of the story is that if you are not screwed by investors you can very well get screwed by someone else.

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

#304

Post by DANmode »

justinlloyd wrote: post #45

I am currently working with a start-up where the company is incapable of meeting its capex obligations. The founder raised a good amount of capital from investors a few years ago, and that provided a decent runway, but there's no traction, no KPIs, and whilst we've built some impressive technology, impressive technology does not bring in revenue. One of the problems (amongst many) is that the primary stakeholder has…

Intrigued as hell by this comment.

But, can you clarify? You say they should know you weren't born yesterday, but your post also implies you're working with these people.

What's the missing detail?

What are you getting out of this that makes the other red flags "worth ignoring"? What keeps you showing up?

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

#305

Post by bionsystem »

RowanH wrote: post #115
bionsystem wrote: post #73

Earlier quoted context omitted.

It's still better to have 10% of a billion rather than 100% of a million. It's just that "valuation" is only one of the metrics that really matters, and selling your equity has to be done progressively and by reading the small prints in every file. It's sad that startup founders have become so good at raising money that they forget that a path to profitability + understanding the actual financials (beyond just valuat…

It's just what are the odds of 10% of a billion vs 100% of a million. Without any statistics at all to back this comment, I bet there are a magnitures more software companies out there that have made people 100% of a million, vs 10% of a billon. You're talking such a small pool (which might seem large in HN terms) when in reality there's an incredible number of small software companies globally. Of course not discour…

You are nitpicking, think 50% of 10 million or whatever number you think your VC money is going to help you reach. Still better than a million. My point is you don't have to take any deal regardless of how unreasonable they are in terms of how fast your investor think you can grow, but you may want some investment to help you grow at a higher rate, sooner. The debate isn't bootstrapping vs financing but how much you can finance and under what conditions.

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

#306

Post by smohnot »

lpolovets wrote: post #241

I'll throw out a VC's perspective on liquidation prefs: 1) I think 1x is very fair and meant to protect investors from bad company behavior. If you didn't have 1x preference, this would be an easy way for an unscrupulous founder to cash out: raise $X for 20% of the company, no liquidation preference. The next day, sell the company and its assets ($X in cash) for, say, 0.9x. If there's no liquidation preference, the V…

Leo does a great job explaining why VC's want liquidation preferences.

But founders/employees want them too! With all the crazy founder-friendly deals of 2021, I never heard of one in the US without a liquidation preference.

Why? Liquidation preferences allow the VC bought securities to be treated as "preferred" and reduce the common stock price in the 409a valuation report, allowing early employees to get options at low prices.

If VC's invested in common stock the strike prices would be much higher, making it less lucrative to be an early employee.

In parts of Europe there is different tax treatment for options and employees generally don't own as many shares due to it... and some of those companies don't have liquidation preferences. I believe Klarna (Sweden) doesn't have preferred shares, meaning the huge swing in valuation they had over the past few years is not as bad as it seems.

TBH the whole 409a thing is a charade & we probably need to clean up how we do accounting & taxes but until we do, preferred shares are here to stay.

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

#307

Post by lotsofpulp »

highwaylights wrote: post #148
dr_dshiv wrote: post #134

Earlier quoted context omitted.

> modicum of humility = turnoff for investors. They only care for chances at homeruns — singles and doubles are not welcome. You’d better swing for the fences, because that’s the purpose of VC. (This is my understanding, not my endorsement. Please correct as needed)

That’s the model essentially. Makes a lot of sense too. Anyone can get S&P 500 returns with little to no risk. That’s not to say they won’t lose money but it’ll be market returns either way, will be very liquid, and readily transparent to the holder. Given the risk involved in early stage investment the maths just don’t make sense for an investor to shoot for anything short of the moon. tldr; Seed funding / early sta…

> Anyone can get S&P 500 returns with little to no risk.

Unless it’s buying SP500 index funds, I doubt it. Especially the last 15 years.

I know quite a few people who would have been further ahead (financially) if they had just invested in SP500 and retired.

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

#308

Post by rightbyte »

takinola wrote: post #289
vidarh wrote: post #222

Earlier quoted context omitted.

Yeah. I've not had an exit that high, but I've had an exit where my 25% initially was whittled down to 10k, and frankly I was surprised I got anything at all - in the end I was diluted to hell and back, but none of the later rounds had any liquidation preference that got triggered. It's easy to see a large exit number and assume it means it's a success, but in the case in question the (significantly more modest than…

Stories like this often have a lot of missing details that would provide more context and explain why things played out the way it did. I have no doubt the founders knew the risks they were taking and signed up for it. However, the big question is whether the employees knew the risk they had been signed up for. The lack of transparency for employees is where the big problem lies. If you are a non-exec level employee…

> you should apply a significant discount to your valuation to account for this opacity.

It wouldn't suprise me if the estimated value of those is negative. I.e. your wage will be lower due to "wage dumping" by gamblers. I did not find amy stats on the median or average payout.

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

#309

Post by rightbyte »

lotsofpulp wrote: post #307
highwaylights wrote: post #148

Earlier quoted context omitted.

That’s the model essentially. Makes a lot of sense too. Anyone can get S&P 500 returns with little to no risk. That’s not to say they won’t lose money but it’ll be market returns either way, will be very liquid, and readily transparent to the holder. Given the risk involved in early stage investment the maths just don’t make sense for an investor to shoot for anything short of the moon. tldr; Seed funding / early sta…

> Anyone can get S&P 500 returns with little to no risk. Unless it’s buying SP500 index funds, I doubt it. Especially the last 15 years. I know quite a few people who would have been further ahead (financially) if they had just invested in SP500 and retired.

Even beating the nominal index is hard, since losing companies just drop out and are replaced and you will own stock in them and not in the ones taking their place.

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

#310

Post by yashap »

b112 wrote: post #76
justinlloyd wrote: post #45

I am currently working with a start-up where the company is incapable of meeting its capex obligations. The founder raised a good amount of capital from investors a few years ago, and that provided a decent runway, but there's no traction, no KPIs, and whilst we've built some impressive technology, impressive technology does not bring in revenue. One of the problems (amongst many) is that the primary stakeholder has…

I think you're in a same-same path with this. That is, If you say "No, I don't want equity", they still owe your back pay, there are multiple ways to get it, AND if either "back pay" or "equity" is to have value, they must have more funding. Which means, out of that funding can immediately come your back pay. So if you take the equity, or insist on pay, both are the same in the end. In fact, by not showing you what y…

Interesting, the commenter is from California, is there nothing like this in the US? https://www.canada.ca/en/employment-social-development/servi...

In Canada my understanding is that, if a company files for bankruptcy and you’re owed back pay, certainly the first recourse is getting said back pay from whatever assets the company has. But if that stone is bled dry, and employees are still screwed, the government steps in and pays their back pay (up to ~$8.5K). Not a thing in the US?

If it is a thing, the commenter would be smart to hold out for back pay. If they instead accept (almost certainly worthless) stock instead of back pay, they can likely no longer make claims like this if the company goes bankrupt.

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