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I sold Baremetrics

baremetrics.com

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Re: I sold Baremetrics

#481

Post by [deleted] »

ericd wrote: post #474
treis wrote: post #370

Earlier quoted context omitted.

>VCs can do much worse. It's, more or less, impossible for them to do worse than $0. I get that there's some scenarios where they're not going to make money but the business can be viable as a lifestyle type business. But someone is buying this one for $4 million cash. So this isn't giving someone a company worth 0. This is handing out 800k+ in cash.

They can do a lot worse than $0, reputation is enormously important. If you have a reputation for screwing over founders, then the next super hot startup that can raise from anyone they want is that much more likely to raise from a competing fund instead. And the power law distribution in startup returns makes it such that being able to invest in those few huge successes is all that matters at the end of the day for…

[deleted]

Re: I sold Baremetrics

#482

Post by texasbigdata »

ericd wrote: post #474
treis wrote: post #370

Earlier quoted context omitted.

>VCs can do much worse. It's, more or less, impossible for them to do worse than $0. I get that there's some scenarios where they're not going to make money but the business can be viable as a lifestyle type business. But someone is buying this one for $4 million cash. So this isn't giving someone a company worth 0. This is handing out 800k+ in cash.

They can do a lot worse than $0, reputation is enormously important. If you have a reputation for screwing over founders, then the next super hot startup that can raise from anyone they want is that much more likely to raise from a competing fund instead. And the power law distribution in startup returns makes it such that being able to invest in those few huge successes is all that matters at the end of the day for…

How is it screwing over founders?

They put in $ for 20%, you put in sweat for 80%. Why again is them not getting 20% the right solution? Unless the agreements said “hey look, sub 5x were okay with you getting it all”.

The business didn’t work. Arguably since only management is involved with running the business, it’s managements fault it didn’t work...why do the investors get 0 and the management team get bailed out? It’s not like they took zero salaries / weren’t compensated...

The world doesn’t work if you sign stuff and then later decide to not honor it just because you can torpedo the guy or girl on the other side of the table.

The ceo also doesn’t seem to have paid the staff either, based on his self disclosure. Not sure exactly how jamming a VC and not giving them at least what they put in back isn’t honorable.

Re: I sold Baremetrics

#483

Post by texasbigdata »

tinyhouse wrote: post #314
bingdig wrote: post #312

Earlier quoted context omitted.

He'll likely pay no federal taxes. If the business is >1 year old, it's treated as capital gains. Since the company is >5 years old, he can likely take advantage of the Qualified Small Business Exemption up to $10m and pay no federal taxes. https://www.investopedia.com/terms/q/qsbs-qualified-small-bu...

Thanks for the info. That's pretty amazing.

To be specific, since it might help someone and it’s important to get the technicals right, dig into the IRS portion of the federal code, section 1202, or QSBS. Note, doesn’t apply to LLCs ... so you eat double taxation if cash flow positive but it’s less burdensome now with the Trump tax rule.

Decent link here: https://www.svb.com/blogs/svb-private-bank/understanding-qua...

I believe, but can’t find, that you need to trade cash for the shares to qualify, so if your basis isn’t zero, it might require writing a check into the entity to cleanly qualify.... moral of the story here is pay someone to help you on this :)

Re: I sold Baremetrics

#484

Post by texasbigdata »

hn_throwaway_99 wrote: post #61
pc86 wrote: post #12

I know there's a trope about the naive founder getting screwed by shifty-eyed VC sharks, but it really sounds like Josh screwed his investors and employees here. > I wanted them to at least get their money back, but ultimately, for the $4m purchase price to work, we’d need to ask them to walk on their [$800,000] investment. He clearly didn't want it very badly, then. Nearly $3 million wasn't enough? That's about $420…

Not making any other assumptions here, but I think this is a great example of something that's become more and more obvious to HNers over the past few years: from a financial perspective, if you have an opportunity to join a FAANG vs a startup, it pretty much almost always makes financial sense (usually much more sense) to join the FAANG. And since it usually makes a LOT more financial sense, it can often make a lot…

The federal reserve keeps statistics on this and I believe there is a business school professor at Harvard Biz that did a significant review: entrepreneurship on _average_ underperforms just taking a job. On net, mostly individuals lose money because like OP the outcome is mediocre to poor and very lengthy, even thought some do very very well.

Re: I sold Baremetrics

#485

Post by texasbigdata »

Topgamer7 wrote: post #172
pc86 wrote: post #12

I know there's a trope about the naive founder getting screwed by shifty-eyed VC sharks, but it really sounds like Josh screwed his investors and employees here. > I wanted them to at least get their money back, but ultimately, for the $4m purchase price to work, we’d need to ask them to walk on their [$800,000] investment. He clearly didn't want it very badly, then. Nearly $3 million wasn't enough? That's about $420…

I'm not the most financially savvy person. And I am not an attentive follower of Baremetrics. But wouldn't the investors have been getting dividend returns quarterly all along since their investment was made?

A) dividends require positive cash flow or positive profits, which might have not happened here. B) some preferred equity investors do just that. It’s a bit rarer but you can see a PIK 8% piece of pref with 4% current cash pay and a 4% accruing liability.

VC startups don’t generally pay dividends due to the cost of capital requiring reinvestment of profits (if any) to make the growth targets work.

Re: I sold Baremetrics

#486

Post by texasbigdata »

jaredhansen wrote: post #274
deckard1 wrote: post #270

Maybe I'm hopelessly naive here, but $4M cash @ 2.65 ARR, so ~$1.5M ARR. Isn't that a bit low for SaaS at 7 years? Then there is the mention of running at breakeven most of that time. There are solo founder SaaS businesses making more than that with 80%+ margins. As others have mentioned, you'd be better off working at a FAANG. So, did something go wrong here? What is it about this analytics business that makes it so…

>~$1.5M ARR. Isn't that a bit low for SaaS at 7 years? The median and modal ARR for SaaS businesses 7 years after founding is zero.

Across all businesses across all industries in North America a reasonable guess (with a wide confidence argument) would be 1x revenue as a baseline valuation.

Re: I sold Baremetrics

#487

Post by texasbigdata »

cambalache wrote: post #195
bluedevil2k wrote: post #68

Earlier quoted context omitted.

I'm with OP - $3.7M seems like a lot, but it really isn't enough to retire on. I assume he'll need to pay taxes on that, a 20% long-term capital gains tax. Brings it down to about $3M. Being generous and giving him 3.5% return (real return) a year in fixed income, that's only $105,000 a year in income, which he'll need to pay taxes on as well. He'll net out around $85k a year.

I dont know how to tell you this, but 99% of the world population (and I am pretty sure at least 85-90% of Americans) WONT retire with anything even close to $3.7 MM.

The federal reserve and treasury publish these tables. You’re actually very close to the cuttofs IIRC so kudos to you on good intuition.

Re: I sold Baremetrics

#488

Post by ZephyrBlu »

texasbigdata wrote: post #482
ericd wrote: post #474

Earlier quoted context omitted.

They can do a lot worse than $0, reputation is enormously important. If you have a reputation for screwing over founders, then the next super hot startup that can raise from anyone they want is that much more likely to raise from a competing fund instead. And the power law distribution in startup returns makes it such that being able to invest in those few huge successes is all that matters at the end of the day for…

How is it screwing over founders? They put in $ for 20%, you put in sweat for 80%. Why again is them not getting 20% the right solution? Unless the agreements said “hey look, sub 5x were okay with you getting it all”. The business didn’t work. Arguably since only management is involved with running the business, it’s managements fault it didn’t work...why do the investors get 0 and the management team get bailed out?…

Because it's scraping the bottom of the barrel. There's not really a sensible reason for the investors to try and claw back their investment every time a company fails, because the business model is based on homeruns.

Re: I sold Baremetrics

#489

Post by switch11 »

mbesto wrote: post #422
ccmcarey wrote: post #5

I've always loved the transparency and frank writings by Baremetrics. > As part of the structure of the deal, Xenon guaranteed I’d take home $3.7m, regardless of what came up during due diligence Interesting, I wonder how this is structured - surely there are items that can come up during due diligence that are deal-breakers for Xenon, and surely due-diligence is performed before the contract is closed? > But they we…

I do due diligence for a living. > Interesting, I wonder how this is structured - surely there are items that can come up during due diligence that are deal-breakers for Xenon, and surely due-diligence is performed before the contract is closed? The company was inherently transparent with everything. A big part of DD is QoE and there wasn't much to audit there. This was a deal term that reduced any walkaway risk. > I…

yeah, this exactly

Now if (theoretically) some founder reading this thread ever has to choose between General Catalyst and another VC, they will ALMOST ALWAYS choose General Catalyst

Over time it will lead to General Catalyst finding a non zero number of 10X or 100X companies because of that

Re: I sold Baremetrics

#490

Post by astatine »

Thanks for sharing this. This has the kind of details that I would have loved to see and almost never gets shared in so public a manner.

I respect the soul searching that you went through and the decision that you took.

Thanks again. Wish you the very best in whatever you _start_ next.

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