I’d love to see a similar analysis for non-founders. I.e., the other N-2 people at the startup. Like, how many hundred-millions or even billions will exit have to be before you get $500k as the Nth employee of a typical Series A/B/C/D?
Meaningful exits for founders (2016)
51–60 of 91 posts
Re: Meaningful exits for founders (2016)
#52TLDR: dilution is a thing and investor incentives are not always aligned with founder, when it comes to early exit opportunities. --- But... I don't think there are really a lot of opportunities to exit at $38m in the early stages of a startup, even if your valuation says it is possible on paper. There just isn't much of a market for companies at that stage of growth. Imo, the more likely scenario is for a startup to…
> founder has made a nice lifestyle business out of their investment It’s perfectly reasonable that one might have a medium size business supporting the local economy. It’s a shame that VC model is hostile to this outcome.
Bootstrapping is a fine alternative to VC and more appropriate for many businesses.
But it isn't hostile to want a return on your investments, and investors are not operating as a charity to support the local economy, although that does incidentally happen as a result of investments.
Re: Meaningful exits for founders (2016)
#53It's crazy that a series d exit would net a founder 7 million and yet my bootstrapped business returned a 4 million profit for me last tax year. I think people need to learn more about how to scale a bootstrapped business. Even when I was getting started, I read a ton on VC funded businesses but not a lot on non VC funded businesses. I think there is tremendous amount of money to be made in bootstrapping as well. I t…
> Even when I was getting started, I read a ton on VC funded businesses but not a lot on non VC funded businesses. Any suggested reading for the non VC funded business?
Zero to Exit
Start Small, Stay Small
The SaaS Playbook
Startups for the Rest of Us podcast YouTube.com/MicroConf
Indie.vc Tinyseed.com
Re: Meaningful exits for founders (2016)
#54Earlier quoted context omitted.
It is straightforward to get a body-shop consulting business to mid-7-figures. In an acquisition of that business, you're going to get a very low multiple on your forward revenue. That's because, in general, you can't plug a body-shop consultancy into a bigger sales machine and amplify the profits; sales and delivery in those businesses are delicately balanced, and while they can be scaled, they can't be abruptly sca…
"It is straightforward to get a body-shop consulting business to mid-7-figures." Sorry, no. This is demeaning. It's not easy and it's not straightforward. disclosure: Been running a "body-shop consulting business" (also demeaning) for 21 years in London, started about a dozen other businesses, 2 are 2MM+ rev/50% EBITDA profit recurring revenue companies. Please don't demean "consulting" or "agency" work. In my experi…
My background is in this kind of consulting work. I'm not demeaning it.
Re: Meaningful exits for founders (2016)
#55[flagged]
What are you going on about?
Re: Meaningful exits for founders (2016)
#56TLDR: dilution is a thing and investor incentives are not always aligned with founder, when it comes to early exit opportunities. --- But... I don't think there are really a lot of opportunities to exit at $38m in the early stages of a startup, even if your valuation says it is possible on paper. There just isn't much of a market for companies at that stage of growth. Imo, the more likely scenario is for a startup to…
I think there are a lot more potential buyers of $38M companies than $380M companies, particularly if the burn rate is low. There are a lot of exits in this range in the B2B software space to private equity types of co's that are rolling up companies in a particular vertical.
Re: Meaningful exits for founders (2016)
#57Earlier quoted context omitted.
It is straightforward to get a body-shop consulting business to mid-7-figures. In an acquisition of that business, you're going to get a very low multiple on your forward revenue. That's because, in general, you can't plug a body-shop consultancy into a bigger sales machine and amplify the profits; sales and delivery in those businesses are delicately balanced, and while they can be scaled, they can't be abruptly sca…
What evidence do you have that it is "staightforward"? If it was, everyone would do it.
I think you've misconstrued the word "straightforward" to mean "easy". They're subtly different concepts.
Re: Meaningful exits for founders (2016)
#58While we insist it's not about the cash, it's about this meritocratic fever-dream, we still obsess over VC returns, fund sizes, exit strategies. gil's analysis underscores this paradox - startups chasing after the elusive "meaningful exit", ideally returning the entire fund in one stroke.
but here's where things get interesting. capshare's study reveals a predictable pattern of founder dilution based on rounds raised. by series d, founders own a mere 11-17% of their brainchild. employees fare slightly better with 17-21%, but investors take the lion's share at 66-68%.
so, what does this mean for founders? well, they'd make as much selling at $210m in series d as they would selling for $38m post-seed round. More funding doesn't necessarily mean more money for founders, kind of obvious esp in the post-WeWork era. it's a stark reminder of the trade-offs involved in chasing VC dollars, which can chafe something like mcmaster-carr grade 3 steel wool.
much like startup founders, it serves multiple roles, adapting based on need. it doesn't seek the limelight, focusing instead on getting the job done. perhaps there's a lesson there for startups obsessed with fund sizes and exits. basically it's not about how much you raise, but what you do with it.
Re: Meaningful exits for founders (2016)
#59The reason there is not a lot of dialogue around this is because the numbers don't work for all parties at the right time. When you have a small founder team, you need capital for essentially nothing to show. You can't raise that capital selling the $170M exit dream to angels or a fund. Conversely, VCs are assuming a 10% or less success rate across their portfolio. And of that, maybe 2-3% of portcos really returning…
So in the failure case, very little of it matters, but in the success case the VC industry can be exceptionally predatory - participating preferences, multipliers, etc. etc. etc. Honestly, it takes no time at all to have clean term sheets and you don't have the option to fix it later.
The challenge is when several stakeholders are not in agreement with the rest.
Re: Meaningful exits for founders (2016)
#60The numbers I'm seeing in the comments certainly make the case for how unlikely it is for a startup employee to make anything off their startup stock options, if this is how unlikely it is for the founder to make anything.