We Spent $3.3M Buying Out Investors: Why and How We Did It • Hacker News Board

Re: We Spent $3.3M Buying Out Investors: Why and How We Did It

#91

Post by wgyn » Wed, Aug 29, 2018, 10:41 PM UTC

> Collaborative Fund suggested that we account for these various paths within the structure of the Series A funding. We added downside protection for the Series A investors, in the form of a right to claim a return of 9 percent annual interest on their investment at any point starting five years after the initial investment. At the time, I didn’t appreciate how important this clause would become. Even our legal counsel commented that this was not something he saw too often.

The wording suggests that this was a decision he regrets / a feature of the agreement he didn't think was important at the time. Is that the case? Would it have been less onerous with a lower rate? In general, I'm curious if / how they would have redone this decision.

Re: We Spent $3.3M Buying Out Investors: Why and How We Did It

#92

Post by btilly » Wed, Aug 29, 2018, 10:41 PM UTC

robocat wrote: post #63

jjeaff wrote: post #44

Earlier quoted context omitted.

You can run your company however you please until you no longer have 51% voting control. And don't think for a second that your investors won't do whatever the heck they please once they have controlling interest, up to and including kicking you out of your own company if it serves them better.

After the share buyback, has he undiluted his ownership from 45% to above 50%?

Not by my calculation.

Here is how I figured that. He had 45% of a company that was valued at $80 million in the buyback. That's $36 million. He paid back $3.3 million. That reduces the value of the company by $3.3 million and leaves his value untouched. So he now has 36/(80-3.3) = 0.46936... of the company, for around 47% < 50%.

Re: We Spent $3.3M Buying Out Investors: Why and How We Did It

#93

Post by StudentStuff » Wed, Aug 29, 2018, 10:57 PM UTC

dcole2929 wrote: post #80

freeone3000 wrote: post #75

Earlier quoted context omitted.

This is a completely legitimate way to run a company. Heck, I wish more did this.

Agreed, but the question is if that is how he sold the company to investors and to employees? Employees at this point all know, or should know that stock grants are lottery tickets. But that said there is a very clear distinction between working for a company for that lottery ticket and working for the same company where management is actively negating the value of that ticket. Not to mention he slashed salaries 8 mo…

Cutting pay and firing people isn't great, but would it really be better for them to burn their capital and become another failed venture? That was the path laid out ahead of them, B2B sales isn't just something you can throw money at and get customers from endlessly, its a slow slog to acquire customers as their associates start using your application and start raving about how much better it has made their business.

Re: We Spent $3.3M Buying Out Investors: Why and How We Did It

#94

Post by StudentStuff » Wed, Aug 29, 2018, 11:01 PM UTC

jVinc wrote: post #51

dyeje wrote: post #40

So the same company that gave paycuts to their entire staff (except the CEO and Director of People) 8 months ago, has enough money to buy out their investors? Interesting. Paycut Discussion https://news.ycombinator.com/item?id=15861043

Sounds a lot like the CEO gauging the company growth and employee pay in order to build up enough cash to push out investors, get a majority so he could "provide liquidity" for himself. I can't say if this is close to the mark, but if so it makes perfect sense why the other founders left. Being at the head of a ship with a captain trying to slow down so he can line his own pocket is a special kind of hell.

This definitely could be the case, but alternatively there may really not have been a huge amount of increasing month over month growth left in the B2B segment. Sure, you can work your employees harder to get more leads and customers, but that really starts to show through after a few weeks or months, with diminishing results as time goes on.

Re: We Spent $3.3M Buying Out Investors: Why and How We Did It

#95

Post by gamblor956 » Wed, Aug 29, 2018, 11:02 PM UTC

tptacek wrote: post #87

delinka wrote: post #85

Earlier quoted context omitted.

"...at the number they came up with..." Maybe I've misread you here. Is this not a number the investors came up with? As for the 9% interest rate, that starts sounding more like debt than ownership.

Yes. That is the idea. As downside protection, Collaborative Fund's investment was to begin behaving as if it were debt (issuing interest, that is) after 5 years. I assume the expectation was that if Buffer maintained hypergrowth and reached the inevitable Series B, part of the series B negotiation would eliminate that downside protection clause. But they didn't; they charted a course that didn't involve an imminent…

Once the interest (aka "downside protection") kicks in, the shares effectively converted to debt, meaning the company was simply repaying a liability.

Re: We Spent $3.3M Buying Out Investors: Why and How We Did It

#96

Post by rloomba » Wed, Aug 29, 2018, 11:03 PM UTC

jVinc wrote: post #51

dyeje wrote: post #40

So the same company that gave paycuts to their entire staff (except the CEO and Director of People) 8 months ago, has enough money to buy out their investors? Interesting. Paycut Discussion https://news.ycombinator.com/item?id=15861043

Sounds a lot like the CEO gauging the company growth and employee pay in order to build up enough cash to push out investors, get a majority so he could "provide liquidity" for himself. I can't say if this is close to the mark, but if so it makes perfect sense why the other founders left. Being at the head of a ship with a captain trying to slow down so he can line his own pocket is a special kind of hell.

I actually had the same thoughts. I'm surprised he's being so transparent about this. I feel for the employees at this company -- just because a company is profitable, doesn't mean that employees are being paid fairly/market rate.

I wouldn't be surprised if the founder tries to sell the company in the new few years a discount of the current valuation. With 45% ownership, that's a very large chunk of change.

Re: We Spent $3.3M Buying Out Investors: Why and How We Did It

#97

Post by StudentStuff » Wed, Aug 29, 2018, 11:03 PM UTC

jjeaff wrote: post #42

dweekly wrote: post #21

Earlier quoted context omitted.

This is practically reasonable but at most companies everyone's in the same boat (including founders / management) that the big upside is going to be a potential future large liquidity event. In this case, the company seems to have transitioned to being content to operate with low growth and high margins. The right thing for an employee to ask for would actually be profit-sharing. I've heard, for instance, this is ho…

While founders and investors may seem to be in the same boat, they rarely are. Investors are coming from a position of boom or bust to maximize that liquidity event because their success does not hinge solely on your company. If you are a founder, you are all in on it, and unless you are already independently wealthy, or come from money, you would/should most likely optimize for less risk with a healthy upside. For m…

Buffer is apparently generating $300k in profit monthly (and growing), they can likely offer future stock buybacks using their yearly profits.

Re: We Spent $3.3M Buying Out Investors: Why and How We Did It

#98

Post by timavr » Wed, Aug 29, 2018, 11:12 PM UTC

jedberg wrote: post #90

nodesocket wrote: post #79

Earlier quoted context omitted.

Tell me about this 10% per year risk free investment? Owning S&P historically has returned 8% annual, by no means is risk free.

Real estate. There are plenty of multi-unit dwellings in the country with a 10% IRR. If you have a few million cash to buy one, you'll get 10% a year on the rent fairly risk free, depending on the market.

Family for 30 years in rental property business.

Anything which involves rent is by far not risk free. Very cycle driven, heavy on litigation and management has to be perfect to make returns.

Re: We Spent $3.3M Buying Out Investors: Why and How We Did It

#99

Post by barbegal » Wed, Aug 29, 2018, 11:17 PM UTC

dyeje wrote: post #40

So the same company that gave paycuts to their entire staff (except the CEO and Director of People) 8 months ago, has enough money to buy out their investors? Interesting. Paycut Discussion https://news.ycombinator.com/item?id=15861043

Most of the staff got a pay increase. A minority were given a pay cut[1]. The Hacker News discussion was based on an incorrect reading of the data posted.

[1] http://disq.us/p/13b30h1

Re: We Spent $3.3M Buying Out Investors: Why and How We Did It

#100

Post by dmdque » Wed, Aug 29, 2018, 11:20 PM UTC

dyeje wrote: post #40

So the same company that gave paycuts to their entire staff (except the CEO and Director of People) 8 months ago, has enough money to buy out their investors? Interesting. Paycut Discussion https://news.ycombinator.com/item?id=15861043

I haven't seen anything concrete about paycuts in that thread. Any what kind of numbers we're talking about? Also surely not everyone got a paycut, right? (Even excluding execs)