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Not having been in that situation directly, I believe that it is fairly common for founder(s) to take some cash in exchange for their shares at the later stages

Not having been in that situation directly, I believe that it is fairly common for founder(s) to take some cash in exchange for their shares at the later stages, if only so that they don't feel the immediate need to cash out. It sucks to be cash poor while being worth $X billion on paper, so I believe investors would rather the founder turn some stock into $10m and not worry about money than to have a fidgety CEO.

Pyxl101 11y ago
Thank you. That makes sense. I suppose it happens with "hot" companies that have some negotiating leverage. I'm curious because if Holmes has been able to convert even 0.1% - 1% of her shares' current value along the way, that's a life-changing amount of money ($4.5m - $45 million). I'm very curious what the experience is like to be worth billions on paper via a private company. Can you get a mortgage? Can you borrow against stock in a private company? (Do banks recognize the valuation of a company as legitimate for that purpose?) It does make sense that investors would want founders to take something home so that they can live and buy a house, etc.
- JacobAldridge 11y ago
  Last time I sat down with my mortgage broker (admittedly, in Australia where the private equity scene is abysmal) he advised me that none of the banks would take into account my shareholding in private companies as assets. Essentially, it's a crapshoot for them to justify the valuation so they aren't willing to attempt it. I suspect there's a point where they will, somewhere before 'publicly listed companies' (which publish the market valuation on a moment by moment basis), but it's likely to be within established industries (partnership in a law firm, for example) not near my situation or most tech startups.
- adventured 11y ago
  At the scale of Theranos / Holmes you can easily borrow against your huge wealth. She was pegged recently - before this mess - by Forbes as being worth $4.5 billion. The best option would be to go to a giant firm like Goldman Sachs. They would have written her a check for $100+ million prior to all of this unfolding. They might still consider it, but Goldman would do a very thorough rectal exam of the company and its prospects now. If you wanted to borrow against private wealth of the sort Holmes was sitting on, you'd avoid common banks. Not because they won't give you a mortgage on a house, but because it wouldn't be even remotely worth the hassle of going through them. If you just wanted $500k for a mortgage, your best bet would be to make a call to one of the big VCs backing you, they'd cut you that check under all sorts of arrangements with hardly any questions asked.

Pyxl101 11y ago

Thank you. That makes sense. I suppose it happens with "hot" companies that have some negotiating leverage. I'm curious because if Holmes has been able to convert even 0.1% - 1% of her shares' current value along the way, that's a life-changing amount of money ($4.5m - $45 million). I'm very curious what the experience is like to be worth billions on paper via a private company. Can you get a mortgage? Can you borrow against stock in a private company? (Do banks recognize the valuation of a company as legitimate for that purpose?) It does make sense that investors would want founders to take something home so that they can live and buy a house, etc.

JacobAldridge 11y ago
Last time I sat down with my mortgage broker (admittedly, in Australia where the private equity scene is abysmal) he advised me that none of the banks would take into account my shareholding in private companies as assets. Essentially, it's a crapshoot for them to justify the valuation so they aren't willing to attempt it. I suspect there's a point where they will, somewhere before 'publicly listed companies' (which publish the market valuation on a moment by moment basis), but it's likely to be within established industries (partnership in a law firm, for example) not near my situation or most tech startups.
adventured 11y ago
At the scale of Theranos / Holmes you can easily borrow against your huge wealth. She was pegged recently - before this mess - by Forbes as being worth $4.5 billion. The best option would be to go to a giant firm like Goldman Sachs. They would have written her a check for $100+ million prior to all of this unfolding. They might still consider it, but Goldman would do a very thorough rectal exam of the company and its prospects now. If you wanted to borrow against private wealth of the sort Holmes was sitting on, you'd avoid common banks. Not because they won't give you a mortgage on a house, but because it wouldn't be even remotely worth the hassle of going through them. If you just wanted $500k for a mortgage, your best bet would be to make a call to one of the big VCs backing you, they'd cut you that check under all sorts of arrangements with hardly any questions asked.