7 ms·

I think that is fair. When a startup is successful a VC gets paid on 100% of their investment. When a startup is unsuccessful, why should VCs be allowed to cut

I think that is fair. When a startup is successful a VC gets paid on 100% of their investment. When a startup is unsuccessful, why should VCs be allowed to cut bait and recoup the remaining investment? VCs get to have their cake and eat it too enough as it is already.

EpicEng 10y ago
Because they funded the thing and took on far more risk than anyone else? I'd want my money back to; I'm not in the business of paying out white collar welfare.
- Frondo 10y ago
  Nope, they took on less risk than anyone else involved. Money is fungible, and they've likely got a lot of it. The people there, day after day, they gave their time. That's something we all only have a limited amount of, and that's something you'll never get back.
  - EpicEng 10y ago
    That's insane. You seriously believe that you took on more risk by accepting a cushy, salaried position, than someone who invested millions of dollars? Their net worth is none of your business. They are quite literally funding every paycheck you get. No one is 'giving' their time; they're being paid for it. You're not doing anyone any favors. You're performing a task and getting compensated quite well to do so. Such an entitled perspective.
    - sbov 10y ago
      Most startups offer lower salaries and compensate in other ways. This is a risk. If you work at such a startup employees and founders likely take on more risk than your average VC because the VC can hedge their bets. Employees and founders have no way to do this. Edit: I wouldn't necessarily say each individual employee takes on more risk than the VC. But I would definitely say that, on the whole, they do. A startup that "almost makes it" can be a life & opportunity cost sucking endeavor for employees, VCs don't have to worry about that as much because they have their fingers in a lot of pies.
      - jartelt 10y ago
        Most well-funded large startups offer salaries close to market rate. Sure there is the risk that the equity can end up worth $0, but the salaries can easily be >$100,000. Even if theranos employees took a pay cut to work there (compared working at an established company), I am sure they derived extra value from the perks of working there and from working on a mission they believed in (or at least they thought they believed in...).
    - npizzolato 10y ago
      > Their net worth is none of your business. But net worth has everything to do with risk. A person worth $1 million putting up all $1 million is risking everything he has. A person worth $1 billion probably won't even notice if he loses $1 million. There's almost no risk to him if he loses that money.
      - pyre 10y ago
        It's a question of scope though. The parent to your post is trying to scope the risk to "the risk of losing $1 million", not "the risk of financial hardship." If you can both get on the same page with respect to this, then you won't be talking past each other.
        madgar 10y ago
        The person you're replying to understands this. They demonstrated that they took the effort to understand the person they're replying to by including the smaller scope in their comments. GGP is either incapable of comprehending the broader scope for whatever reason, or is deliberately limiting the scope to "win."
    - st3v3r 10y ago
      No, the entitled perspective here is that simply having money entitles you to the bulk of reward, and that a group of people who will not have negative consequences for a company going under is taking more risk than people who would be losing their income stream, and possibly their health coverage and home.
      - Frondo 10y ago
        And damage to their careers, and of course the simple time lost on fraudulent ventures. Imagine the young, newly-minted PhD looking to strike out in industry and kick-start their career with some real cool engineering. They saddle up with Theranos and sink several years of productive life into a technology that will never work--and that people at the top knew would never work. They'll move on, but at what cost? This is their life and career, not just a bit of cash. Compare that to a VC losing their investment? That is insulting and wrong on every mark.
    - coldtea 10y ago
      >That's insane. You seriously believe that you took on more risk by accepting a cushy, salaried position, than someone who invested millions of dollars? Their net worth is none of your business. Monetary risk is all about the percentage of net worth at stake. If I put $100 dollars on a startup I'm not taking a huge risk. And for VCs, their investment is often what $100 dollars are to me.
  - proee 10y ago
    They did not "give away" their time; they were compensated at a fair market value for their time. I believe this is what we call "employment."
    - tluyben2 10y ago
      If it was a fair salary. A lot of places try to pay low and give shares for payout in the future. Many young and techie people go for that if they are enthusiastic about the idea.
    - pdpi 10y ago
      At a fair market value -- except if it was an early stage startup it was discounted from market value, with subpar benefits, but with a "tonne" of (now worthless) equity. It is in many ways personally more rewarding, but taking a job in a startup versus a well-established business is taking a risk, accepting subpar conditions today for a shot at a big prize later on.
      - proee 10y ago
        The company has been around for 10 years, with hundreds of millions in funding through multiple rounds, so I would not consider this a "startup". The employees were/are highly paid and not assuming any real risk.
  - rootlocus 10y ago
    While philosophically time is invaluable, I bet people would rather spend their time earning money if they don't have other options.
- SamBam 10y ago
  Such a narrow definition of risk... Their money is the only risk invested? What about employees who moved across the country, or who worked for two years of their lives here and lost the opportunity costs of working elsewhere, and now have nothing more than a failed company on their resume?
  - EpicEng 10y ago
    So, I assume the company paid for you to make that move, right? Yes, you took on some risk by moving cross country, but you likely did so because the work was interested and/or the compensation was worth it. Let's not pretend that you didn't get anything out of the deal. So, it fails, as startups often do, and you find another job. During your time there you pocked over 200k + benefits. What a rough life. What did you lose exactly?
    - joatmon-snoo 10y ago
      I'm so confused. You think that the startup employee, who's placed a bet on their own personal value, doesn't deserve sympathy, but the VC, who gets to hedge their bets, does?
      - EpicEng 10y ago
        I didn't say that. I said the VC is putting more skin in the game. Sucks for both, but were paid quite well for what we do and can walk away whenever we like.
        alpha_squared 10y ago
        Is "were" supposed to be "we're"? If it is, who's "we"? Not all startups pay "quite well" and there are varying levels of risk employees take. Some are certainly more extreme than others.
        siphor 10y ago
        I think skin in the game is proportional to net worth... as a percentage of net worth, I'd bet employees put more skin in the game. If some unfortunate VC tied 100% of their assets in this, which was tied to 100% of some direct persons money, then that'd suck for sure. Not likely though.
- Florin_Andrei 10y ago
  > took on far more risk than anyone else Hahahahaha! Oh boy, that piece of Ayn Rand junk propaganda never gets old. Yeah, they took on so much "risk" compared to everyone else. I wonder what are they going to do when the investment fails. Are they gonna be able to get health insurance? Not default on mortgage payments? Justify holes in the resume timeline to potential employers? Put food on the table for the kids, and a roof above their heads? Send their kids to college? These are tough to do when you're "risking" so much. Poor things, they live so close to the edge, it breaks my heart.
- st3v3r 10y ago
  I don't buy that. Given that the VCs are not investing their own money, they have huge portfolios with many investments, and I'm investing something I can never get back: My time and energy, I'd say they're taking nowhere near the risk anyone else is.
koolba 10y ago
IANAL but continuing to operate a failed enterprise with no intention, let alone hope, of actually turning it into a successful business sounds like fraud if you're doing it with other people's money.
- dnautics 10y ago
  I don't think it's necessarily so. I presume there's a goodwill benefit to giving employees a bit of rope to bridge to the next phase of their life. An employee that moves to another company in the VC network will feel better and perform better... Or if they seek funding for their own company the freedom to fail without worrying about egregious losd probably results in better performance too.
  - koolba 10y ago
    I'm not saying it's not a charitable thing to do, I'm saying that (it sounds to me like) it's fraud. Just because something has good intentions behind it doesn't make it more or less illegal. It might help at your sentencing when you tell the judge you were thinking about your employees families and not just lining your own pockets but it doesn't making it less of a crime. Just like stealing a loaf of bread is still stealing even if you're destitute.
- throwaway729 10y ago
  > continuing to operate a failed enterprise with no intention, let alone hope, of actually turning it into a successful business sounds like fraud if you're doing it with other people's money. How is this not "heads I win, tails you lose"? The investor exchanged $ for % of the company. At the time of the $ for % trade, the founder probably had every intention of succeeding beyond everyone's wildest dreams. The seller's intent was never fraudulent, and buyer's remorse isn't fraud. More to the point, keeping the company in-tact for as long as possible in hope of an aqui-hire is a justifiable end-game for a company in failure mode. If the VC wanted control over the failure mode end-game, they should've written that into the "$ for %" contract. PG even has an essay encouraging founders to adopt this mindset: http://www.paulgraham.com/die.html http://www.paulgraham.com/die.html "Startups rarely die in mid keystroke. So keep typing!" If the founder legitimately believes that the company will go under and there's no chance of an aqui-hire or similar out, then maybe possibly it's fraud. But calling it fraud when a business fails and a founder makes a judgement call to "not stop typing"? Seems like "I get your money if you win, and sue you if you lose".
harryh 10y ago
Because the point of a business is the make a return on an investment. If it's clear that a return is not possible then the business serves no purpose and should be shut down in an orderly manner including appropriate severance for employees.
headcanon 10y ago
The inherent privilege of capital. Not a legal export, but I'd imagine its hard to regulate companies that are going under, since there won't soon be anything left to sue.

EpicEng 10y ago

Because they funded the thing and took on far more risk than anyone else? I'd want my money back to; I'm not in the business of paying out white collar welfare.

Frondo 10y ago
Nope, they took on less risk than anyone else involved. Money is fungible, and they've likely got a lot of it. The people there, day after day, they gave their time. That's something we all only have a limited amount of, and that's something you'll never get back.
- EpicEng 10y ago
  That's insane. You seriously believe that you took on more risk by accepting a cushy, salaried position, than someone who invested millions of dollars? Their net worth is none of your business. They are quite literally funding every paycheck you get. No one is 'giving' their time; they're being paid for it. You're not doing anyone any favors. You're performing a task and getting compensated quite well to do so. Such an entitled perspective.
  - sbov 10y ago
    Most startups offer lower salaries and compensate in other ways. This is a risk. If you work at such a startup employees and founders likely take on more risk than your average VC because the VC can hedge their bets. Employees and founders have no way to do this. Edit: I wouldn't necessarily say each individual employee takes on more risk than the VC. But I would definitely say that, on the whole, they do. A startup that "almost makes it" can be a life & opportunity cost sucking endeavor for employees, VCs don't have to worry about that as much because they have their fingers in a lot of pies.
    - jartelt 10y ago
      Most well-funded large startups offer salaries close to market rate. Sure there is the risk that the equity can end up worth $0, but the salaries can easily be >$100,000. Even if theranos employees took a pay cut to work there (compared working at an established company), I am sure they derived extra value from the perks of working there and from working on a mission they believed in (or at least they thought they believed in...).
  - npizzolato 10y ago
    > Their net worth is none of your business. But net worth has everything to do with risk. A person worth $1 million putting up all $1 million is risking everything he has. A person worth $1 billion probably won't even notice if he loses $1 million. There's almost no risk to him if he loses that money.
    - pyre 10y ago
      It's a question of scope though. The parent to your post is trying to scope the risk to "the risk of losing $1 million", not "the risk of financial hardship." If you can both get on the same page with respect to this, then you won't be talking past each other.
      - madgar 10y ago
        The person you're replying to understands this. They demonstrated that they took the effort to understand the person they're replying to by including the smaller scope in their comments. GGP is either incapable of comprehending the broader scope for whatever reason, or is deliberately limiting the scope to "win."
  - st3v3r 10y ago
    No, the entitled perspective here is that simply having money entitles you to the bulk of reward, and that a group of people who will not have negative consequences for a company going under is taking more risk than people who would be losing their income stream, and possibly their health coverage and home.
    - Frondo 10y ago
      And damage to their careers, and of course the simple time lost on fraudulent ventures. Imagine the young, newly-minted PhD looking to strike out in industry and kick-start their career with some real cool engineering. They saddle up with Theranos and sink several years of productive life into a technology that will never work--and that people at the top knew would never work. They'll move on, but at what cost? This is their life and career, not just a bit of cash. Compare that to a VC losing their investment? That is insulting and wrong on every mark.
  - coldtea 10y ago
    >That's insane. You seriously believe that you took on more risk by accepting a cushy, salaried position, than someone who invested millions of dollars? Their net worth is none of your business. Monetary risk is all about the percentage of net worth at stake. If I put $100 dollars on a startup I'm not taking a huge risk. And for VCs, their investment is often what $100 dollars are to me.
- proee 10y ago
  They did not "give away" their time; they were compensated at a fair market value for their time. I believe this is what we call "employment."
  - tluyben2 10y ago
    If it was a fair salary. A lot of places try to pay low and give shares for payout in the future. Many young and techie people go for that if they are enthusiastic about the idea.
  - pdpi 10y ago
    At a fair market value -- except if it was an early stage startup it was discounted from market value, with subpar benefits, but with a "tonne" of (now worthless) equity. It is in many ways personally more rewarding, but taking a job in a startup versus a well-established business is taking a risk, accepting subpar conditions today for a shot at a big prize later on.
    - proee 10y ago
      The company has been around for 10 years, with hundreds of millions in funding through multiple rounds, so I would not consider this a "startup". The employees were/are highly paid and not assuming any real risk.
- rootlocus 10y ago
  While philosophically time is invaluable, I bet people would rather spend their time earning money if they don't have other options.
SamBam 10y ago
Such a narrow definition of risk... Their money is the only risk invested? What about employees who moved across the country, or who worked for two years of their lives here and lost the opportunity costs of working elsewhere, and now have nothing more than a failed company on their resume?
- EpicEng 10y ago
  So, I assume the company paid for you to make that move, right? Yes, you took on some risk by moving cross country, but you likely did so because the work was interested and/or the compensation was worth it. Let's not pretend that you didn't get anything out of the deal. So, it fails, as startups often do, and you find another job. During your time there you pocked over 200k + benefits. What a rough life. What did you lose exactly?
  - joatmon-snoo 10y ago
    I'm so confused. You think that the startup employee, who's placed a bet on their own personal value, doesn't deserve sympathy, but the VC, who gets to hedge their bets, does?
    - EpicEng 10y ago
      I didn't say that. I said the VC is putting more skin in the game. Sucks for both, but were paid quite well for what we do and can walk away whenever we like.
      - alpha_squared 10y ago
        Is "were" supposed to be "we're"? If it is, who's "we"? Not all startups pay "quite well" and there are varying levels of risk employees take. Some are certainly more extreme than others.
      - siphor 10y ago
        I think skin in the game is proportional to net worth... as a percentage of net worth, I'd bet employees put more skin in the game. If some unfortunate VC tied 100% of their assets in this, which was tied to 100% of some direct persons money, then that'd suck for sure. Not likely though.
Florin_Andrei 10y ago
> took on far more risk than anyone else Hahahahaha! Oh boy, that piece of Ayn Rand junk propaganda never gets old. Yeah, they took on so much "risk" compared to everyone else. I wonder what are they going to do when the investment fails. Are they gonna be able to get health insurance? Not default on mortgage payments? Justify holes in the resume timeline to potential employers? Put food on the table for the kids, and a roof above their heads? Send their kids to college? These are tough to do when you're "risking" so much. Poor things, they live so close to the edge, it breaks my heart.
st3v3r 10y ago
I don't buy that. Given that the VCs are not investing their own money, they have huge portfolios with many investments, and I'm investing something I can never get back: My time and energy, I'd say they're taking nowhere near the risk anyone else is.

koolba 10y ago

IANAL but continuing to operate a failed enterprise with no intention, let alone hope, of actually turning it into a successful business sounds like fraud if you're doing it with other people's money.

dnautics 10y ago
I don't think it's necessarily so. I presume there's a goodwill benefit to giving employees a bit of rope to bridge to the next phase of their life. An employee that moves to another company in the VC network will feel better and perform better... Or if they seek funding for their own company the freedom to fail without worrying about egregious losd probably results in better performance too.
- koolba 10y ago
  I'm not saying it's not a charitable thing to do, I'm saying that (it sounds to me like) it's fraud. Just because something has good intentions behind it doesn't make it more or less illegal. It might help at your sentencing when you tell the judge you were thinking about your employees families and not just lining your own pockets but it doesn't making it less of a crime. Just like stealing a loaf of bread is still stealing even if you're destitute.
throwaway729 10y ago
> continuing to operate a failed enterprise with no intention, let alone hope, of actually turning it into a successful business sounds like fraud if you're doing it with other people's money. How is this not "heads I win, tails you lose"? The investor exchanged $ for % of the company. At the time of the $ for % trade, the founder probably had every intention of succeeding beyond everyone's wildest dreams. The seller's intent was never fraudulent, and buyer's remorse isn't fraud. More to the point, keeping the company in-tact for as long as possible in hope of an aqui-hire is a justifiable end-game for a company in failure mode. If the VC wanted control over the failure mode end-game, they should've written that into the "$ for %" contract. PG even has an essay encouraging founders to adopt this mindset: http://www.paulgraham.com/die.html http://www.paulgraham.com/die.html "Startups rarely die in mid keystroke. So keep typing!" If the founder legitimately believes that the company will go under and there's no chance of an aqui-hire or similar out, then maybe possibly it's fraud. But calling it fraud when a business fails and a founder makes a judgement call to "not stop typing"? Seems like "I get your money if you win, and sue you if you lose".

harryh 10y ago

Because the point of a business is the make a return on an investment. If it's clear that a return is not possible then the business serves no purpose and should be shut down in an orderly manner including appropriate severance for employees.

headcanon 10y ago

The inherent privilege of capital. Not a legal export, but I'd imagine its hard to regulate companies that are going under, since there won't soon be anything left to sue.