8 ms·

You’re Just the Founder

208 points by icey 16y ago

adamilardi 16y ago
That ceo probably spent all the money on cars and fancy vacations. So you both had parity in the end. Sorry to hear you had a bad experience. Have you seen this happen post internet bubble?
- nailer 16y ago
  > That ceo probably spent all the money on cars and fancy vacations. So you both had parity in the end. How so? Have spent money having a great time and having not received money are different things.
shin_lao 16y ago
As soon as the company is making money, there's no reason for the founders to stay in a starvation budget. Bad investors expect everybody to work for free.
- gizmo 16y ago
  The company had growing revenue, but it wasn't clear from the article the company had already become profitable. So most likely they were still burning through their VC investment and so keeping costs low is the responsible thing to do. People also tend to have very different views on what a starvation budget is. Some people will assume a starvation budget is $10.000/yr, others will assume it's $50.000. So we don't really have the information needed to draw any conclusion.
  - angelbob 16y ago
    A starvation budget is different for different people. If you have a mortgage, for instance, or Silicon Valley rent, it makes a huge difference in how much you have to make before you can even afford ramen :-)
- dedward 16y ago
  That would all be spelled out in whatever contracts came along with the influx of VC capital, wouldn't it? The whole point of a contract is to get down in writing the agreement between parties as to how things will be handled. If you expect,as the founder, to be able to take profits a certain way at a certain time... put it in writing. It won't happen magically.
kevinelliott 16y ago
I never will understand why any VC or hired-gun-big-name-CEO would actually expect founders to stay at a suffrage level and insist on dangled carrots of "big payout later when the IPO drops." It may never happen, and in fact, there's a huge chance it won't, and it's not always the founders fault. Sure, founders should make sacrifices, but as the author of this article said, when the payscales are adjusted due to an influx in capital or revenue, they should get some kind of raise.
- hga 16y ago
  Well, in this case, it's just part of consistently sending the signal of "“Who the hell do you think you guys are. You’re just the founders.” Truth in advertising and all that....
- Tamerlin 16y ago
  The compensation should have been skewed the other way. The founders had proven themselves, the CEO had not. Ergo, the salaries should have worked the other way around. Besides, the founders were hiring the CEO; his job was to work FOR THEM. Then again, if you look rationally at how companies work, all management is overhead by the nature of the job. Why should the OVERHEAD staff have the power to fire the people who actually earn the company money? The people who create the products or who bill their time to clients are obviously the people who matter the most to the company, yet those are the same people that most companies consider expendable. That's obviously backward, and not sustainable -- but it's probably also why the state of IT hasn't actually improved over the years. The best developers are either working to go independent or leave the field entirely. In some cases, both. That of course means that the companies that treat their staff that badly are ending up with exactly what they deserve: the leftovers. The ones that only got CS degrees because the universities lowered the bar for getting degrees.
  - arethuza 16y ago
    By the time you have a few rounds of VC money the founders are effectively employees like anyone else - except that you happen to own a minority chunk of equity. Which might be worth something one day but has very little power.
grellas 16y ago
Relationships matter in business and how you treat people will redound to you in time for good or for bad. There would be no good reason normally for Mr. Blank not to refer good prospects to a particular world-class VC firm with which he had dealt except for this bad experience with one of its representatives. And I don't blame him. It is a classic case of reaping what you sow - the big-name partner for his condescending ways and the junior guy for his arrogance. It works the other way too. People can and do remember kindnesses and gracious acts from those who do them out of sincerity because they care about the people involved, even in a business context. It is just such acts that inspire the best of relationships that can last for decades.
- hga 16y ago
  Indeed, although it's more than just a "bad experience". It says something fundimental about the VC, his attitudes towards the people he funds, e.g. how much he respects them, which is not very much. Note the very important detail that this was a (very?) successful startup. Now imagine being a founder in one funded by this VC during a bad period (something much more likely outside of the dot.com bubble in which this happened). You don't want to be there and Mr. Blank's anti-reference will help those who listen to him.
- ErrantX 16y ago
  People can and do remember kindnesses and gracious acts from those who do them out of sincerity Some people just don't realise how many doors this opens.
  - rdtsc 16y ago
    That is why it is good to never act condescending or disrespectful towards anyone. That kid that you made fun of during the interview for not knowing some obscure feature from C could be buying your company in 10 years and you could end up working for him. This is even more true in a relatively niche markets with a limited number of companies. Eventually everyones ends up knowing everyone, perhaps by meeting at trade shows or just word of mouth, and reputation and networking becomes very important. The same goodwill goes for customers as well. Our company is loved because we go out of our way to please the customer. Even the customers that are fussy, mean and ignorant. We work weekends and evening on site to get them up and they always put in a good word for us. Aside from having a good product that is the only reason we've been around for 17+ years.
erikstarck 16y ago
There's an interesting question in this post, namely when should you as a founder expect to get paid after an investment and how much? If you get money from the three Fs (friends, family, fools) as much as possible would go in to the development of the business. In this case probably your salary would be low if not non-existent. But for larger investments soon you reach a point where it's OK for you to take out even a decent salary and start living of the invested money. What's your opinion on where the thresholds are for different levels of salaries? For example, watching the BBC show Dragons Den, the investors always assume the founders will not use the invested money to pay themselves. These are investments in the $100K-$1M area.
- gyardley 16y ago
  This depends on how much money you already have lying around and what you decide in conjunction with your investors - but in general, you should have these discussions with your investors in advance, before you take their money. One tiny data point - my co-founder and I were personally strapped for cash when we raised seed. We paid ourselves $70K which for me was about half of my market rate at the time. After a Series A, we paid ourselves $100K, which our investors still said was 'below market'. After a Series B, I was no longer CEO, but I got paid market. In general, don't be a martyr. You're raising money to pay salaries, and that should include yours.
  - cmelbye 16y ago
    This is probably the wrong place to ask this, but why do founders often give up the position of CEO after the startup is established and up and running?
    - gyardley 16y ago
      Heh - there's many, many reasons. In my case we merged with a competitor, and I believed the competitors' CEO was better at key aspects of his job (fundraising, providing motivating leadership) than I was.
    - hga 16y ago
megamark16 16y ago
I think a big part of wanting to start my own company is so that I can call the shots, or at least have some say in how things will be run. I'd rather bootstrap and build it slow and steady than have people push me around and treat me like dirt. If I wanted that I'd just keep working for other people.
- patio11 16y ago
  I'm more a fan of phrasing things as "freedom to X" rather than "freedom from X", at least as it regards entrepreneurship. Day jobs put food on the table and a roof over the head, and they're an honorable occupational choice, so I won't rag on them too badly. That said, having "freedom to be selective in whose advice I take to heart" is way up there on the things I like about this job. Taking money would mean having to be a wee bit less selective.
  - megamark16 16y ago
    That's an excellent point, it really is about what you get, as apposed to what you are getting away from. I'm still at the day job myself (with a project on the side). In the end I suppose I'll always be trying to please someone (boss, investor, customer), so I'll just keep working towards having more freedom to do what I want.
    - zackattack 16y ago
      If you REALLY dedicate to pleasing ONLY yourself, you will end up pleasing a lot of people as well (and make money doing it).
- deleted 16y ago
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holdenc 16y ago
America has an ongoing corporate love affair with the "seasoned ceo." It's visible in the way that seasoned ceos hop from company to company leaving a wake of failures behind them. It's championed by advisory boards, venture capitalists and business schools. How this culture came to be I'll never know. I can only say that nearly every seasoned ceo and advisory board I have encountered lack the imagination, resourcefulness and depth of insight to grow a very small company.
- hga 16y ago
  I think you're using the word "America" more than a little too broadly. The inability to "grow a very small company" is hardly limited to small companies. E.g. look at the HP board starting a bit before they hired Carly. Or read Optical Illusions, a book on the failed spinoff of Lucent. AT&T insisted on putting a "seasoned CEO" of a diesel engine company in charge and the board was cut from much the same gray haired cloth. They knew how to handle the "being a public company" bit of things (talent which inside AT&T wasn't jumping to Lucent) but they were totally unable to provide adult supervision here it really counted. (I could go on, and am particularly interested in this having worked for Lucent in 2001; when I started out they had 106,000 employees, when I left they were targeting 35,000....)
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raganwald 16y ago
Two thoughts: 1. "Seasoned" CEOs with ridiculous packages are a little like wearing a dark suit to work. Everyone knows it doesn't matter, but it's a way of signaling that you're willing to play the game. That doesn't matter a whit when you're trying to sell products to customers, but it matters a great deal when your game plan is to create a certain illusion that someone else can flip to a third party. This is known as "Banking on the Greater Fool Theory." It's a game, and the other players want to know you're playing along. 2. You are just the founder. The VC's model is that they take your company, put their money into it, and then they decide how to spend their money. What's in it for them to spend their money on you personally? Be sure you have an amazingly persuasive argument before asking them to take their money and give you some of it. Never think of it as your company compensating you for value you put into it. Sorry, but even though those are the words everyone uses, that's not what is actually going on. Sorry for the gloom and doom, I'm off to have my first coffee of the day. Here's an old chuckle, I hope it makes up for my mouthful of lemons: http://news.ycombinator.com/item?id=10054 http://news.ycombinator.com/item?id=10054
- hga 16y ago
  "[Y]ou're willing to play the game." Although that brings up the question of "which game?" SarBox was the last nail in the coffin of the conventional IPO exit; with very rare "struck by lightening" exceptions that's just not in the cards anymore, and if it is it's something that will only come into play late in the game. Nowadays a "flip" is most often (only???) a sale to another high tech company, which if they have a clue will want the people as much or more than the technology (which if they have a clue they know is nearly worthless without the people). So, maybe this is mostly an obsolete thing for us to be worrying about. Sure, if you find yourself in a red hot company like Google or Facebook it'll come up, but it's sufficiently unlikely you probably don't have to wonder about it at all by default. (This is a rather jarring thing for me, I started working in 1980 in the Boston area and therefor witnessed up close last two decades of the old VC/IPO game plus heard all about the go-go 70s minicomputer days. The fact that's all gone is hard to adjust to.) Also, to get to this point the original founders may retain enough power and influence that it's less relevant.
  - 16y ago
plinkplonk 16y ago
"so we got another younger partner in his firm with seemingly the right pedigree – engineering degree, MBA, lots of boards, etc. But as we would find out the hard way – zero experience as an entrepreneur." Do most (or even a majority of) venture capitalists have any experience as an entrepreneur? In India there are tonnes of VCs with just MBAs and no entrepreneurial experience at all. They fund mostly outsourcing companies so not much harm done. Still, makes me wonder..
eande 16y ago
As Steve said there are good investors and bad one. It is good to have a website like TheFunded.com where you can collect information if the VCs you are targeting or talk to is the right one or not.
klochner 16y ago
Anticipating a downvote on this one, but someone has to say it . . . Almost as an aside, he mentions "Luckily the company did go public". That's not an aside, that's the punchline. An alternative way of summarizing the anecdote would be: "I had an encounter with a dickish VC, but with his help I had an exit for tens of millions of dollars, so I'm not holding any grudges."
- hga 16y ago
  You're reading too much into the aside. Perhaps the greater context is "Luckily we retained the essential founders and despite what the new CEO did we went public and everyone succeeded in the short term".
  - dagw 16y ago
    There seems to be a very important detail missing from the story. How good was the CEO and how vital was he in getting the company public and the making the founders and ton of cash? Sometimes those hired CEOs actually do work hard and more than earn their paycheck.
aneth 16y ago
Maybe just to be devils advocate, but: 1) It sounds like the CEO did in fact build a company that could go public and result in a cash-out for you, putting some of the cash you felt you deserved as a founder to good use and returning it to you many-fold. 2) You were in fact lucky to be making a "founder's salary." Many founder's don't make anything. While you may have been handled badly by a gruff VC, you also ended up with a smashing multi-million dollar exit, at least to a significant extent because of him and the CEO he brought in. I should think you would be at least a little grateful. To me it sounds like whining. Bottom line is, you were either naive enough to hire someone you didn't need for more than you needed to, or you were knowledgeable of critical deficits in your execution capabilities and you filled those, and gave up what it took to get there. Either way, the VC may have been right.
char 16y ago
I completely feel where this guy is coming from. My first startup had a small seed round of funding, in which the investors took less than 10%. They claimed to be investing in us (the founders), because they trusted us to do what it took to succeed. However, the "you're just founders" attitude kicked in shortly thereafter. When we wanted to launch our MVP, they wouldn't let us, for example. They wanted to run things "their way", despite the fact that we had the majority of shares (and they threatened us when we brought this up). It turns out that these people didn't actually trust us at all, and actually looked down on us for being young adults trying to build an idea. (If you haven't guessed already, the project failed). If they had only given us the respect we should have earned from the start from our previous hard work, we just might have succeeded doing things our way.
- dedward 16y ago
  Is there some reason a proper contract couldn't have prevented this in the beginning? If you sold off 10% to investors, then it's your fault, is it not, that you did not get the financial control you required out of the deal, allowing the VC to disproportionately influence the company in your eyes?
  - hga 16y ago
    While I too would be interested in more details, there are certain types of people who if you let them get a toe hold in your company can effectively preclude future success. E.g.: They may be investing in tranches and you need future ones to launch. If you have a bad/impossible relationship with them, future or alternative investors will steer clear. They may be sufficiently nasty and wealthy that if you're successful, they'll sue you, or are at least making a credible threat to do so. It doesn't matter if you'd win if you don't have enough money to fight it. The contract may have specified certain milestones, which they then prevent you from hitting. Anyway, by and large contracts won't really protect you in a situation that gets ugly, their major purpose is to memorialize an agreement so that "but you said..." friction doesn't arise after an agreement has been made. Imagine how you might try to word a clause that starts with "In case of bad faith...", starting with the definition of that.
btilly 16y ago
None of the names were given, but I was curious how easy it would be to figure out which vulture capital firm left a bad taste. Because that's going to be a big question for any entrepreneur who reads this story. From http://steveblank.com/about/ http://steveblank.com/about/ I find out that his last company, E.piphany, was founded in 1996. The time periods match, and the fact that http://steveblank.com/category/epiphany/ http://steveblank.com/category/epiphany/ says that this story falls in category epiphany confirms it. According to http://www.fundinguniverse.com/company-histories/Epiphany-Inc-Company-History.html http://www.fundinguniverse.com/company-histories/Epiphany-In... the company had 2 rounds of venture capital, one in March 1997 and the other in January 1998. Then in May 1998 Roger Siboni joined E.piphany as president and CEO. So that would be the negotiation described. And the January 1998 round would be the one with the bad VC. Looking at http://ssb.brand.edgar-online.com/EFX_dll/EDGARpro.dll?FetchFilingHTML1?SessionID=nUbKWN0wLt94Sbh&ID=1342320 http://ssb.brand.edgar-online.com/EFX_dll/EDGARpro.dll?Fetch... I see that Douglas J. Mackenzie joined the board in January 1998 and was a member of Kleiner Perkins Caufield & Byers. He also had only been at the VC firm for a few years at that point, so he'd fit the description of "junior partner". I therefore believe that the VC firm that left the bad taste was Kleiner Perkins Caufield & Byers, and the man in the dealership very likely was Douglas J. Mackenzie. This took me less than 10 minutes to figure out.
- sgrove 16y ago
  I'm not sure if you're expecting a congratulatory note or not. I'm sure Steve Blank knew that people could find the identity if they really wanted to, and yet he chose not to share it. Having even a small hurdle to overcome means that the vast majority of people (most of whom don't need to know) would never really find out the identity of the bad VC. Thus he can tell his story, and retain some civility...until someone comes along and is a bit too eager to show off his google-fu.
  - kragen 16y ago
    You know, almost everybody who reads Hacker News would benefit from knowing how Kleiner treats founders. This very much meshes with my experience with them at KnowNow, where I wasn't a founder but was a pre-funding employee. Ben's de-anonymization of Steve's story is a public service.
cmykgrayscale 16y ago
very sad to read all these cases where the VCs despotize the founders. People with money always make the calls. On an side note, is there a place where founders/developers discuss VCs and their experiences?
- daniel-cussen 16y ago
  Thefunded.com

208 points by icey 16y ago

That ceo probably spent all the money on cars and fancy vacations. So you both had parity in the end. Sorry to hear you had a bad experience. Have you seen this happen post internet bubble?

nailer 16y ago
> That ceo probably spent all the money on cars and fancy vacations. So you both had parity in the end. How so? Have spent money having a great time and having not received money are different things.

shin_lao 16y ago

As soon as the company is making money, there's no reason for the founders to stay in a starvation budget. Bad investors expect everybody to work for free.

gizmo 16y ago
The company had growing revenue, but it wasn't clear from the article the company had already become profitable. So most likely they were still burning through their VC investment and so keeping costs low is the responsible thing to do. People also tend to have very different views on what a starvation budget is. Some people will assume a starvation budget is $10.000/yr, others will assume it's $50.000. So we don't really have the information needed to draw any conclusion.
- angelbob 16y ago
  A starvation budget is different for different people. If you have a mortgage, for instance, or Silicon Valley rent, it makes a huge difference in how much you have to make before you can even afford ramen :-)
dedward 16y ago
That would all be spelled out in whatever contracts came along with the influx of VC capital, wouldn't it? The whole point of a contract is to get down in writing the agreement between parties as to how things will be handled. If you expect,as the founder, to be able to take profits a certain way at a certain time... put it in writing. It won't happen magically.

kevinelliott 16y ago

I never will understand why any VC or hired-gun-big-name-CEO would actually expect founders to stay at a suffrage level and insist on dangled carrots of "big payout later when the IPO drops." It may never happen, and in fact, there's a huge chance it won't, and it's not always the founders fault. Sure, founders should make sacrifices, but as the author of this article said, when the payscales are adjusted due to an influx in capital or revenue, they should get some kind of raise.

hga 16y ago
Well, in this case, it's just part of consistently sending the signal of "“Who the hell do you think you guys are. You’re just the founders.” Truth in advertising and all that....
Tamerlin 16y ago
The compensation should have been skewed the other way. The founders had proven themselves, the CEO had not. Ergo, the salaries should have worked the other way around. Besides, the founders were hiring the CEO; his job was to work FOR THEM. Then again, if you look rationally at how companies work, all management is overhead by the nature of the job. Why should the OVERHEAD staff have the power to fire the people who actually earn the company money? The people who create the products or who bill their time to clients are obviously the people who matter the most to the company, yet those are the same people that most companies consider expendable. That's obviously backward, and not sustainable -- but it's probably also why the state of IT hasn't actually improved over the years. The best developers are either working to go independent or leave the field entirely. In some cases, both. That of course means that the companies that treat their staff that badly are ending up with exactly what they deserve: the leftovers. The ones that only got CS degrees because the universities lowered the bar for getting degrees.
- arethuza 16y ago
  By the time you have a few rounds of VC money the founders are effectively employees like anyone else - except that you happen to own a minority chunk of equity. Which might be worth something one day but has very little power.

grellas 16y ago

Relationships matter in business and how you treat people will redound to you in time for good or for bad. There would be no good reason normally for Mr. Blank not to refer good prospects to a particular world-class VC firm with which he had dealt except for this bad experience with one of its representatives. And I don't blame him. It is a classic case of reaping what you sow - the big-name partner for his condescending ways and the junior guy for his arrogance. It works the other way too. People can and do remember kindnesses and gracious acts from those who do them out of sincerity because they care about the people involved, even in a business context. It is just such acts that inspire the best of relationships that can last for decades.

hga 16y ago
Indeed, although it's more than just a "bad experience". It says something fundimental about the VC, his attitudes towards the people he funds, e.g. how much he respects them, which is not very much. Note the very important detail that this was a (very?) successful startup. Now imagine being a founder in one funded by this VC during a bad period (something much more likely outside of the dot.com bubble in which this happened). You don't want to be there and Mr. Blank's anti-reference will help those who listen to him.
ErrantX 16y ago
People can and do remember kindnesses and gracious acts from those who do them out of sincerity Some people just don't realise how many doors this opens.
- rdtsc 16y ago
  That is why it is good to never act condescending or disrespectful towards anyone. That kid that you made fun of during the interview for not knowing some obscure feature from C could be buying your company in 10 years and you could end up working for him. This is even more true in a relatively niche markets with a limited number of companies. Eventually everyones ends up knowing everyone, perhaps by meeting at trade shows or just word of mouth, and reputation and networking becomes very important. The same goodwill goes for customers as well. Our company is loved because we go out of our way to please the customer. Even the customers that are fussy, mean and ignorant. We work weekends and evening on site to get them up and they always put in a good word for us. Aside from having a good product that is the only reason we've been around for 17+ years.

erikstarck 16y ago

There's an interesting question in this post, namely when should you as a founder expect to get paid after an investment and how much? If you get money from the three Fs (friends, family, fools) as much as possible would go in to the development of the business. In this case probably your salary would be low if not non-existent. But for larger investments soon you reach a point where it's OK for you to take out even a decent salary and start living of the invested money. What's your opinion on where the thresholds are for different levels of salaries? For example, watching the BBC show Dragons Den, the investors always assume the founders will not use the invested money to pay themselves. These are investments in the $100K-$1M area.

gyardley 16y ago
This depends on how much money you already have lying around and what you decide in conjunction with your investors - but in general, you should have these discussions with your investors in advance, before you take their money. One tiny data point - my co-founder and I were personally strapped for cash when we raised seed. We paid ourselves $70K which for me was about half of my market rate at the time. After a Series A, we paid ourselves $100K, which our investors still said was 'below market'. After a Series B, I was no longer CEO, but I got paid market. In general, don't be a martyr. You're raising money to pay salaries, and that should include yours.
- cmelbye 16y ago
  This is probably the wrong place to ask this, but why do founders often give up the position of CEO after the startup is established and up and running?
  - gyardley 16y ago
    Heh - there's many, many reasons. In my case we merged with a competitor, and I believed the competitors' CEO was better at key aspects of his job (fundraising, providing motivating leadership) than I was.
  - hga 16y ago

megamark16 16y ago

I think a big part of wanting to start my own company is so that I can call the shots, or at least have some say in how things will be run. I'd rather bootstrap and build it slow and steady than have people push me around and treat me like dirt. If I wanted that I'd just keep working for other people.

patio11 16y ago
I'm more a fan of phrasing things as "freedom to X" rather than "freedom from X", at least as it regards entrepreneurship. Day jobs put food on the table and a roof over the head, and they're an honorable occupational choice, so I won't rag on them too badly. That said, having "freedom to be selective in whose advice I take to heart" is way up there on the things I like about this job. Taking money would mean having to be a wee bit less selective.
- megamark16 16y ago
  That's an excellent point, it really is about what you get, as apposed to what you are getting away from. I'm still at the day job myself (with a project on the side). In the end I suppose I'll always be trying to please someone (boss, investor, customer), so I'll just keep working towards having more freedom to do what I want.
  - zackattack 16y ago
    If you REALLY dedicate to pleasing ONLY yourself, you will end up pleasing a lot of people as well (and make money doing it).
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holdenc 16y ago

America has an ongoing corporate love affair with the "seasoned ceo." It's visible in the way that seasoned ceos hop from company to company leaving a wake of failures behind them. It's championed by advisory boards, venture capitalists and business schools. How this culture came to be I'll never know. I can only say that nearly every seasoned ceo and advisory board I have encountered lack the imagination, resourcefulness and depth of insight to grow a very small company.

hga 16y ago
I think you're using the word "America" more than a little too broadly. The inability to "grow a very small company" is hardly limited to small companies. E.g. look at the HP board starting a bit before they hired Carly. Or read Optical Illusions, a book on the failed spinoff of Lucent. AT&T insisted on putting a "seasoned CEO" of a diesel engine company in charge and the board was cut from much the same gray haired cloth. They knew how to handle the "being a public company" bit of things (talent which inside AT&T wasn't jumping to Lucent) but they were totally unable to provide adult supervision here it really counted. (I could go on, and am particularly interested in this having worked for Lucent in 2001; when I started out they had 106,000 employees, when I left they were targeting 35,000....)

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raganwald 16y ago

Two thoughts: 1. "Seasoned" CEOs with ridiculous packages are a little like wearing a dark suit to work. Everyone knows it doesn't matter, but it's a way of signaling that you're willing to play the game. That doesn't matter a whit when you're trying to sell products to customers, but it matters a great deal when your game plan is to create a certain illusion that someone else can flip to a third party. This is known as "Banking on the Greater Fool Theory." It's a game, and the other players want to know you're playing along. 2. You are just the founder. The VC's model is that they take your company, put their money into it, and then they decide how to spend their money. What's in it for them to spend their money on you personally? Be sure you have an amazingly persuasive argument before asking them to take their money and give you some of it. Never think of it as your company compensating you for value you put into it. Sorry, but even though those are the words everyone uses, that's not what is actually going on. Sorry for the gloom and doom, I'm off to have my first coffee of the day. Here's an old chuckle, I hope it makes up for my mouthful of lemons: http://news.ycombinator.com/item?id=10054 http://news.ycombinator.com/item?id=10054

hga 16y ago
"[Y]ou're willing to play the game." Although that brings up the question of "which game?" SarBox was the last nail in the coffin of the conventional IPO exit; with very rare "struck by lightening" exceptions that's just not in the cards anymore, and if it is it's something that will only come into play late in the game. Nowadays a "flip" is most often (only???) a sale to another high tech company, which if they have a clue will want the people as much or more than the technology (which if they have a clue they know is nearly worthless without the people). So, maybe this is mostly an obsolete thing for us to be worrying about. Sure, if you find yourself in a red hot company like Google or Facebook it'll come up, but it's sufficiently unlikely you probably don't have to wonder about it at all by default. (This is a rather jarring thing for me, I started working in 1980 in the Boston area and therefor witnessed up close last two decades of the old VC/IPO game plus heard all about the go-go 70s minicomputer days. The fact that's all gone is hard to adjust to.) Also, to get to this point the original founders may retain enough power and influence that it's less relevant.
- 16y ago

plinkplonk 16y ago

"so we got another younger partner in his firm with seemingly the right pedigree – engineering degree, MBA, lots of boards, etc. But as we would find out the hard way – zero experience as an entrepreneur." Do most (or even a majority of) venture capitalists have any experience as an entrepreneur? In India there are tonnes of VCs with just MBAs and no entrepreneurial experience at all. They fund mostly outsourcing companies so not much harm done. Still, makes me wonder..

eande 16y ago

As Steve said there are good investors and bad one. It is good to have a website like TheFunded.com where you can collect information if the VCs you are targeting or talk to is the right one or not.

klochner 16y ago

Anticipating a downvote on this one, but someone has to say it . . . Almost as an aside, he mentions "Luckily the company did go public". That's not an aside, that's the punchline. An alternative way of summarizing the anecdote would be: "I had an encounter with a dickish VC, but with his help I had an exit for tens of millions of dollars, so I'm not holding any grudges."

hga 16y ago
You're reading too much into the aside. Perhaps the greater context is "Luckily we retained the essential founders and despite what the new CEO did we went public and everyone succeeded in the short term".
- dagw 16y ago
  There seems to be a very important detail missing from the story. How good was the CEO and how vital was he in getting the company public and the making the founders and ton of cash? Sometimes those hired CEOs actually do work hard and more than earn their paycheck.

aneth 16y ago

Maybe just to be devils advocate, but: 1) It sounds like the CEO did in fact build a company that could go public and result in a cash-out for you, putting some of the cash you felt you deserved as a founder to good use and returning it to you many-fold. 2) You were in fact lucky to be making a "founder's salary." Many founder's don't make anything. While you may have been handled badly by a gruff VC, you also ended up with a smashing multi-million dollar exit, at least to a significant extent because of him and the CEO he brought in. I should think you would be at least a little grateful. To me it sounds like whining. Bottom line is, you were either naive enough to hire someone you didn't need for more than you needed to, or you were knowledgeable of critical deficits in your execution capabilities and you filled those, and gave up what it took to get there. Either way, the VC may have been right.

char 16y ago

I completely feel where this guy is coming from. My first startup had a small seed round of funding, in which the investors took less than 10%. They claimed to be investing in us (the founders), because they trusted us to do what it took to succeed. However, the "you're just founders" attitude kicked in shortly thereafter. When we wanted to launch our MVP, they wouldn't let us, for example. They wanted to run things "their way", despite the fact that we had the majority of shares (and they threatened us when we brought this up). It turns out that these people didn't actually trust us at all, and actually looked down on us for being young adults trying to build an idea. (If you haven't guessed already, the project failed). If they had only given us the respect we should have earned from the start from our previous hard work, we just might have succeeded doing things our way.

dedward 16y ago
Is there some reason a proper contract couldn't have prevented this in the beginning? If you sold off 10% to investors, then it's your fault, is it not, that you did not get the financial control you required out of the deal, allowing the VC to disproportionately influence the company in your eyes?
- hga 16y ago
  While I too would be interested in more details, there are certain types of people who if you let them get a toe hold in your company can effectively preclude future success. E.g.: They may be investing in tranches and you need future ones to launch. If you have a bad/impossible relationship with them, future or alternative investors will steer clear. They may be sufficiently nasty and wealthy that if you're successful, they'll sue you, or are at least making a credible threat to do so. It doesn't matter if you'd win if you don't have enough money to fight it. The contract may have specified certain milestones, which they then prevent you from hitting. Anyway, by and large contracts won't really protect you in a situation that gets ugly, their major purpose is to memorialize an agreement so that "but you said..." friction doesn't arise after an agreement has been made. Imagine how you might try to word a clause that starts with "In case of bad faith...", starting with the definition of that.

btilly 16y ago

None of the names were given, but I was curious how easy it would be to figure out which vulture capital firm left a bad taste. Because that's going to be a big question for any entrepreneur who reads this story. From http://steveblank.com/about/ http://steveblank.com/about/ I find out that his last company, E.piphany, was founded in 1996. The time periods match, and the fact that http://steveblank.com/category/epiphany/ http://steveblank.com/category/epiphany/ says that this story falls in category epiphany confirms it. According to http://www.fundinguniverse.com/company-histories/Epiphany-Inc-Company-History.html http://www.fundinguniverse.com/company-histories/Epiphany-In... the company had 2 rounds of venture capital, one in March 1997 and the other in January 1998. Then in May 1998 Roger Siboni joined E.piphany as president and CEO. So that would be the negotiation described. And the January 1998 round would be the one with the bad VC. Looking at http://ssb.brand.edgar-online.com/EFX_dll/EDGARpro.dll?FetchFilingHTML1?SessionID=nUbKWN0wLt94Sbh&ID=1342320 http://ssb.brand.edgar-online.com/EFX_dll/EDGARpro.dll?Fetch... I see that Douglas J. Mackenzie joined the board in January 1998 and was a member of Kleiner Perkins Caufield & Byers. He also had only been at the VC firm for a few years at that point, so he'd fit the description of "junior partner". I therefore believe that the VC firm that left the bad taste was Kleiner Perkins Caufield & Byers, and the man in the dealership very likely was Douglas J. Mackenzie. This took me less than 10 minutes to figure out.

sgrove 16y ago
I'm not sure if you're expecting a congratulatory note or not. I'm sure Steve Blank knew that people could find the identity if they really wanted to, and yet he chose not to share it. Having even a small hurdle to overcome means that the vast majority of people (most of whom don't need to know) would never really find out the identity of the bad VC. Thus he can tell his story, and retain some civility...until someone comes along and is a bit too eager to show off his google-fu.
- kragen 16y ago
  You know, almost everybody who reads Hacker News would benefit from knowing how Kleiner treats founders. This very much meshes with my experience with them at KnowNow, where I wasn't a founder but was a pre-funding employee. Ben's de-anonymization of Steve's story is a public service.

cmykgrayscale 16y ago

very sad to read all these cases where the VCs despotize the founders. People with money always make the calls. On an side note, is there a place where founders/developers discuss VCs and their experiences?

daniel-cussen 16y ago
Thefunded.com