3 ms·

they don't invest cash they get paid a salary and get options on the upside

by fredwilson 16y ago

deleted 16y ago
[deleted]
johnrob 16y ago
Do they understand that? I think they believe those options are worth more than they really are.
- frederickcook 16y ago
  Their stock is the same class as the founders. Everyone who had options in Slide also made money proportionate to Levchin, which is better than the investors did, who made nothing. (This assumes early, cheap options. Later ones may have lost money and be worthless.) The situation the OP is referring to is when the founder decides not to sell the company or IPO, or makes a poor decision about when. With the former, there is no liquidity and stock in a private company with no liquidity or profit sharing is pretty useless. If a company takes VC investment, it is basically committing to sell or IPO at some point (VC wants control to ensure this), ensuring the options will at some point be liquid. So, technically, having a VC with board control could be a good thing in some situations to ensure that the founder doesn't get any ideas about building a "lifestyle" company and that everyone gets a payday at some point.
  - tptacek 16y ago
    Preferences address the problem opposite to "lifestyle companies" (which, by the way, is a silly term). Preferences cover the case where the founder wants to ditch the company in a "cheap" acquisition instead of rolling the dice on the investment return the VC bought into.
    - starkfist 16y ago
      "Lifestyle company" now seems to mean any business built without the intention of making money for a board of investors...
abstractbill 16y ago
This isn't always true - they do invest cash if they buy their stock (as I did when I joined justin.tv, and many of my friends have done when joining early-stage startups).
JoachimSchipper 16y ago
But they typically acccept a sub-market salary - which could be considered an investment of the "lost" salary.

they don't invest cash they get paid a salary and get options on the upside

deleted 16y ago

[deleted]

johnrob 16y ago

Do they understand that? I think they believe those options are worth more than they really are.

frederickcook 16y ago
Their stock is the same class as the founders. Everyone who had options in Slide also made money proportionate to Levchin, which is better than the investors did, who made nothing. (This assumes early, cheap options. Later ones may have lost money and be worthless.) The situation the OP is referring to is when the founder decides not to sell the company or IPO, or makes a poor decision about when. With the former, there is no liquidity and stock in a private company with no liquidity or profit sharing is pretty useless. If a company takes VC investment, it is basically committing to sell or IPO at some point (VC wants control to ensure this), ensuring the options will at some point be liquid. So, technically, having a VC with board control could be a good thing in some situations to ensure that the founder doesn't get any ideas about building a "lifestyle" company and that everyone gets a payday at some point.
- tptacek 16y ago
  Preferences address the problem opposite to "lifestyle companies" (which, by the way, is a silly term). Preferences cover the case where the founder wants to ditch the company in a "cheap" acquisition instead of rolling the dice on the investment return the VC bought into.
  - starkfist 16y ago
    "Lifestyle company" now seems to mean any business built without the intention of making money for a board of investors...

abstractbill 16y ago

This isn't always true - they do invest cash if they buy their stock (as I did when I joined justin.tv, and many of my friends have done when joining early-stage startups).

JoachimSchipper 16y ago

But they typically acccept a sub-market salary - which could be considered an investment of the "lost" salary.