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Your VC Needs a Billion Dollar Exit. You Do Not

29 points by yarapavan 8y ago

paulddraper 8y ago
Your VC needs a billion dollar exit and would like you to be that exit but does not need you to be that exit.
Felz 8y ago
I'm surprised that founders preferred stock classes aren't more common. They allow founders to sell a small percent of their stock to investors, enough that they don't have to worry about money, and start caring more about big exits. Aligning incentives is powerful. Early employees probably need this too. If you really want smart talent (and you should, you really need it), you should stop trying to screw them. I think there might be vestiture reasons this might be difficult though (last I checked founders prefersed can't be subject to vesting).
- thebradbain 8y ago
  Is this not already common? I had presumed it would be how many founders make a decent chunk of money pre-exit.
- mmt 8y ago
  > Early employees probably need this too. If you really want smart talent (and you should, you really need it), you should stop trying to screw them. More so than founders, since those employees, in general, have no say in what happens to the common stock, such as dilution into worthlessness. It doesn't have to be (and probably shouldn't be) all-or-nothing, since the point would be to align incentives in both the ideal/IPO situation and the less than ideal M&A situation.
gringoDan 8y ago
I've grown more and more disillusioned with VC over time. In my mind, there is a fundamental incentive misalignment between venture capitalists and founders. As the article mentioned, the VC business model is to look for the 100x return, so they will encourage/force founders to make high-risk/high-reward decisions. However, a smaller exit could be life-changing for a founder. While VCs have a portfolio of investments such that the big wins offset the losses, as a founder you only have one company and one life. You're not diversified, making the downside risk much higher, especially if you're spending 5+ years of your life working on a company that you're emotionally invested in. John Mackey, founder of Whole Foods, has a great quote on this: “Venture capitalists are like hitchhikers with credit cards. As long as you take them where they want to go, they’ll pay for the gas. If not, they take over the car and throw you out.”
turc1656 8y ago
"At Founder Collective, we’ve invested in 270 companies, and only one has gone public so far. Of the rest, 30 have gone out of business, 60 have been acquired, with the remainder are still in operation. The reality is that when starting a company, the most likely outcomes are bankruptcy or acquisition." 90/270 is not a majority. Sure, I get it that the fate of some of the remaining has yet to be determined but it doesn't seem like the "most likely" outcomes are bankruptcy or acquisition. If anything, sounds more like 50% chance you remain in business (after you account for the fate of the remaining companies).
- icedchai 8y ago
  Out of that 50%, how many are making any real money?

29 points by yarapavan 8y ago

Your VC needs a billion dollar exit and would like you to be that exit but does not need you to be that exit.

Felz 8y ago

I'm surprised that founders preferred stock classes aren't more common. They allow founders to sell a small percent of their stock to investors, enough that they don't have to worry about money, and start caring more about big exits. Aligning incentives is powerful. Early employees probably need this too. If you really want smart talent (and you should, you really need it), you should stop trying to screw them. I think there might be vestiture reasons this might be difficult though (last I checked founders prefersed can't be subject to vesting).

thebradbain 8y ago
Is this not already common? I had presumed it would be how many founders make a decent chunk of money pre-exit.
mmt 8y ago
> Early employees probably need this too. If you really want smart talent (and you should, you really need it), you should stop trying to screw them. More so than founders, since those employees, in general, have no say in what happens to the common stock, such as dilution into worthlessness. It doesn't have to be (and probably shouldn't be) all-or-nothing, since the point would be to align incentives in both the ideal/IPO situation and the less than ideal M&A situation.

gringoDan 8y ago

I've grown more and more disillusioned with VC over time. In my mind, there is a fundamental incentive misalignment between venture capitalists and founders. As the article mentioned, the VC business model is to look for the 100x return, so they will encourage/force founders to make high-risk/high-reward decisions. However, a smaller exit could be life-changing for a founder. While VCs have a portfolio of investments such that the big wins offset the losses, as a founder you only have one company and one life. You're not diversified, making the downside risk much higher, especially if you're spending 5+ years of your life working on a company that you're emotionally invested in. John Mackey, founder of Whole Foods, has a great quote on this: “Venture capitalists are like hitchhikers with credit cards. As long as you take them where they want to go, they’ll pay for the gas. If not, they take over the car and throw you out.”

turc1656 8y ago

"At Founder Collective, we’ve invested in 270 companies, and only one has gone public so far. Of the rest, 30 have gone out of business, 60 have been acquired, with the remainder are still in operation. The reality is that when starting a company, the most likely outcomes are bankruptcy or acquisition." 90/270 is not a majority. Sure, I get it that the fate of some of the remaining has yet to be determined but it doesn't seem like the "most likely" outcomes are bankruptcy or acquisition. If anything, sounds more like 50% chance you remain in business (after you account for the fate of the remaining companies).

icedchai 8y ago
Out of that 50%, how many are making any real money?