3 ms·

I don’t get it. How does it help to avoid principal agent problem. The link also states it as a fact with no explanation.

• theamk 8y ago
  The link says: > This relies on the theory that startups goal is to grow a 100 times or die — so small continuous extractions by the executives are ruled out. I interpret it as following: if the regular company earns $1 million/year, then an executive stealing $500k/year by making deals with friends will make investor's return much smaller. But in a startup, it does not matter -- if the it fails, it would simply fail slightly earlier. And if it succeeds, then it would earn $100 million/year, and $500k/year that executive steals will be a small, insignificant change. (I am not personally convinced this is true, but this is how I interpreted that article)
  • jgalt212 8y ago
    I guess, but why steal $500K a year, when you can steal millions? Certain insider deals from a certain very large unicorn are what I'm thinking about.
    • zby 8y ago
      VC investing is on a spectrum - at companies already at the unicorn stage it is more private equity than what happens at earlier stages. Also now partial liquidity events for the founders are a standard. They improve the incentives alignment at these later stages.
  • zby 8y ago
    There is one more additional thing: graft also takes effort, the easy things are also easy to control. The founder can either work on the startup or on the extractions. The point is to make the extractions relatively less attractive than the success of the startup.