6 ms·

"I have worked hard to get my founders as little as $25,000 to pay off credit cards and student loans. Or, in a small deal that closed this week, I was able to

by mixmax 16y ago

"I have worked hard to get my founders as little as $25,000 to pay off credit cards and student loans. Or, in a small deal that closed this week, I was able to get a founder the money so he can pay for his wedding and not have to worry about taking on debt." Am I the only one who finds this despicable, and probably bad business too? The one person in the company making the most sacrifices, taking the biggest risks and working the hardest is the one that can't even pay for his own wedding. Even when there are millions floating around in VC money.

mgkimsal 16y ago
In some ways it's not a sacrifice for those people. If someone got me an investment and paid for my wedding so I wouldn't have to, while getting to work on a project with VC connections, have I 'sacrificed' all that much? I get where you're going - there's plenty of 'entrepreneurs' (see earlier trending article) who give up stable jobs/raises/etc with no guarantee of a payoff. But the people who are getting VCs to pay off student loans aren't the ones making sacrifices (imo). One could turn this around from an investor's point of view too. If this kid can't manage her finances well enough so that they need a $20k 'quick fix' to pay off their credit cards, why should I invest my money in her idea, or even her as a person? How are they going to run a business? If I as an investor have to put up the money and put up the 'experience', perhaps I can find someone else with better financial skills.
- nhangen 16y ago
  Many times those credit cards are used to pay for basic living expenses and/or even to bootstrap the business. Having high cc debt does not mean they've been irresponsible. Seems to be a double standard here... Founders are expected to pour every ounce of their life into the business, which means they can't work a 9-5 to pay the bills. Yet having debt is considered a bad thing.
  - tptacek 16y ago
    Incurring untenable credit card debt for basic living expenses in the service of bootstrapping a company that ultimately needs VC funding is prima facie irresponsible. I'm not condemning it (I haven't been absolutely responsible with my own finances), but let's not sugarcoat it either.
    - mgkimsal 16y ago
      Thank you. Just wish I hadn't been downvoted for my views earlier :)
    - nhangen 16y ago
      I guess we'll have to agree to disagree.
- shrughes 16y ago
  $20k is hardly an irresponsible amount of debt. That's not something a year making software won't easily pay off.
staunch 16y ago
It's fair that the founders get a return on their investment when the investors do. Nothing despicable about. I do agree that letting founders cash out can be good though if it helps them aim higher.
tptacek 16y ago
The founders personal problems have nothing to do with the business. Venture capitalists are investors, not life partners. You are rewarded for success, not effort.
- nickpinkston 16y ago
  J/w Have you ever taken angel/VC money and poured your soul into your company? I suspect not because regardless of what rationally might tell you - it's all VERY personal and any investor worth their salt knows how much stress you're under and that reducing that burden, even in little ways, helps so much. I've lived this and have given even a little more a month to good people because they needed to pay off bills, etc. Just FWIW...
  - tptacek 16y ago
    I couldn't really understand this comment, but if the question is, have I, the cold-hearted asshole who made the parent comment, ever actually founded a company, taken money, and poured my life into it: yeah. Have. With VC and everything! As the article points out, there can be sensible reasons for letting the founders cash out. The conflict between early exit (that sets the founders up for life) and risky home-run (that meets the numbers the VC needs) is classic. I saw it firsthand in the last startup I worked for. It caused a palace coup that replaced the management team. I understand the issue. But what does that have to do with the question I responded to? Sorry, it's not despicable for investors to focus on their investment and not the personal problems of founders. (If I'm wrong about what you meant, let me know and I'll delete this comment; I'm not trying to be antagonistic.)
    - cabalamat 16y ago
      I can't reply for nickpinkston, but I suspect what he was getting at is that some practises of VCs could be seen as unethical. If someone is deliberately making other people's lives unpleasant in order to make themselves rich, most people would regard that as unethical, and that's what VCs are doing if they prevent founders from getting money in order to keep them "hungry".
keeptrying 16y ago
In my mind this should even be on termsheets. Especially when VC is involved as it increases the incentive for an entrepreneur to go for the biggest possible exit instead of settling for something in the 10's of millions so that he can fill up his bank balance which is tending to $0.
- tptacek 16y ago
  First, an 8-figure exit is a outlying success for an A-round funded company. It is the king-high straight of startup outcomes. Twitter drew quad jacks; Facebook got a straight flush. You aren't going to draw a straight flush. Don't benchmark outcomes that way. A $900,000 dollar (gasp!) payday would be enormously tempting to most startup founders. Second, you can't settle for a crappy exit your VC doesn't believe in. You sold them board seats. They will stop you, and then they will fire you. Are there companies with terms that make this less likely? Yes; they also got dealt pocket aces. Did you? My point? Why would VC's include cash-out terms for their typical investment? The whole investment is predicated on the idea that you're going to make their numbers.
  - jimbokun 16y ago
    "The whole investment is predicated on the idea that you're going to make their numbers." Serious question: at that point what is the qualitative difference with being an employee with lots of stock options? Isn't the point of being an entrepreneur that you get to drive the bus?
    - tptacek 16y ago
      An age-old question. The answer I've gotten is, "if you're making your numbers, you're driving the bus; when you stop making your numbers, your investors take over the bus".
      - mkramlich 16y ago
        My ideal is to not have investors. That way I'm always driving the bus. It may be a short bus. It may be a bus with nobody else in it. But it's my bus, I'm driving, there's no drama and no risk of losing control or getting screwed out of ownership. My ideal anyway. But I'm pragmatic so if there comes a situation that "fits" and where the positives massively outweigh negatives, so be it. Large enough amounts of money could get me to say, "Where do I sign?"
sp4rki 16y ago
Despicable in what way? If someone is putting millions on the line to help realize your dream (for profit of course) you should respect the fact that they're investing to keep the company afloat, not to make your life (as a founder) easier. People seem to equate not letting the founders cash out early with not letting them see a dime, which is not the case. They're getting paid (sort of) and in situations in which the company is no longer surviving on ramen they might even be well off in the grand scheme of things. Think about it this way. Why should you, the founder, be given say 20k to pay for a wedding, while a early employee has to pay for it out of his own pocket. This is not a case of investors not being 'fair' and their decisions being despicable, it's a case of investors making a judgement call on good faith for the benefit of the company (for profit...). Investors are not going to pay for your wedding as a founder because they're kind hearted or because it's the 'non-despicable' thing to do. They're going to invest in your personal life because it's a benefit for the business - plain and simple. No investor should feel they need to invest on you because it's morally correct (which is probably erroneous anyways), but if said investor feels there's a benefit to paying for your wedding/debt/porsche they will do it as a extra bit of investment on the company as a whole and not because it's a nice thing to do for your money making machine. My solution: Get married when you do have money to pay for it. Most people save for months if not years to do so, regardless of if you're living on pizza boxes or fancy restaurants.

by mixmax 16y ago

mgkimsal 16y ago

In some ways it's not a sacrifice for those people. If someone got me an investment and paid for my wedding so I wouldn't have to, while getting to work on a project with VC connections, have I 'sacrificed' all that much? I get where you're going - there's plenty of 'entrepreneurs' (see earlier trending article) who give up stable jobs/raises/etc with no guarantee of a payoff. But the people who are getting VCs to pay off student loans aren't the ones making sacrifices (imo). One could turn this around from an investor's point of view too. If this kid can't manage her finances well enough so that they need a $20k 'quick fix' to pay off their credit cards, why should I invest my money in her idea, or even her as a person? How are they going to run a business? If I as an investor have to put up the money and put up the 'experience', perhaps I can find someone else with better financial skills.

nhangen 16y ago
Many times those credit cards are used to pay for basic living expenses and/or even to bootstrap the business. Having high cc debt does not mean they've been irresponsible. Seems to be a double standard here... Founders are expected to pour every ounce of their life into the business, which means they can't work a 9-5 to pay the bills. Yet having debt is considered a bad thing.
- tptacek 16y ago
  Incurring untenable credit card debt for basic living expenses in the service of bootstrapping a company that ultimately needs VC funding is prima facie irresponsible. I'm not condemning it (I haven't been absolutely responsible with my own finances), but let's not sugarcoat it either.
  - mgkimsal 16y ago
    Thank you. Just wish I hadn't been downvoted for my views earlier :)
  - nhangen 16y ago
    I guess we'll have to agree to disagree.
shrughes 16y ago
$20k is hardly an irresponsible amount of debt. That's not something a year making software won't easily pay off.

staunch 16y ago

It's fair that the founders get a return on their investment when the investors do. Nothing despicable about. I do agree that letting founders cash out can be good though if it helps them aim higher.

tptacek 16y ago

The founders personal problems have nothing to do with the business. Venture capitalists are investors, not life partners. You are rewarded for success, not effort.

nickpinkston 16y ago
J/w Have you ever taken angel/VC money and poured your soul into your company? I suspect not because regardless of what rationally might tell you - it's all VERY personal and any investor worth their salt knows how much stress you're under and that reducing that burden, even in little ways, helps so much. I've lived this and have given even a little more a month to good people because they needed to pay off bills, etc. Just FWIW...
- tptacek 16y ago
  I couldn't really understand this comment, but if the question is, have I, the cold-hearted asshole who made the parent comment, ever actually founded a company, taken money, and poured my life into it: yeah. Have. With VC and everything! As the article points out, there can be sensible reasons for letting the founders cash out. The conflict between early exit (that sets the founders up for life) and risky home-run (that meets the numbers the VC needs) is classic. I saw it firsthand in the last startup I worked for. It caused a palace coup that replaced the management team. I understand the issue. But what does that have to do with the question I responded to? Sorry, it's not despicable for investors to focus on their investment and not the personal problems of founders. (If I'm wrong about what you meant, let me know and I'll delete this comment; I'm not trying to be antagonistic.)
  - cabalamat 16y ago
    I can't reply for nickpinkston, but I suspect what he was getting at is that some practises of VCs could be seen as unethical. If someone is deliberately making other people's lives unpleasant in order to make themselves rich, most people would regard that as unethical, and that's what VCs are doing if they prevent founders from getting money in order to keep them "hungry".

keeptrying 16y ago

In my mind this should even be on termsheets. Especially when VC is involved as it increases the incentive for an entrepreneur to go for the biggest possible exit instead of settling for something in the 10's of millions so that he can fill up his bank balance which is tending to $0.

tptacek 16y ago
First, an 8-figure exit is a outlying success for an A-round funded company. It is the king-high straight of startup outcomes. Twitter drew quad jacks; Facebook got a straight flush. You aren't going to draw a straight flush. Don't benchmark outcomes that way. A $900,000 dollar (gasp!) payday would be enormously tempting to most startup founders. Second, you can't settle for a crappy exit your VC doesn't believe in. You sold them board seats. They will stop you, and then they will fire you. Are there companies with terms that make this less likely? Yes; they also got dealt pocket aces. Did you? My point? Why would VC's include cash-out terms for their typical investment? The whole investment is predicated on the idea that you're going to make their numbers.
- jimbokun 16y ago
  "The whole investment is predicated on the idea that you're going to make their numbers." Serious question: at that point what is the qualitative difference with being an employee with lots of stock options? Isn't the point of being an entrepreneur that you get to drive the bus?
  - tptacek 16y ago
    An age-old question. The answer I've gotten is, "if you're making your numbers, you're driving the bus; when you stop making your numbers, your investors take over the bus".
    - mkramlich 16y ago
      My ideal is to not have investors. That way I'm always driving the bus. It may be a short bus. It may be a bus with nobody else in it. But it's my bus, I'm driving, there's no drama and no risk of losing control or getting screwed out of ownership. My ideal anyway. But I'm pragmatic so if there comes a situation that "fits" and where the positives massively outweigh negatives, so be it. Large enough amounts of money could get me to say, "Where do I sign?"

sp4rki 16y ago

Despicable in what way? If someone is putting millions on the line to help realize your dream (for profit of course) you should respect the fact that they're investing to keep the company afloat, not to make your life (as a founder) easier. People seem to equate not letting the founders cash out early with not letting them see a dime, which is not the case. They're getting paid (sort of) and in situations in which the company is no longer surviving on ramen they might even be well off in the grand scheme of things. Think about it this way. Why should you, the founder, be given say 20k to pay for a wedding, while a early employee has to pay for it out of his own pocket. This is not a case of investors not being 'fair' and their decisions being despicable, it's a case of investors making a judgement call on good faith for the benefit of the company (for profit...). Investors are not going to pay for your wedding as a founder because they're kind hearted or because it's the 'non-despicable' thing to do. They're going to invest in your personal life because it's a benefit for the business - plain and simple. No investor should feel they need to invest on you because it's morally correct (which is probably erroneous anyways), but if said investor feels there's a benefit to paying for your wedding/debt/porsche they will do it as a extra bit of investment on the company as a whole and not because it's a nice thing to do for your money making machine. My solution: Get married when you do have money to pay for it. Most people save for months if not years to do so, regardless of if you're living on pizza boxes or fancy restaurants.