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Maybe I'm missing something here, but it sounds like they aren't putting any skin in the game. The VC will benefit from all of the upside while literally taking

Maybe I'm missing something here, but it sounds like they aren't putting any skin in the game. The VC will benefit from all of the upside while literally taking none of the risk. How could this possibly be good for entrepreneurs? If someone approached me with this idea to help my startup, I would promptly move that email to my junk folder and stay focused on building a great product. If someone wants to invest money, sure I'd be happy to take it, but the last thing I need is more "advice" from armchair experts.

katzgrau 7y ago
> If someone approached me with this idea to help my startup, I would promptly move that email to my junk folder and stay focused on building a great product I'd advise you to let them give you a quick pitch by email and see if it sounds reasonable. As a founder, you have so much to learn. Be wise with your time, but don't shut out potential ideas from someone who says they want to help you. It's not every day (or any day, in my experience) that something like that happens.
- commoner 7y ago
  > someone who says they want to help you Why should a founder take a claim like that at face value? VCs are not charities, and their "potential ideas" are constructed with their own interests in mind. brenden2 has decided that this type of offer (giving away equity in exchange for services implemented by the VC's affiliates) is categorically unsuitable for his company. It's patronizing to assume that brenden2 is inexperienced for reaching this conclusion.
clintonb 7y ago
> The companies pay SEV in common stock shares, the same held by the startups' rank-and-file employees, and SEV's team, in turn, get paid salaries by the firm and also receive part of the firm's carry like a traditional venture model. The VC pays for employees. The company pays the VC in the form of stock. The risk to the VC is the stock they've received is worthless or worth less than the cash they have paid employees.
- kristianc 7y ago
  How much stock are they expecting though? The problem with a lot of ‘sweat equity’ models is that they’re often just a cost effective way to grab an outsize portion of a company on the back of a few hours a month of ‘Office Hours’ time. I don’t see how you can both give enough stock to make it meaningful to the VC without vastly overestimating the contribution of the VC team.
- unishark 7y ago
  So it's as if they give you funding in return for stock, but you can only use that funding to pay salary to their guys and nothing else.
  - WrtCdEvrydy 7y ago
    If you're missing a part of your team and they have a good person, I could see this paying off. Finding the right person could take time and money you don't have.
  - cwp 7y ago
    First, most of the money raised by early-stage software startups goes to salary anyway, so that's not as restrictive as it sounds. Second, you didn't have to do any recruiting. This is huge. Recruiting soaks up the time of existing employees who could be working on the product. It takes money for ads, sourcing, sponsorships etc. It takes calendar weeks or months before you actually get somebody to start, which is a big opportunity cost to a start up. And it's hard. If you have first-time founders, not knowing how to recruit effectively is probably one of the biggest risks the company faces.
    - nordsieck 7y ago
      > First, most of the money raised by early-stage software startups goes to salary anyway, so that's not as restrictive as it sounds. > Second, you didn't have to do any recruiting. This is huge. Recruiting soaks up the time of existing employees who could be working on the product. It takes money for ads, sourcing, sponsorships etc. It takes calendar weeks or months before you actually get somebody to start, which is a big opportunity cost to a start up. And it's hard. If you have first-time founders, not knowing how to recruit effectively is probably one of the biggest risks the company faces. That does actually sound really good, at least in the beginning. I think it could lead to some awkwardness if the start up sees success and needs to expand (which company are the VC funded employees loyal to?), but those are good problems to have.
twblalock 7y ago
> Maybe I'm missing something here, but it sounds like they aren't putting any skin in the game. The VC will benefit from all of the upside while literally taking none of the risk. They funded the company and they could lose their money if the company fails. That's their risk. Now they are trying to help the company build a team and somehow that's a bad thing?
- Sebguer 7y ago
  Because the entire point of this exercise is not funding the company? It's not "fund the company AND build a team", it's offer this instead of funding the company, as a separate thing.
  - twblalock 7y ago
    The VCs pay for the team: > The companies pay SEV in common stock shares, the same held by the startups' rank-and-file employees, and SEV's team, in turn, get paid salaries by the firm and also receive part of the firm's carry like a traditional venture model. This is an exchange of money (to pay salaries, which is what a lot of VC money eventually gets used for) for equity. In other words, it's VC funding. It might look a little different than normal but that doesn't mean it's not funding.
jorblumesea 7y ago
> The VC will benefit from all of the upside while literally taking none of the risk. VCs provide 100% of the funding, so they're taking the risk, at least for that individual company. I understand VC return is amortized off all their investments. But to say that VCs have no skin in the game isn't entirely accurate. If you accept stock and a paycheck from a startup, that's VC money.

katzgrau 7y ago

> If someone approached me with this idea to help my startup, I would promptly move that email to my junk folder and stay focused on building a great product I'd advise you to let them give you a quick pitch by email and see if it sounds reasonable. As a founder, you have so much to learn. Be wise with your time, but don't shut out potential ideas from someone who says they want to help you. It's not every day (or any day, in my experience) that something like that happens.

commoner 7y ago
> someone who says they want to help you Why should a founder take a claim like that at face value? VCs are not charities, and their "potential ideas" are constructed with their own interests in mind. brenden2 has decided that this type of offer (giving away equity in exchange for services implemented by the VC's affiliates) is categorically unsuitable for his company. It's patronizing to assume that brenden2 is inexperienced for reaching this conclusion.

clintonb 7y ago

> The companies pay SEV in common stock shares, the same held by the startups' rank-and-file employees, and SEV's team, in turn, get paid salaries by the firm and also receive part of the firm's carry like a traditional venture model. The VC pays for employees. The company pays the VC in the form of stock. The risk to the VC is the stock they've received is worthless or worth less than the cash they have paid employees.

kristianc 7y ago
How much stock are they expecting though? The problem with a lot of ‘sweat equity’ models is that they’re often just a cost effective way to grab an outsize portion of a company on the back of a few hours a month of ‘Office Hours’ time. I don’t see how you can both give enough stock to make it meaningful to the VC without vastly overestimating the contribution of the VC team.
unishark 7y ago
So it's as if they give you funding in return for stock, but you can only use that funding to pay salary to their guys and nothing else.
- WrtCdEvrydy 7y ago
  If you're missing a part of your team and they have a good person, I could see this paying off. Finding the right person could take time and money you don't have.
- cwp 7y ago
  First, most of the money raised by early-stage software startups goes to salary anyway, so that's not as restrictive as it sounds. Second, you didn't have to do any recruiting. This is huge. Recruiting soaks up the time of existing employees who could be working on the product. It takes money for ads, sourcing, sponsorships etc. It takes calendar weeks or months before you actually get somebody to start, which is a big opportunity cost to a start up. And it's hard. If you have first-time founders, not knowing how to recruit effectively is probably one of the biggest risks the company faces.
  - nordsieck 7y ago
    > First, most of the money raised by early-stage software startups goes to salary anyway, so that's not as restrictive as it sounds. > Second, you didn't have to do any recruiting. This is huge. Recruiting soaks up the time of existing employees who could be working on the product. It takes money for ads, sourcing, sponsorships etc. It takes calendar weeks or months before you actually get somebody to start, which is a big opportunity cost to a start up. And it's hard. If you have first-time founders, not knowing how to recruit effectively is probably one of the biggest risks the company faces. That does actually sound really good, at least in the beginning. I think it could lead to some awkwardness if the start up sees success and needs to expand (which company are the VC funded employees loyal to?), but those are good problems to have.

twblalock 7y ago

> Maybe I'm missing something here, but it sounds like they aren't putting any skin in the game. The VC will benefit from all of the upside while literally taking none of the risk. They funded the company and they could lose their money if the company fails. That's their risk. Now they are trying to help the company build a team and somehow that's a bad thing?

Sebguer 7y ago
Because the entire point of this exercise is not funding the company? It's not "fund the company AND build a team", it's offer this instead of funding the company, as a separate thing.
- twblalock 7y ago
  The VCs pay for the team: > The companies pay SEV in common stock shares, the same held by the startups' rank-and-file employees, and SEV's team, in turn, get paid salaries by the firm and also receive part of the firm's carry like a traditional venture model. This is an exchange of money (to pay salaries, which is what a lot of VC money eventually gets used for) for equity. In other words, it's VC funding. It might look a little different than normal but that doesn't mean it's not funding.

jorblumesea 7y ago

> The VC will benefit from all of the upside while literally taking none of the risk. VCs provide 100% of the funding, so they're taking the risk, at least for that individual company. I understand VC return is amortized off all their investments. But to say that VCs have no skin in the game isn't entirely accurate. If you accept stock and a paycheck from a startup, that's VC money.