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> 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 a

> 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.
- commoner 7y ago
  There is no reason a rational company would prefer VC scrip (described here as "value-adding services") over a comparable amount of actual cash, since the former is restricted and not certain to benefit the company. This arrangement also creates a conflict of interest, since the VC is planting decision makers into the company that primarily serve the VC's interests, and not necessarily the founder's or the company's interests. Any founder who receives such an offer should consider whether it's worth giving up equity for the B2B equivalent of a gift card redeemable only for services that may benefit, but may also harm the founder's interests in the company.

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.
commoner 7y ago
There is no reason a rational company would prefer VC scrip (described here as "value-adding services") over a comparable amount of actual cash, since the former is restricted and not certain to benefit the company. This arrangement also creates a conflict of interest, since the VC is planting decision makers into the company that primarily serve the VC's interests, and not necessarily the founder's or the company's interests. Any founder who receives such an offer should consider whether it's worth giving up equity for the B2B equivalent of a gift card redeemable only for services that may benefit, but may also harm the founder's interests in the company.