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You are wrong. But its not the business that you don't understand, its people. The age-old adage, "There's two kinds of people in the world..." applies to an e

You are wrong. But its not the business that you don't understand, its people. The age-old adage, "There's two kinds of people in the world..." applies to an enormous amount of traits, but here's one where its exceptionally true: The kind of people who become VCs and have billions of dollars of AUM (assets under management) understand time-value of money calculations, and they understand them almost intuitively. $800,000 sounds like an enormous sum for most people, because for 99% of Americans, $800,000 is life-changing money. It pays off your entire mortgage, or most of it. It sends all your kids to college. It pays for their private schooling. For the venture capital firm, $800,000 represents a minor clerical error. Even discounting the goodwill that this displays, engaging the machinery to recoup this $800,000 investment will incur significant financial costs, but more importantly, it incurs opportunity costs. Sometimes its better to just flush the money down the toilet and move on.

jariel 6y ago
"engaging the machinery to recoup this $800,000 investment will incur significant financial costs, " ? How? They write 1x participation into most contracts, and that's the normative expectation. It's not a 'legal battle' is literally a normal transaction between parties. $1M is not 'nothing' to a firm with $500M under management - that $500M is not their money, it's other people's money. If they are getting a %10 return for their LPs at $50M a year, and they are keeping 20% of the upside, which is $10M. So the $1M loss comes out of the fund, not their pockets, but still, $10M/year gross revenue doesn't 'feel' like a huge company now does it? A lot of these VC's are just 'rich' not 'rich rich' like mega-exist founders, just for some perspective.
- ska 6y ago
  I think it's a mistake to assume that the VC had the choice between this deal with our 800k recouped, or the same deal without it. The real choice was likely this deal where we let the 800k go, or future uncertainty. This isn't "rich people don't care about 800k". This is more like "400k write down makes sense at this time".
  - bigiain 6y ago
    > The real choice was likely this deal where we let the 800k go, or future uncertainty And not just "future uncertainty", but "the future of a company that's spent 7 years trying and doesn't look any closer to launching the rocketship, who's founder is onto his second attempt to sell out, and clearly is out of enthusiasm and ideas". There was no 3x or even 2x future here for them, certainly no 100x - there was just another 2, 5, or 10 years of slow flameout with a 0x - or a quick and tidy 0x with a significant PR goodwill upside.
    - jariel 6y ago
      No, the 'spin' of the founder puts on this makes no sense - by your very own logic. >>>> If there was 'no future good outcome' for the company then in what way is the founder's 'threat' to 'not sell' credible in any way? <<<<< Why would he 'march on for 5 more years with little hope of exit' (by your very own projection?) He's threatening to 'not sell' and therefore probably end up with $0? That's an empty threat - and it's also acting agains the best interest of shareholders, which is his legal duty. The situation is obvious: They have an offer for $4M, it's probably their only way out, it's a nice 'few million' for the founder, the investors get their 1x participating + a tiny bit. That's it. It's not uncommon. What kind of person would even think to sell a company 'on the premise that the other investors get nothing'? He basically told the investors to bugger off and that's that. 'There is no significant goodwill' for the investors. There is however some 'bad PR' for the founder unfortunately. It's plain as day.
      - bigiain 6y ago
        > He basically told the investors to bugger off and that's that. No, He asked, they agreed. There’s clearly something they both know that we don’t, and the outcome that happened happened. I guess it’s just as easy and valid for you to interpret it as being a bad thing, as it is for me to interpret it as a good thing. Only the VCs really know, I guess.

jariel 6y ago

"engaging the machinery to recoup this $800,000 investment will incur significant financial costs, " ? How? They write 1x participation into most contracts, and that's the normative expectation. It's not a 'legal battle' is literally a normal transaction between parties. $1M is not 'nothing' to a firm with $500M under management - that $500M is not their money, it's other people's money. If they are getting a %10 return for their LPs at $50M a year, and they are keeping 20% of the upside, which is $10M. So the $1M loss comes out of the fund, not their pockets, but still, $10M/year gross revenue doesn't 'feel' like a huge company now does it? A lot of these VC's are just 'rich' not 'rich rich' like mega-exist founders, just for some perspective.

ska 6y ago
I think it's a mistake to assume that the VC had the choice between this deal with our 800k recouped, or the same deal without it. The real choice was likely this deal where we let the 800k go, or future uncertainty. This isn't "rich people don't care about 800k". This is more like "400k write down makes sense at this time".
- bigiain 6y ago
  > The real choice was likely this deal where we let the 800k go, or future uncertainty And not just "future uncertainty", but "the future of a company that's spent 7 years trying and doesn't look any closer to launching the rocketship, who's founder is onto his second attempt to sell out, and clearly is out of enthusiasm and ideas". There was no 3x or even 2x future here for them, certainly no 100x - there was just another 2, 5, or 10 years of slow flameout with a 0x - or a quick and tidy 0x with a significant PR goodwill upside.
  - jariel 6y ago
    No, the 'spin' of the founder puts on this makes no sense - by your very own logic. >>>> If there was 'no future good outcome' for the company then in what way is the founder's 'threat' to 'not sell' credible in any way? <<<<< Why would he 'march on for 5 more years with little hope of exit' (by your very own projection?) He's threatening to 'not sell' and therefore probably end up with $0? That's an empty threat - and it's also acting agains the best interest of shareholders, which is his legal duty. The situation is obvious: They have an offer for $4M, it's probably their only way out, it's a nice 'few million' for the founder, the investors get their 1x participating + a tiny bit. That's it. It's not uncommon. What kind of person would even think to sell a company 'on the premise that the other investors get nothing'? He basically told the investors to bugger off and that's that. 'There is no significant goodwill' for the investors. There is however some 'bad PR' for the founder unfortunately. It's plain as day.
    - bigiain 6y ago
      > He basically told the investors to bugger off and that's that. No, He asked, they agreed. There’s clearly something they both know that we don’t, and the outcome that happened happened. I guess it’s just as easy and valid for you to interpret it as being a bad thing, as it is for me to interpret it as a good thing. Only the VCs really know, I guess.