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What do the investors get out of this if Sarah is never going to sell it?
by rewind 15y ago
What do the investors get out of this if Sarah is never going to sell it?
- diego 15y agoDividends? That would be a novel concept.
- rewind 15y agoOnly if the dividends are going to return 10-100x over the lifetime of the investment.
- jonknee 15y agoDividend paying investments can still be sold, so the dividends themselves don't have to return 10x.
- rewind 15y agoBut doesn't that bring us back to the issue of who would buy those investments off the original investors if there is never going to be a liquidation event?
- waitwhat 15y agoHave you looked at the bond markets recently? Total return doesn't need to be 1,000-10,000% to make a good investment.
- rewind 15y agoWe're talking about early-stage investors and what they expect from an investment when they put their money into a startup.
- robryan 15y agoI think it's kind of like color, this team has been around for a long time, proven themselves and probably know most SV seed investors. To convince a lot of them to each make a small investment shouldn't be to hard.
- kevinpet 15y agoYou realize that the whole premise of selling a company for 10-100x is that the buyer believes the dividends will in fact exceed that, right?
- rewind 15y agoI don't understand what's so complicated about my original question. She says she's not going to sell the company. It's reported that she took $2.5M. Let's say she gave up 50% of the company for that (which I'm sure she didn't). And let's assume that the investors want their return within the next ten years (they probably want it sooner). And let's assume it's 10x. So these are ALL very conservative numbers for early stage investors. Let's say she ends up with 50% net profit (never gonna happen). And let's say she pays out 100% of profits as dividends (never gonna happen). That means the investors have to average $2.5M/yr in dividends over the next ten years, which means she has to be doing $10M in gross per year, on average, with 50% in profit. For a tech blog, I think most people will agree this is probably beyond unreasonable. And remember, she said she's never going to sell it. So again, all I'm asking is where are the investors supposed to get their returns?
- nl 15y agoIt is a good question, your analysis is correct and I don't know why you are getting down votes. I suspect the answer is three-fold. 1) Investors hope to get returns on private markets. Private markets provide a lot of liquidity these days. 2) Investors (and people who buy on private markets) hope that Sarah means "I want to retain control" when she says "I don't want to sell". It is a reasonable intepretation, and can provide excellent returns (did the Google guys "sell"? Did Zuck? Murdoch?) 3) Investors have a long term investment timeframe. They hope in 10 years time she feels differently.
- staunch 15y agoA return when she changes her mind. The biggest risk is that the company will fail, not that it will be a big success and she'll turn down obscene amounts of money.
- flardinois 15y agomy cynical answer: better/more coverage of the startups they fund?
- sbarre 15y agoIn the same breath that she proclaims she won't sell, she pretty much hedges herself and says she reserves the right to change her mind.
- tstegart 15y agoAccess. Probably worth a lot more than their original investment. EDIT: I forgot to wish her good luck. Good luck!
- rokhayakebe 15y agoThe minute she writes about the companies they have invested in, they got their money. We all know that the hardest problem for a startup is user acquisition.
- ChrisNorstrom 15y agoMoney in advertising, emotional value, ticket sales from conferences, etc...