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> VC Funding Means You Will Sell Your Company > Remember when I wrote earlier that the VC dudes definition of “making everyone happy” after investing in your c

> VC Funding Means You Will Sell Your Company > Remember when I wrote earlier that the VC dudes definition of “making everyone happy” after investing in your company doesn’t mean making it profitable? So now you might ask: Okay, so what do my VC investors want? ... They want to make a lot more money. > ... > Now, all of this might be none of your business, you might think. But it is! Because now the inevitable consequence, once you’ve taken VC funding, is that the objective of your company has changed: You’re no longer building your company the way you like it. You’re building your and the VCs company so that they can sell it, for a price higher than the one they paid. There are no alternatives. The course is set. You’re building to sell. Why? Why do you have to respect the VCs' desires? Why can't you take VC funding, then use it to build a company that yields modest returns and live a comfortable life running it (and paying modest dividends to the VCs that over a few years return their investment)? Doing so would (I presume) not constitute any kind of breach of fiduciary duty, so what right can the VCs possibly have to enforce their preference for a more aggressive strategy? People commenting on startups often imply - like in the quote above - that VC investors ultimately control any business they invest in, and not the founding CEO, even when that founding CEO holds the majority of the voting stock. This strikes me as bullshit. At least, nobody ever spells out the mechanism of control, and their inability to do so makes me think they don't know what they're talking about. If I'm right that the narrative of VC control is bullshit, then what's the alternative explanation for why CEOs so often choose to pursue aggressive growth and sell their "babies"? Simple: the CEOs themselves want big money. It's not that the evil VCs are forcing the CEOs to do something they'd rather not do. It's that the VCs and CEOs are aligned in their objectives in the first place.

jaysinn_420 3y ago
Because as part of the VC investment, they are also taking positions on the board of your company. Maybe enough of a position that they can oust you if you don't do as they "suggest". Also, one round of funding is rarely the end of it, and if you are demonstrating that you are not playing their game and trying to become a Unicorn, then you will not get a second round of funding. Why do you think VC control is bullshit?
- adamzerner 3y ago
  That makes sense to me that in these two particular situations they have leverage. But what if they don't have enough board seats and you also aren't looking to raise a subsequent round? It sounds like then they don't really have leverage, right? If so, it seems easy enough to guard against the risk that VCs end up with too much leverage over you.
- XCabbage 3y ago
  Hmm. I can believe this happens, but definitely not all VC investors take board seats. In fact I'm not aware of this having happened at any of the 5 startups I've worked for in my career, despite having at least partial knowledge of who made up the board of 3 of them (for at least 1 of whom I know the entire board membership and can say with certainty there were no VC plants on it). Would be interested in stats on how normal this is or information about VCs' policies on it.
- kijin 3y ago
  > then you will not get a second round of funding. A couple of years ago when the VCs were throwing money around like crazy, I had this bright idea that perhaps all I'm ever going to need is a single round of funding. Use the money to put the company on a modestly profitable track, cut the head count, cut the cloud costs, eliminate the office, and cruise along indefinitely. Just like passive income, but on a corporate scale. The reason this doesn't work is that the market changes very, very quickly in our industry. You can't just put your app on cruise control and expect a consistent ARR forever. As soon as some other VC finds out that you aren't making an "optimal" use of your money, they'll invest in a competitor who will eat you alive for breakfast.
stocknoob 3y ago
https://www.holloway.com/g/venture-capital/sections/how-vcs-can-control-your-company# https://www.holloway.com/g/venture-capital/sections/how-vcs-...
deleted 3y ago
[deleted]
verdagon 3y ago
I know nothing on this topic so perhaps a naive question but: what about the employees? I imagine part of their TC was in stock, so if I was a CEO I'd feel pretty motivated to reward my employees, who quite literally bet their family's income on me (and indirectly, their retirement and kids' college funds and inheritance etc.)
- knightofmars 3y ago
  Lots of people say they would do the right thing when a situation arises that requires it. But the greedy part of the human brain is very good at rationalizing why the altruistic path isn't the best path. Imagine an inner dialogue, "Why should I settle for 10 million dollars instead of 50 million? I own the company, I made the most sacrifices, everyone else just road my coattails to success. They'll still get something but I deserve the most." This is why we should never trust anything that isn't in writing. No matter how many times someone promises to "do good by you" there will be a moment where that promise won't mean a thing or will be interpreted to have meant something different.
- bombolo 3y ago
  If you work at a startup and you expect the stocks to be worth anything in 10 years you're an idiot.
  - DeathArrow 3y ago
    You mean FAANGS hired a lot of idiots when they started?
    - bombolo 3y ago
      For 1 FAANGS there are millions of failed ones, and you don't know what'll be. So if the salary isn't decent, better to refuse the job rather than hope the stocks will eventually compensate you for the missed salary.
Centigonal 3y ago
Many VCs take board seats, allowing them to replace the CEO
- dustingetz 3y ago
  also google "Series A Exit Clause"
zrail 3y ago
The control is the desire to hold open the option for future funding rounds. If you gain a reputation for not caring what the VCs think then they won't want to invest in future rounds.

jaysinn_420 3y ago

Because as part of the VC investment, they are also taking positions on the board of your company. Maybe enough of a position that they can oust you if you don't do as they "suggest". Also, one round of funding is rarely the end of it, and if you are demonstrating that you are not playing their game and trying to become a Unicorn, then you will not get a second round of funding. Why do you think VC control is bullshit?

adamzerner 3y ago
That makes sense to me that in these two particular situations they have leverage. But what if they don't have enough board seats and you also aren't looking to raise a subsequent round? It sounds like then they don't really have leverage, right? If so, it seems easy enough to guard against the risk that VCs end up with too much leverage over you.
XCabbage 3y ago
Hmm. I can believe this happens, but definitely not all VC investors take board seats. In fact I'm not aware of this having happened at any of the 5 startups I've worked for in my career, despite having at least partial knowledge of who made up the board of 3 of them (for at least 1 of whom I know the entire board membership and can say with certainty there were no VC plants on it). Would be interested in stats on how normal this is or information about VCs' policies on it.
kijin 3y ago
> then you will not get a second round of funding. A couple of years ago when the VCs were throwing money around like crazy, I had this bright idea that perhaps all I'm ever going to need is a single round of funding. Use the money to put the company on a modestly profitable track, cut the head count, cut the cloud costs, eliminate the office, and cruise along indefinitely. Just like passive income, but on a corporate scale. The reason this doesn't work is that the market changes very, very quickly in our industry. You can't just put your app on cruise control and expect a consistent ARR forever. As soon as some other VC finds out that you aren't making an "optimal" use of your money, they'll invest in a competitor who will eat you alive for breakfast.

stocknoob 3y ago

https://www.holloway.com/g/venture-capital/sections/how-vcs-can-control-your-company# https://www.holloway.com/g/venture-capital/sections/how-vcs-...

deleted 3y ago

[deleted]

verdagon 3y ago

I know nothing on this topic so perhaps a naive question but: what about the employees? I imagine part of their TC was in stock, so if I was a CEO I'd feel pretty motivated to reward my employees, who quite literally bet their family's income on me (and indirectly, their retirement and kids' college funds and inheritance etc.)

knightofmars 3y ago
Lots of people say they would do the right thing when a situation arises that requires it. But the greedy part of the human brain is very good at rationalizing why the altruistic path isn't the best path. Imagine an inner dialogue, "Why should I settle for 10 million dollars instead of 50 million? I own the company, I made the most sacrifices, everyone else just road my coattails to success. They'll still get something but I deserve the most." This is why we should never trust anything that isn't in writing. No matter how many times someone promises to "do good by you" there will be a moment where that promise won't mean a thing or will be interpreted to have meant something different.
bombolo 3y ago
If you work at a startup and you expect the stocks to be worth anything in 10 years you're an idiot.
- DeathArrow 3y ago
  You mean FAANGS hired a lot of idiots when they started?
  - bombolo 3y ago
    For 1 FAANGS there are millions of failed ones, and you don't know what'll be. So if the salary isn't decent, better to refuse the job rather than hope the stocks will eventually compensate you for the missed salary.

Centigonal 3y ago

Many VCs take board seats, allowing them to replace the CEO

dustingetz 3y ago
also google "Series A Exit Clause"

zrail 3y ago

The control is the desire to hold open the option for future funding rounds. If you gain a reputation for not caring what the VCs think then they won't want to invest in future rounds.