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TLDR: dilution is a thing and investor incentives are not always aligned with founder, when it comes to early exit opportunities. --- But... I don't think th
by bsuvc 3y ago
TLDR: dilution is a thing and investor incentives are not always aligned with founder, when it comes to early exit opportunities.
---
But...
I don't think there are really a lot of opportunities to exit at $38m in the early stages of a startup, even if your valuation says it is possible on paper. There just isn't much of a market for companies at that stage of growth.
Imo, the more likely scenario is for a startup to either 1. fail to raise and run out of money, or 2. Become self-sustaining, but never successful enough to achieve a meaningful exit for the founders or investors, basically a "zombie" company that may never exit.
In the second case, it is the investors that get screwed, as the founder has made a nice lifestyle business out of their investment. I think most investors realize this is one of the outcomes though, so "screwed" is probably too harsh of a term to use to describe it.
- yesimahuman 3y agoThe second case isn't probably good for founders either. I don't think it would be easy to convince investors to let you take cash out of the business to any meaningful degree, but I suppose that depends on how much control you have over the business at that point.
- ClumsyPilot 3y ago> founder has made a nice lifestyle business out of their investment It’s perfectly reasonable that one might have a medium size business supporting the local economy. It’s a shame that VC model is hostile to this outcome.
- bsuvc 3y agoBootstrapping is a fine alternative to VC and more appropriate for many businesses. But it isn't hostile to want a return on your investments, and investors are not operating as a charity to support the local economy, although that does incidentally happen as a result of investments.
- ripberge 3y agoI think there are a lot more potential buyers of $38M companies than $380M companies, particularly if the burn rate is low. There are a lot of exits in this range in the B2B software space to private equity types of co's that are rolling up companies in a particular vertical.
- user_named 3y agoIn the second scenario, employees with equity are also screwed. Just led one of those zombie startups. It's selfish and incompetent as hell to take investment, hand out shares, and then steer into a low growth lifestyle business whose share will never be worth anything.