7 ms·

Yeah I have a small business and I sway strongly towards being contempt with letting the business grow at its own rate. No, it won’t have a 1 bil payout, but y

Yeah I have a small business and I sway strongly towards being contempt with letting the business grow at its own rate. No, it won’t have a 1 bil payout, but you make your own rules and you’ll get a healthy cash out from the dividends after only 1 year or so. It also forces you to keep pivoting and finding a cash cow rather than assuming your initial plan was any good. We’re on like plan #10 now and in hindsight if we went with any of our original plans we’d still be burning money whereas current plan was profitable after just 1 month once we figured it out.

wdh505 3y ago
Contempt is not equal to content. I think autocorrect got you
gnicholas 3y ago
> No, it won’t have a 1 bil payout Does anything have a $1B payout for the founder? I guess there are a few companies that achieve this, but it takes only a modicum of humility to realize you're not likely to be one of the most successful founders this decade.
- DaiPlusPlus 3y ago
  Even if anyone gets a cool $1b, the IRS is going to come for a good chunk of that...
  - choppaface 3y ago
    IRS takes less than 50%.
    - willcipriano 3y ago
      A lot of this confusion is people talking past eachother. For most people the level of governmental entity taxing them isn't the concern, its the amount of tax the government in general demands in particular contrasted with the level of service provided. Add up the IRS cut, state and local, gas tax, sales tax, fees to use services already paid for with taxes and are basically required for life in the US (road tolls, document fees, vehicle registration fees, public transit fares, etc), costs for compliance with laws like hiring someone to help you file taxes or taking a day off work to renew your driver's license, higher costs for goods and services due to monopolies granted by government (drug patents where the same drug costs a quarter of what it does in the US everywhere else the world, higher than otherwise internet fees paid to entities like Comcast who are granted monopolies, hospitals that are expensive due to monopolies granted by certificates of need, etc), inflation caused by money printing to pay for foreign wars without broad popular support, housing that is more expensive due to policies that benefit homeonwers at the expense of those without assets etc, etc. Its way more than half of your productivity that is taken, if you are productive and earn wages. Those earning capital gains are hit about half as hard, another happy little accident that benefits primarily the wealthy and powerful to add to my list above. Oh and the best part, after paying those taxes for decades once you get sick, all of the sudden, the government and the medical industrial complex doesn't have the money to help you. You get to live in a cardboard box under a overpass.
      - pc86 3y ago
        You're making a comment about people "talking past each other" and yet you're talking about gas tax and sales tax in relation to business acquisitions and venture capital payouts.
  - gnicholas 3y ago
    Yep, although the qualified small business stock exemption comes in handy if/when that happens. You get to exempt a percentage of the gain of the sale of your stock, and if you roll over the gain into other QSBS (by investing in startups, for example), you can defer the non-exempted portion.
    - noduerme 3y ago
      Or just be like Peter Thiel and do all your angel investing through your Roth IRA... https://www.propublica.org/article/lord-of-the-roths-how-tech-mogul-peter-thiel-turned-a-retirement-account-for-the-middle-class-into-a-5-billion-dollar-tax-free-piggy-bank https://www.propublica.org/article/lord-of-the-roths-how-tec...
      - navane 3y ago
        He bought gambling stock with his retirement fund, struck gold, and now has 5bn untaxed in a US account?
        vitus 3y ago
        He bought 1.7 million founders' shares of Paypal (then Confinity, which he cofounded and was CEO of at the time) for under $2000. These are terms you would never offer to an investor, that you'd never offer to an employee. For comparison, the SEC filing for Paypal's IPO has Thiel Capital investing a bridge loan of $100k in 1998 which was then converted into 500 thousand shares (100x higher valuation than his individual "purchase" the following month). https://www.sec.gov/Archives/edgar/data/1103415/000091205702023923/a2082068zs-1.htm https://www.sec.gov/Archives/edgar/data/1103415/000091205702... From the ProPublica article, re: why this was problematic: > Thiel’s unusual stock purchase risked running afoul of rules designed to prevent IRAs from becoming illegal tax shelters. Investors aren’t allowed to buy assets for less than their true value through an IRA. The practice is sometimes known as “stuffing” because it gets around the strict limits imposed by Congress on how much money can be put in a Roth.
        3y ago
  - baq 3y ago
    If you’re paying taxes, you’re winning.
    - rapidaneurism 3y ago
      If you're paying taxes you should change your accountant
      - SJMG 3y ago
        Yes, if you're paying taxes you should engage a wealth management team that knows about collaterialized loans.
    - dspillett 3y ago
      If you are making more than enough to pay a significant amount of tax, but get away with paying a derisory amount or even nothing, then you are really winning!
  - generic92034 3y ago
    Well, I for one could live with that... :)
  - coldtea 3y ago
    Oh, the humanity! A founder in that situation is going to just get > 500million, not the full billion! How would they be able to afford food? Also, aren't taxes on things like stocks, equity, etc far lesser than personal income taxes anyway?
- dr_dshiv 3y ago
  > modicum of humility = turnoff for investors. They only care for chances at homeruns — singles and doubles are not welcome. You’d better swing for the fences, because that’s the purpose of VC. (This is my understanding, not my endorsement. Please correct as needed)
  - coldtea 3y ago
    >= turnoff for investors Given the situation described in TFA, that's just as well.
  - hnbad 3y ago
    No, that seems about right. Traditionally investors prefer investing in a number of moonshots with the hopes that one of them succeeds to such an extreme that it pays for the losses on the rest. There are even some investors known to invest in direct competitors to hedge their bets. The question only seems to be whether this strategy still works in a higher interest rate environment. As I understand it this development mostly stems from it being more profitable to invest with a low ROI (or a low probability of a high ROI) than to keep the money in the bank.
  - highwaylights 3y ago
    That’s the model essentially. Makes a lot of sense too. Anyone can get S&P 500 returns with little to no risk. That’s not to say they won’t lose money but it’ll be market returns either way, will be very liquid, and readily transparent to the holder. Given the risk involved in early stage investment the maths just don’t make sense for an investor to shoot for anything short of the moon. tldr; Seed funding / early stage investing is closer to lottery tickets and Vegas than to your 401k.
    - godzillabrennus 3y ago
      There are motivations beyond return. Alignment of capital with values to support a team/product/service that you believe will help in a manner you care about.
      - 3y ago
- coldtea 3y ago
  >Does anything have a $1B payout for the founder? Instagram perhaps? Also, an IPO?
- zer00eyz 3y ago
  >> Does anything have a $1B payout for the founder? WhatsApp likely did. Minecraft as well.
fakedang 3y ago
> No, it won’t have a 1 bil payout, but you make your own rules and you’ll get a healthy cash out from the dividends after only 1 year or so. Actually, it just might. RightNow was a bootstrapped startup back in the dotcom heydays, which managed a 9 digit exit after selling to Oracle. Midjourney is a unicorn without a cent of VC funding. Zapier raised just $2m, and they only got into YC on their second try. The old maxim of "build something people want" is crap honestly - it's more appropriately worded as "build something people will pay for".
- agentgumshoe 3y ago
  Which... Is the same maxim still
  - fakedang 3y ago
    Nope. A lot of people and businesses "want" something. But they're barely ready to pay a reasonable market rate it. Whether it be a $2 pm SaaS or a $100m blockbuster drug compound. They would still want it though, if they got the drug compound at a heavy discount, or the SaaS for free. And they'll keep telling you they want something that does exactly what those products do.
- aetherspawn 3y ago
  There are two ways to do this. Build something that a lot of people will pay a small amount for, or in my experience the better self bootstrapping business is to build something that a few people will pay a LOT for (a super niche product).
offices 3y ago
>It also forces you to keep pivoting and finding a cash cow rather than assuming your initial plan was any good. Formative experience: working at a startup, coming upon a fundamental technical problem that will prevent delivery of any of our revenue generating projects & realising that anyone who has spent a meaningful amount of time working on the software would notice the same problem. Noticing nobody else has brought it up.
- mooreds 3y ago
  Wow, quite a quandry. What did you do?
  - throwaway2203 3y ago
    Super curious as well
    - offices 3y ago
      It's not that exciting - I was already halfway out the door for unrelated reasons. It's a problem that almost any company in that space shares. It's made me put a strong premium on working for companies that sell a real product for real money, today.
- grvdrm 3y ago
  I feel you. In a similar experience now. Valuation (I’m told) depends on ARR. Company not really set up to generate meaningful ARR from its core business. I keep hearing “it will get better” but as far as I see, the problem is squarely at the top and some specific deputies. So, why do I keep hearing that? It sounds like very poorly messaged religion some days.
elif 3y ago
Never say never. I worked for MailChimp who never touched investor money, never gave out any stock to any employees (not even key engineering staff), each founder retained 50%, and they turned down multiple $1b+ offers until finally accepting $12b from Intuit.
- ta1243 3y ago
  That "plucky founder becoming billionaire" thing reminds me a little of Whatsapp, which sold for $19b (although I believe did have Venture Capital) https://www.flyertalk.com/forum/travel-technology/952359-thoughts-about-my-free-iphone-app-whatsapp.html https://www.flyertalk.com/forum/travel-technology/952359-tho... Especially this post from Jan Koum: i'll tell you all a funny story which has to do with flyertalk: i am actually flying to Barcelona for MWC right now using the M&M miles award ticket (i am posting this from LH455 flight)... i obviously got these tickets many months ago - i prefer to fly using miles when i can to save company money. as you know, award ticket inventory is limited and last minute changes are nearly impossible... and this is where it gets cute: we announced the deal with Facebook on wednesday after the market closed. during the process, we realized there was a chance we might not be able to get the deal wrapped up and signed on wednesday and it could delay. when the risk of the delay became real, i said: "if we don't get it done on wednesday, it probably wont get done. i have tickets on thursday to fly out to Barcelona which i bought with miles and they are not easily refundable or even possible to change. this has to be done by wednesday or else!!!" ...and so one of the biggest deals in tech history had to be scheduled around my M&M award ticket
  - ComputerGuru 3y ago
    Hilarious because they probably had much more than the cost of a first class business ticket in the not-even-under-lock-and-key petty cash drawer in the next room. But good for him!
- santoshalper 3y ago
  It definitely happens, it will generally mature more slowly. Not that there is anything wrong with that. I find the pace of bootstrapped companies healthier and more sane.
weinzierl 3y ago
Be aware of the story of Dr. Janet an Dr. James Baker, the founders of Dragon Naturally Speaking, which has been discussed here several times. They seemingly did everything right and still go screwed in the end.
- n2d4 3y ago
  What they did wrong was accepting an all-shares transaction in the acquiring company. Those come with risks, and sometimes the risk is that the company goes bankrupt a year later and you'll be left with nothing. My understanding is that they were badly advised by Goldman Sachs. Still, "doing the right thing" sometimes includes ignoring bad advice.
  - weinzierl 3y ago
    The way I see it is that they did not stand a chance and for me the moral of the story is that if you are not screwed by investors you can very well get screwed by someone else.

wdh505 3y ago

Contempt is not equal to content. I think autocorrect got you

gnicholas 3y ago

> No, it won’t have a 1 bil payout Does anything have a $1B payout for the founder? I guess there are a few companies that achieve this, but it takes only a modicum of humility to realize you're not likely to be one of the most successful founders this decade.

DaiPlusPlus 3y ago
Even if anyone gets a cool $1b, the IRS is going to come for a good chunk of that...
- choppaface 3y ago
  IRS takes less than 50%.
  - willcipriano 3y ago
    A lot of this confusion is people talking past eachother. For most people the level of governmental entity taxing them isn't the concern, its the amount of tax the government in general demands in particular contrasted with the level of service provided. Add up the IRS cut, state and local, gas tax, sales tax, fees to use services already paid for with taxes and are basically required for life in the US (road tolls, document fees, vehicle registration fees, public transit fares, etc), costs for compliance with laws like hiring someone to help you file taxes or taking a day off work to renew your driver's license, higher costs for goods and services due to monopolies granted by government (drug patents where the same drug costs a quarter of what it does in the US everywhere else the world, higher than otherwise internet fees paid to entities like Comcast who are granted monopolies, hospitals that are expensive due to monopolies granted by certificates of need, etc), inflation caused by money printing to pay for foreign wars without broad popular support, housing that is more expensive due to policies that benefit homeonwers at the expense of those without assets etc, etc. Its way more than half of your productivity that is taken, if you are productive and earn wages. Those earning capital gains are hit about half as hard, another happy little accident that benefits primarily the wealthy and powerful to add to my list above. Oh and the best part, after paying those taxes for decades once you get sick, all of the sudden, the government and the medical industrial complex doesn't have the money to help you. You get to live in a cardboard box under a overpass.
    - pc86 3y ago
      You're making a comment about people "talking past each other" and yet you're talking about gas tax and sales tax in relation to business acquisitions and venture capital payouts.
- gnicholas 3y ago
  Yep, although the qualified small business stock exemption comes in handy if/when that happens. You get to exempt a percentage of the gain of the sale of your stock, and if you roll over the gain into other QSBS (by investing in startups, for example), you can defer the non-exempted portion.
  - noduerme 3y ago
    Or just be like Peter Thiel and do all your angel investing through your Roth IRA... https://www.propublica.org/article/lord-of-the-roths-how-tech-mogul-peter-thiel-turned-a-retirement-account-for-the-middle-class-into-a-5-billion-dollar-tax-free-piggy-bank https://www.propublica.org/article/lord-of-the-roths-how-tec...
    - navane 3y ago
      He bought gambling stock with his retirement fund, struck gold, and now has 5bn untaxed in a US account?
      - vitus 3y ago
        He bought 1.7 million founders' shares of Paypal (then Confinity, which he cofounded and was CEO of at the time) for under $2000. These are terms you would never offer to an investor, that you'd never offer to an employee. For comparison, the SEC filing for Paypal's IPO has Thiel Capital investing a bridge loan of $100k in 1998 which was then converted into 500 thousand shares (100x higher valuation than his individual "purchase" the following month). https://www.sec.gov/Archives/edgar/data/1103415/000091205702023923/a2082068zs-1.htm https://www.sec.gov/Archives/edgar/data/1103415/000091205702... From the ProPublica article, re: why this was problematic: > Thiel’s unusual stock purchase risked running afoul of rules designed to prevent IRAs from becoming illegal tax shelters. Investors aren’t allowed to buy assets for less than their true value through an IRA. The practice is sometimes known as “stuffing” because it gets around the strict limits imposed by Congress on how much money can be put in a Roth.
        3y ago
- baq 3y ago
  If you’re paying taxes, you’re winning.
  - rapidaneurism 3y ago
    If you're paying taxes you should change your accountant
    - SJMG 3y ago
      Yes, if you're paying taxes you should engage a wealth management team that knows about collaterialized loans.
  - dspillett 3y ago
    If you are making more than enough to pay a significant amount of tax, but get away with paying a derisory amount or even nothing, then you are really winning!
- generic92034 3y ago
  Well, I for one could live with that... :)
- coldtea 3y ago
  Oh, the humanity! A founder in that situation is going to just get > 500million, not the full billion! How would they be able to afford food? Also, aren't taxes on things like stocks, equity, etc far lesser than personal income taxes anyway?
dr_dshiv 3y ago
> modicum of humility = turnoff for investors. They only care for chances at homeruns — singles and doubles are not welcome. You’d better swing for the fences, because that’s the purpose of VC. (This is my understanding, not my endorsement. Please correct as needed)
- coldtea 3y ago
  >= turnoff for investors Given the situation described in TFA, that's just as well.
- hnbad 3y ago
  No, that seems about right. Traditionally investors prefer investing in a number of moonshots with the hopes that one of them succeeds to such an extreme that it pays for the losses on the rest. There are even some investors known to invest in direct competitors to hedge their bets. The question only seems to be whether this strategy still works in a higher interest rate environment. As I understand it this development mostly stems from it being more profitable to invest with a low ROI (or a low probability of a high ROI) than to keep the money in the bank.
- highwaylights 3y ago
  That’s the model essentially. Makes a lot of sense too. Anyone can get S&P 500 returns with little to no risk. That’s not to say they won’t lose money but it’ll be market returns either way, will be very liquid, and readily transparent to the holder. Given the risk involved in early stage investment the maths just don’t make sense for an investor to shoot for anything short of the moon. tldr; Seed funding / early stage investing is closer to lottery tickets and Vegas than to your 401k.
  - godzillabrennus 3y ago
    There are motivations beyond return. Alignment of capital with values to support a team/product/service that you believe will help in a manner you care about.
    - 3y ago
coldtea 3y ago
>Does anything have a $1B payout for the founder? Instagram perhaps? Also, an IPO?
zer00eyz 3y ago
>> Does anything have a $1B payout for the founder? WhatsApp likely did. Minecraft as well.

fakedang 3y ago

> No, it won’t have a 1 bil payout, but you make your own rules and you’ll get a healthy cash out from the dividends after only 1 year or so. Actually, it just might. RightNow was a bootstrapped startup back in the dotcom heydays, which managed a 9 digit exit after selling to Oracle. Midjourney is a unicorn without a cent of VC funding. Zapier raised just $2m, and they only got into YC on their second try. The old maxim of "build something people want" is crap honestly - it's more appropriately worded as "build something people will pay for".

agentgumshoe 3y ago
Which... Is the same maxim still
- fakedang 3y ago
  Nope. A lot of people and businesses "want" something. But they're barely ready to pay a reasonable market rate it. Whether it be a $2 pm SaaS or a $100m blockbuster drug compound. They would still want it though, if they got the drug compound at a heavy discount, or the SaaS for free. And they'll keep telling you they want something that does exactly what those products do.
aetherspawn 3y ago
There are two ways to do this. Build something that a lot of people will pay a small amount for, or in my experience the better self bootstrapping business is to build something that a few people will pay a LOT for (a super niche product).

offices 3y ago

>It also forces you to keep pivoting and finding a cash cow rather than assuming your initial plan was any good. Formative experience: working at a startup, coming upon a fundamental technical problem that will prevent delivery of any of our revenue generating projects & realising that anyone who has spent a meaningful amount of time working on the software would notice the same problem. Noticing nobody else has brought it up.

mooreds 3y ago
Wow, quite a quandry. What did you do?
- throwaway2203 3y ago
  Super curious as well
  - offices 3y ago
    It's not that exciting - I was already halfway out the door for unrelated reasons. It's a problem that almost any company in that space shares. It's made me put a strong premium on working for companies that sell a real product for real money, today.
grvdrm 3y ago
I feel you. In a similar experience now. Valuation (I’m told) depends on ARR. Company not really set up to generate meaningful ARR from its core business. I keep hearing “it will get better” but as far as I see, the problem is squarely at the top and some specific deputies. So, why do I keep hearing that? It sounds like very poorly messaged religion some days.

elif 3y ago

Never say never. I worked for MailChimp who never touched investor money, never gave out any stock to any employees (not even key engineering staff), each founder retained 50%, and they turned down multiple $1b+ offers until finally accepting $12b from Intuit.

ta1243 3y ago
That "plucky founder becoming billionaire" thing reminds me a little of Whatsapp, which sold for $19b (although I believe did have Venture Capital) https://www.flyertalk.com/forum/travel-technology/952359-thoughts-about-my-free-iphone-app-whatsapp.html https://www.flyertalk.com/forum/travel-technology/952359-tho... Especially this post from Jan Koum: i'll tell you all a funny story which has to do with flyertalk: i am actually flying to Barcelona for MWC right now using the M&M miles award ticket (i am posting this from LH455 flight)... i obviously got these tickets many months ago - i prefer to fly using miles when i can to save company money. as you know, award ticket inventory is limited and last minute changes are nearly impossible... and this is where it gets cute: we announced the deal with Facebook on wednesday after the market closed. during the process, we realized there was a chance we might not be able to get the deal wrapped up and signed on wednesday and it could delay. when the risk of the delay became real, i said: "if we don't get it done on wednesday, it probably wont get done. i have tickets on thursday to fly out to Barcelona which i bought with miles and they are not easily refundable or even possible to change. this has to be done by wednesday or else!!!" ...and so one of the biggest deals in tech history had to be scheduled around my M&M award ticket
- ComputerGuru 3y ago
  Hilarious because they probably had much more than the cost of a first class business ticket in the not-even-under-lock-and-key petty cash drawer in the next room. But good for him!
santoshalper 3y ago
It definitely happens, it will generally mature more slowly. Not that there is anything wrong with that. I find the pace of bootstrapped companies healthier and more sane.

weinzierl 3y ago

Be aware of the story of Dr. Janet an Dr. James Baker, the founders of Dragon Naturally Speaking, which has been discussed here several times. They seemingly did everything right and still go screwed in the end.

n2d4 3y ago
What they did wrong was accepting an all-shares transaction in the acquiring company. Those come with risks, and sometimes the risk is that the company goes bankrupt a year later and you'll be left with nothing. My understanding is that they were badly advised by Goldman Sachs. Still, "doing the right thing" sometimes includes ignoring bad advice.
- weinzierl 3y ago
  The way I see it is that they did not stand a chance and for me the moral of the story is that if you are not screwed by investors you can very well get screwed by someone else.