3 ms·

It signals distrust in the company. People equate it with pump-and-dump schemes, grabbing the money before value creation and running. In strictly rational ter

It signals distrust in the company. People equate it with pump-and-dump schemes, grabbing the money before value creation and running. In strictly rational terms, it almost always makes sense. Even late funding round startups are risky -- when you have that kind of risk, the sanest thing you can do is to diversify early and often. Losing half of your potential future payout is nothing if you can exchange it for guaranteed middle-class lifestyle (or the funding for your next startup...).

petenixey 14y ago
And that cash-out-early logic is assuming that each subsequent dollar has the same utility which doesn't. I can't remember the exact figure but I think that economists drop capital utility by a factor of 10 for each zero. The first million has ten times more utility than the tenth which means that it makes terrific sense to cash out. Compound that with the fact that the utility of cash is, like the value of health an integral over time and you have more reason still to cash out early. Every if the utility were the same, five extra years of your life with the end-cash is five extra years of utility. I get your point about pump and dump and if it was a no-name hustler ringing up a round for a just-arrived company I'd understand that but none of these companies ever are. I feel there's something deeper driving the reaction - it seems more resentful than rational.
arnoldwh 14y ago
I agree with your statement as it perceives to larger companies, but for start-ups, if I were an investor, I would actually want founders to "cash-out" at least a little. Assuming I've done my due diligence on the dedication of the team, the last thing I want is for a founder to be focused on personal finances. Otherwise, they might be too focused on immediate monetization instead of growth.
mseebach 14y ago
It could also be a simple matter of investing in the founders. Give them "Enough money to take money off the table", in the words of that "The surprising truth about what motivates us" video. If you've been working hard for eight years, and it's going to be another five before the "liquidity event", I would guess it can be nice to be able to take any financial issues off the table permanently - and it's probably a also good thing for family support that your founders can afford to go on a holiday every once in a while without having to count every penny.
frabcus 14y ago
It could go the other way. If the founder has all their wealth tied up in the company, they might be more likely to manipulate to sell the company early to make themselves a multi-millionaire. If you give them a bit of an exit, they then have more motivation to try and build the really really large company.

petenixey 14y ago

And that cash-out-early logic is assuming that each subsequent dollar has the same utility which doesn't. I can't remember the exact figure but I think that economists drop capital utility by a factor of 10 for each zero. The first million has ten times more utility than the tenth which means that it makes terrific sense to cash out. Compound that with the fact that the utility of cash is, like the value of health an integral over time and you have more reason still to cash out early. Every if the utility were the same, five extra years of your life with the end-cash is five extra years of utility. I get your point about pump and dump and if it was a no-name hustler ringing up a round for a just-arrived company I'd understand that but none of these companies ever are. I feel there's something deeper driving the reaction - it seems more resentful than rational.

arnoldwh 14y ago

I agree with your statement as it perceives to larger companies, but for start-ups, if I were an investor, I would actually want founders to "cash-out" at least a little. Assuming I've done my due diligence on the dedication of the team, the last thing I want is for a founder to be focused on personal finances. Otherwise, they might be too focused on immediate monetization instead of growth.

mseebach 14y ago

It could also be a simple matter of investing in the founders. Give them "Enough money to take money off the table", in the words of that "The surprising truth about what motivates us" video. If you've been working hard for eight years, and it's going to be another five before the "liquidity event", I would guess it can be nice to be able to take any financial issues off the table permanently - and it's probably a also good thing for family support that your founders can afford to go on a holiday every once in a while without having to count every penny.

frabcus 14y ago

It could go the other way. If the founder has all their wealth tied up in the company, they might be more likely to manipulate to sell the company early to make themselves a multi-millionaire. If you give them a bit of an exit, they then have more motivation to try and build the really really large company.