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Or, based on examples I've witnessed, 5 years down the road you own 20% of a $1M company because your forecasts were off by an order of magnitude. You've gone t

Or, based on examples I've witnessed, 5 years down the road you own 20% of a $1M company because your forecasts were off by an order of magnitude. You've gone through a couple down rounds, where investors took at least 20% each time. You feel obligated to your investors and employees, while there is almost zero chance of walking away with anything.

htrp 2y ago
One thing that is underappreciated in the startup mythos is just closing up shop and trying again.
- moneywoes 2y ago
  do investors allow that
  - tomrod 2y ago
    They don't control it.
    - Finbarr 2y ago
      That very much depends on the stage of the company and how much control has been given up at different points. Do you think the management team of a public company could just decide to shut it down? As you raise consecutive rounds, your control is eroded.
    - nlh 2y ago
      One of the greatest quotes I've ever heard from a founder buddy was when his startup was going through a particularly dark moment and struggling: One of the investors said to him "Maybe you should seriously think about shutting down and giving us our money back", to which he replied: "It's not your money anymore."
      - icedchai 2y ago
        Yeah, then the investors call a board meeting and bring in a new CEO to provide adult supervision after a 2/3rds vote. The give that guy more equity than you to keep the ship afloat. "It's not your company anymore."
        Finbarr 2y ago
        Your daily reminder of the importance of maintaining board control.
        flyinglizard 2y ago
        Not realistic to maintain control past A unless you built a real rocketship. The board doesn’t usually want to run your company - they have enough other companies, some evidently better than yours as they don’t require this intervention.
        Finbarr 2y ago
        > some evidently better than yours as they don’t require this intervention. I’m not sure where that’s coming from. Also plenty of companies out there have control past the A.
        FreakLegion 2y ago
        Most have voting control, subject to certain investor veto powers, after the A. Very few have it after the B.
        reducesuffering 2y ago
        Isn’t each round 10-20% to investors? Even in the worst case of Seed, A, and B at 20% each, founders still have 80% -> 64% -> 51% ? And in the best case it’s just one series A taking ~15%, thus founders still have 85%
    - golergka 2y ago
      Reputation is a thing. You might need investors in your next startup.
    - kelnos 2y ago
      If you, the founder, only own 20% of the company, the investors absolutely do control it (absent super-voting shares, anyway). You can propose shutting down the company, but the investors can fire you and bring in a CEO who will keep it going.
      - Finbarr 2y ago
        Not necessarily true. Most control is exerted at the board level through board director seats. You can have a low % and a majority of board director seats, depending on the leverage you had in each round raised.
throaway893 2y ago
>5 years down the road you own 20% of a $1M What a horrible fate. They only got five years of salary plus 200k extra. I'll include them in my prayers (just kidding, I don't pray).
- wordpad25 2y ago
  They also probably worked many 100 hour weeks while they could've earned more and worked a lot less with less stress
  - rbranson 2y ago
    That's how risk works. The FAANG employee friends have exactly a 0% chance at a 9-figure outcome. They'll easily be at top decile if they pull a nominal $10M+ post-tax in 20 years.
- icedchai 2y ago
  Except the "$200K" is purely paper, and has an expected value of closer to zero. Remember, common shareholders are the last ones to get paid. Investors have preferences and get paid back first (often with interest.) Also realize you were probably forced to take a pay cut and have a below average salary due to cost-cutting measures from the board. We'll ignore the non-financial problems, like tons of stress, complaining employees demanding more equity because you couldn't give them raises... No, it's not a good situation.

htrp 2y ago

One thing that is underappreciated in the startup mythos is just closing up shop and trying again.

moneywoes 2y ago
do investors allow that
- tomrod 2y ago
  They don't control it.
  - Finbarr 2y ago
    That very much depends on the stage of the company and how much control has been given up at different points. Do you think the management team of a public company could just decide to shut it down? As you raise consecutive rounds, your control is eroded.
  - nlh 2y ago
    One of the greatest quotes I've ever heard from a founder buddy was when his startup was going through a particularly dark moment and struggling: One of the investors said to him "Maybe you should seriously think about shutting down and giving us our money back", to which he replied: "It's not your money anymore."
    - icedchai 2y ago
      Yeah, then the investors call a board meeting and bring in a new CEO to provide adult supervision after a 2/3rds vote. The give that guy more equity than you to keep the ship afloat. "It's not your company anymore."
      - Finbarr 2y ago
        Your daily reminder of the importance of maintaining board control.
        flyinglizard 2y ago
        Not realistic to maintain control past A unless you built a real rocketship. The board doesn’t usually want to run your company - they have enough other companies, some evidently better than yours as they don’t require this intervention.
        Finbarr 2y ago
        > some evidently better than yours as they don’t require this intervention. I’m not sure where that’s coming from. Also plenty of companies out there have control past the A.
        FreakLegion 2y ago
        Most have voting control, subject to certain investor veto powers, after the A. Very few have it after the B.
        reducesuffering 2y ago
        Isn’t each round 10-20% to investors? Even in the worst case of Seed, A, and B at 20% each, founders still have 80% -> 64% -> 51% ? And in the best case it’s just one series A taking ~15%, thus founders still have 85%
  - golergka 2y ago
    Reputation is a thing. You might need investors in your next startup.
  - kelnos 2y ago
    If you, the founder, only own 20% of the company, the investors absolutely do control it (absent super-voting shares, anyway). You can propose shutting down the company, but the investors can fire you and bring in a CEO who will keep it going.
    - Finbarr 2y ago
      Not necessarily true. Most control is exerted at the board level through board director seats. You can have a low % and a majority of board director seats, depending on the leverage you had in each round raised.

throaway893 2y ago

>5 years down the road you own 20% of a $1M What a horrible fate. They only got five years of salary plus 200k extra. I'll include them in my prayers (just kidding, I don't pray).

wordpad25 2y ago
They also probably worked many 100 hour weeks while they could've earned more and worked a lot less with less stress
- rbranson 2y ago
  That's how risk works. The FAANG employee friends have exactly a 0% chance at a 9-figure outcome. They'll easily be at top decile if they pull a nominal $10M+ post-tax in 20 years.
icedchai 2y ago
Except the "$200K" is purely paper, and has an expected value of closer to zero. Remember, common shareholders are the last ones to get paid. Investors have preferences and get paid back first (often with interest.) Also realize you were probably forced to take a pay cut and have a below average salary due to cost-cutting measures from the board. We'll ignore the non-financial problems, like tons of stress, complaining employees demanding more equity because you couldn't give them raises... No, it's not a good situation.