5 ms·

But that isn't VC. When you have outside investors, you have an obligation to give them an opportunity to cash out. If you can bootstrap and own 100%, then yo

by fsk 12y ago

But that isn't VC. When you have outside investors, you have an obligation to give them an opportunity to cash out. If you can bootstrap and own 100%, then you have maximum flexibility.

rokhayakebe 12y ago
How about taking debt, pay off investors at the same multiple they would get from a buyout, and pay the debt over time?
lisper 12y ago
> When you have outside investors, you have an obligation to give them an opportunity to cash out. A moral obligation perhaps, but no legal obligation. As long as you control the board, nothing prevents you from taking investors money and essentially pocketing it as long as you can find enough suckers. In fact, one could view the public market as the suckers of last resort, particularly for companies that don't pay dividends and have two-tiered stock structures (e.g. Google and Facebook).
- wtvanhest 12y ago
  There are multiple legal ways for VCs to force the company to liquidate their investment. The primary one being redemption rights.
- taylorwc 12y ago
  Ummm. False? You have a legal obligation to your shareholders regardless of whether the company is public. Fiduciary responsibility.
  - lisper 12y ago
    Theoretically yes. As a practical matter it is nearly impossible to prove breach of fiduciary responsibility.
- newhouseb 12y ago
  In a world where you could get a VC to sign any deal, sure, but realistically any VC investing on a large enough scale will require provisions for a trigger they can pull to get their money back out if their investment survives long enough without liquidity. I'm sure someone can provide more detail but if I recall correctly they tend to be about 10 years out and require that the companies go public or allow the VCs to sell there shares (possibly back to the company) at some certain value.
  - Retric 12y ago
    Profitable company's can just get a loan to buy those shares based on a reasonable valuation of the companies value. IPO's are only nessisarily if you need to rase money or are overvalued. Bonds, private equity, institional investors, and plenty of other options exist when you don't need a greater fool.
    - 001sky 12y ago
      Debt for equity swaps are only of use up to a point. The issue is the ration of one to the other. Which will be proportionate to cash flow and not to paid-in capital (or a multiple therof).
- sdoowpilihp 12y ago
  It's fairly common to have a number of provisions in a financing round that make the obligation legal and not moral. Also, it's not uncommon for things like "Drag Along" rights to push a company into a sale. http://en.wikipedia.org/wiki/Drag-along_right http://en.wikipedia.org/wiki/Drag-along_right
jacquesm 12y ago
> you have an obligation to give them an opportunity to cash out. That very much depends on the terms.

by fsk 12y ago

But that isn't VC. When you have outside investors, you have an obligation to give them an opportunity to cash out. If you can bootstrap and own 100%, then you have maximum flexibility.

rokhayakebe 12y ago

How about taking debt, pay off investors at the same multiple they would get from a buyout, and pay the debt over time?

lisper 12y ago

> When you have outside investors, you have an obligation to give them an opportunity to cash out. A moral obligation perhaps, but no legal obligation. As long as you control the board, nothing prevents you from taking investors money and essentially pocketing it as long as you can find enough suckers. In fact, one could view the public market as the suckers of last resort, particularly for companies that don't pay dividends and have two-tiered stock structures (e.g. Google and Facebook).

wtvanhest 12y ago
There are multiple legal ways for VCs to force the company to liquidate their investment. The primary one being redemption rights.
taylorwc 12y ago
Ummm. False? You have a legal obligation to your shareholders regardless of whether the company is public. Fiduciary responsibility.
- lisper 12y ago
  Theoretically yes. As a practical matter it is nearly impossible to prove breach of fiduciary responsibility.
newhouseb 12y ago
In a world where you could get a VC to sign any deal, sure, but realistically any VC investing on a large enough scale will require provisions for a trigger they can pull to get their money back out if their investment survives long enough without liquidity. I'm sure someone can provide more detail but if I recall correctly they tend to be about 10 years out and require that the companies go public or allow the VCs to sell there shares (possibly back to the company) at some certain value.
- Retric 12y ago
  Profitable company's can just get a loan to buy those shares based on a reasonable valuation of the companies value. IPO's are only nessisarily if you need to rase money or are overvalued. Bonds, private equity, institional investors, and plenty of other options exist when you don't need a greater fool.
  - 001sky 12y ago
    Debt for equity swaps are only of use up to a point. The issue is the ration of one to the other. Which will be proportionate to cash flow and not to paid-in capital (or a multiple therof).
sdoowpilihp 12y ago
It's fairly common to have a number of provisions in a financing round that make the obligation legal and not moral. Also, it's not uncommon for things like "Drag Along" rights to push a company into a sale. http://en.wikipedia.org/wiki/Drag-along_right http://en.wikipedia.org/wiki/Drag-along_right

jacquesm 12y ago

> you have an obligation to give them an opportunity to cash out. That very much depends on the terms.