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It's straightforward as an ethical dilemma, but maybe not as a practical/CEO dilemma. Are you willing to risk the future of your company, your employees and fin

by tomp 12y ago

It's straightforward as an ethical dilemma, but maybe not as a practical/CEO dilemma. Are you willing to risk the future of your company, your employees and finally, your own future (by failing to raise another round) on keeping your word? Now, of course, if it's such a hot startup that investors are cramming to get into a round, it probably less of a dilemma. But that might not always be the case.

tptacek 12y ago
Yes? I'm still not clear on why this is difficult. The reality is that the decision is probably never between the future of the company and honoring your promises. It would be irrational for an early investor to allow the company to die in order to preserve their percentage stake in a zeroed-out investment. The behavior contemplated in this blog post isn't that dilemma. It's "this conversation with early investors is going to be sticky, and will involve some form of concession to them --- therefore, we're going to exploit their lack of leverage and bulldoze through them." That's unethical. It's not a tragic dilemma. It's being presented with an opportunity to harm someone for your own convenience, and all that's asked of you as a human is to simply not do that.
- tomp 12y ago
  That - obviously. What I have in mind as the dilemma is exactly the fact that is is rational for the early investor to accept the terms of the latter round, which is why they are likely to get screwed. The dilemma of the founder, to me, seems to be whether (1) to go along with whatever terms the latter investors propose, even though you know it's not fair to the early investors, because you know that it's rational for the early investor to accept them, or (2) to stick out with the early investors and only accept further investment provided they honour your agreement (and not try to strong-arm the early investor in giving up their rights), even though it's not rational for you (the founder) or your company to do so (however, it's rational for you+early investor). It's similar to the story that was on HN earlier - founders that had great exists had rewarded their employees with additional equity/cash, even though they were neither rationally nor legally bound to do it - but they did it anyways, because it was fair / the right thing to do. That's the sort of dilemmas I'm talking about, and I believe the original article is talking about.
  - nordsieck 12y ago
    "(2) to stick out with the early investors and only accept further investment provided they honour your agreement (and not try to strong-arm the early investor in giving up their rights), even though it's not rational for you (the founder) or your company to do so (however, it's rational for you+early investor)." The rationality of ethics depends on everyone believing they are part of a multi-round game. Hint: even if you think you are playing a single round game, you probably aren't.

by tomp 12y ago

tptacek 12y ago

Yes? I'm still not clear on why this is difficult. The reality is that the decision is probably never between the future of the company and honoring your promises. It would be irrational for an early investor to allow the company to die in order to preserve their percentage stake in a zeroed-out investment. The behavior contemplated in this blog post isn't that dilemma. It's "this conversation with early investors is going to be sticky, and will involve some form of concession to them --- therefore, we're going to exploit their lack of leverage and bulldoze through them." That's unethical. It's not a tragic dilemma. It's being presented with an opportunity to harm someone for your own convenience, and all that's asked of you as a human is to simply not do that.

tomp 12y ago
That - obviously. What I have in mind as the dilemma is exactly the fact that is is rational for the early investor to accept the terms of the latter round, which is why they are likely to get screwed. The dilemma of the founder, to me, seems to be whether (1) to go along with whatever terms the latter investors propose, even though you know it's not fair to the early investors, because you know that it's rational for the early investor to accept them, or (2) to stick out with the early investors and only accept further investment provided they honour your agreement (and not try to strong-arm the early investor in giving up their rights), even though it's not rational for you (the founder) or your company to do so (however, it's rational for you+early investor). It's similar to the story that was on HN earlier - founders that had great exists had rewarded their employees with additional equity/cash, even though they were neither rationally nor legally bound to do it - but they did it anyways, because it was fair / the right thing to do. That's the sort of dilemmas I'm talking about, and I believe the original article is talking about.
- nordsieck 12y ago
  "(2) to stick out with the early investors and only accept further investment provided they honour your agreement (and not try to strong-arm the early investor in giving up their rights), even though it's not rational for you (the founder) or your company to do so (however, it's rational for you+early investor)." The rationality of ethics depends on everyone believing they are part of a multi-round game. Hint: even if you think you are playing a single round game, you probably aren't.