3 ms·

How much to keep of your startup?

• elisabeth 12y ago
  Another example that comes to my mind is Markus Frind, owner of PlentyOfFish. Did he every sell a part of it? I think he kept everything. And makes like 10 million a year. Not sure if that qualifies as "Hypergrowth". What do you guys think?
  • hkarthik 12y ago
    Markus Frind was in the right place at the right time. When he launched PlentyOfFish, most dating sites were subscription-based and he came up with an ad-based revenue model. By being free for users when there were no alternatives, he quickly got viral growth. I'm not sure you could emulate his success today in wake of Tinder and other free mobile dating apps that are venture funded and continue to grow at an exponential rate.
• gyardley 12y ago
  I might be wrong, but I doubt the cap tables for the startups you listed are public. What the founders own is their own business. Sam's likely talking about a 'typical' exit for a startup that's taken venture capital - multiple funding rounds, reasonable valuations at each round. If your startup is a Facebook or Google and does a lot better than the 'typical' startup that exits (which just by getting to an exit has already done better than most), you can raise at better valuations and choose to sell less equity. If your startup manages to grow in a capital-efficient manner, you can also choose to sell less equity and keep more of it for yourself. That said, being irritated with Sam is just shooting the messenger - he's not lying to you. I certainly know of founders who came away with much, much less than 10% of their company. That also isn't necessarily a bad thing, since the stake they sold was used to get to an exit and expand their company. I'd certainly rather have 1% of a mammoth exit than 100% of a failure.
• tptacek 12y ago
  The mismatch you have with Altman is that you're assuming you'll keep the lion's share of the founder equity (as distinct from employee and investor equity). That being the case: with investors, you can plausibly hope to end up with somewhere between 20-50% of the company. Say that as a single-founder company, in the unlikely event that you manage to raise not only a seed rounds but an institutional A round, you end up holding 40% of the company by the time it sells. Now look at what happens if you have two equal co-founders: 13%, squarely in Altman country. Being irritated about this is pointless. At each dilutive step --- dividing the pie between cofounders, allocating options to employees, buying a pile of money from seed investors, buying a bigger pile of money from VCs --- you were given a judgement call: "will the amount of equity I end up, converted to dollars, be higher or lower if I give up equity now?" If the answer is "no", you say "no". Often the answer is "yes". For instance: "will I make more money in the long run if I cut my stake in half by bringing on an equal cofounder?" If you're being careful, and you don't have a cofounder already, probably yes. Looking at your percentage is not helpful. Think of it this way: prior to having a cofounder, all your energy and skill is generating ${X} amount of value. If you select a cofounder carefully, you can end up generating more than ${2X}: not only is there a whole other founder working on the problem, but their skills complement yours. Also you can get the stomach flu for a week and not leave the company rudderless. The percentage you're left with is a barometer, but it's a little like the spot cost of a share of stock: you need more context to actually evaluate it. Having 90% of it can be a bad sign: it means you're keeping a lot of your value in the bank, rather than deploying it to accelerate your business. You say you're building a company positioned for "hyper growth". I'd suggest you double-check that assumption. Implied in the strategy of "hyper-growth" is "fast go-to-market". That costs money. Money costs equity. My sense is that a lot of people who believe they're in a shoot- the- moon startup are just fine with 10%; 10% of ${BIG NUMBER} is ${BIG NUMBER}. If you're thinking about what 10% of ${MODEST NUMBER} is, you're not thinking about "hyper growth". Which is fine! I think "hyper growth" is a bad strategy for most founders. You can keep 100% of the company if you go it alone, don't take on investors, and pay nosebleed market salaries for all your employees. Good luck. Just remember what 100% of zero is. Here's a link to one of the rare infographics that is actually helpful: http://tctechcrunch2011.files.wordpress.com/2011/10/dilutionfinal02-640.jpg http://tctechcrunch2011.files.wordpress.com/2011/10/dilution... Here's Joel Spolsky on how equity divides in a well-run startup: https://gist.github.com/isaacsanders/1653078 https://gist.github.com/isaacsanders/1653078
• hkarthik 12y ago
  If you're hyper-growth, the needs of your startup will outgrow your team of 1-3 very quickly. You and your small team will get overwhelmed by either your infrastructure (servers melting down under load), customer support, or user acquisition costs. The only way to keep up is to spend money addressing each of these areas. Unfortunately, hyper growth startups are rarely hyper-revenue startups so the money's gotta come from elsewhere. For at least a few years, you'll be outspending any incoming revenue to keep the growth engine going. If you want to keep more equity then the best choice is to focus on sustainable growth. Take on customers only when you have the revenue to support them and make sure you monetize your growth very early. This is a perfectly acceptable strategy. Until a hyper-growth startup shows up as a competitor and is willing to burn investor cash to move 10x faster than you and doesn't need to worry about monetization strategies for a few years.
• brudgers 12y ago
  What matters is a controlling interest, not raw percentages. Gates wound up with single percentage points of Microsoft. Around 2010, he and Ballmer owned about 6% combined and were the two largest shareholders [ larger than any of the massive S&P based mutual funds obligated to hold Microsoft shares ]. This allowed them to control the company without worrying about Wall Street because ousting Gates as Chairman or Ballmer as CEO required a significant super-majority of voting shares ( ~56% plus 1). For what it's worth, Gates and Ballmer also amassed more wealth than the three tech founders you mentioned. In no small part because they took almost no outside investment. This allowed them to maintain control over the timing of the Microsoft IPO [ venture capital funds have lifetimes and thus there is a pressure toward a liquidity event for any company which takes VC funds that Gates and Balmer avoided ]. Good luck.