6 ms·

I have a great story about a startup run by a bunch of insane guys. One of the founders cashed out a ton of money early and bought a $100k car; another founder'

by numair 11y ago

I have a great story about a startup run by a bunch of insane guys. One of the founders cashed out a ton of money early and bought a $100k car; another founder's dorm buddy proceeded to wreck it within a month. Ron Conway's son used to bring cash to one of the founders, who blew it on drugs and partying while supposedly spending it on business development. Crazy. Irresponsible. Negligent. Bill Maris would NEVER invest in such people. All of the Valley VCs who are outraged with Secret and the founders' cash-out would NEVER want any of those guys in their portfolios. Too bad those crazy kids ended up building a $250B company, huh? I always find it quite rich, and quite immature, when investors try to tell entrepreneurs how to live their lives or spend/not spend their money. The Secret founders offered their investors a deal, the investors took it, circumstances changed, and the investors got less of a bargain than they thought. This happens every day. Should Mark Cuban return the billions of dollars he made off Yahoo from selling them that epic turd of a company called Broadcast.com?

sunnyps 11y ago
Can't tell if you're justifying embezzlement.
untog 11y ago
Oh, come on. Anecdote is not data. I'd wage a considerable amount of money that people who do not trash cars and inhale kilos of drugs are a better investment return, on average. The perception that VCs should consider themselves lucky to have invested in an immature asshole's startup sums up much that is wrong with Silicon Valley. I don't wish for another burst bubble, but if it happened it might be a useful reset.
- numair 11y ago
  Secret was one of the most aesthetically impressive apps I'd seen on iOS, ever. It had all of the little usability details nailed on its first attempt. Even those of us who didn't appreciate its use case (myself included) couldn't help but feel jealous of the technical ability of its creators. The founders weren't random "immature assholes," and one would hope that the investors weren't either. A lot of people were chasing those guys with money, and they all knew what they were getting into. I wish people would spend less time obsessing over the money and more time figuring out why the company (and the two cofounders) fell apart; that's far more useful to learn/discuss. Hating on people just because they got a couple mil is pretty stupid and childish, especially when they are clearly more technically talented than their critics. If there is a bubble in this industry, it is a bubble of amateurs; people who shouldn't be investing or working in a field that is driven by extremes, and always has been. Extreme people chasing extreme success at extreme odds. And you know, everything in those extremes is going to look weird to people on the outside. Young Gates also wrecked sports cars and nearly went to jail; maybe these are all anecdotal, but the fact remains that you've got to accept a bit of eccentricity in this industry, if you want eccentric returns. If this whole Secret backlash thing continues, the kids in this industry might need a history lesson on why Peter Thiel called his VC firm the Founders Fund, and why it was so novel at the time. Investors always want to give founders a tough time; until Thiel and Co. came along, Valley VCs practically colluded to ensure that young entrepreneurs remained poor until an exit. I'm sure they would love for that era to return, but thankfully there's just too much capital for such a thing to happen anytime soon.
  - dmix 11y ago
    This is a great analysis. The founders parlayed multiple VCs chasing them into gaining $3m for themselves. I don't see anything wrong with that personally, it's the investors money and it was voluntary. I agree with Bill Maris though that it was far too early in the startup to be doing that. The VC must have assumed their pull in the VC scene would take them to some sort of success later on - so why not. But that is a risky gamble.
    - pbiggar 11y ago
      I don't agree that it was too early to take money off the table. It's about aligning incentives: the founders likely had other liquidity offers that must have looked mighty tempting at the time. $3m each keeps everyone pointing in the same direction. It should be pointed out that the investors were no amateurs. Redpoint and Index are Tier 1 VCs, who know exactly what they're doing. They were investing in the next Facebook, and it turned out this was not it. That's the game VCs play.
- x0x0 11y ago
  Oh good god. The VCs are cold hearted capitalists until the hot second founders have negotiating power and make the VCs compete. Then they whine. They need to grow up and, as @sama says, if you don't like the deal? Stop whining and don't buy. Whining about how your values aren't aligned? Don't invest. Don't like founders taking cash out? Don't invest.
- crdb 11y ago
  Look at finance for more data. I personally know many successful traders and managers who live very quiet, middle class lives despite having the means to do much more (usually because they get their kicks off business success, not consumption). Cf stereotype of the Swiss billionaire in jeans driving a beaten up Volvo. The head of a derivatives desk in the London HQ of a global bank used to drive a 10 year old hatchback to the office and lived in Zone 2 or 3 in the same house he bought as an immigrant with his first years' savings. Obviously, these guys don't appear in press releases. I would argue they are also relatively rare. However, on the work hard play hard side, you can name literally hundreds of Gordon Gekko types like S. Cohen who bought Hirst's famous $8m stuffed shark or S. Schwarzman who likes to put his name on entire museum wings around the world. Some very driven people have more intense fun on the side and the only thing that matters to the VC/FOF is a. the possible ROIs under different scenarios and b. the probability of each happening; to calculate the NPV and therefore desirability of the investment. Some of the more extreme characters from this world are documented in "Richistan" [1] and "The $12m stuffed shark" [2]. The common trait amongst the "nouveau riche" is that they are intensely focused and good at their work, not letting their fun permeate. If I had spare capital right now, I would happily take the other side of your trade; I'm pretty sure that spending behaviour (hard fun, tendency to consumerism, whatever you want to formalize it as), all else being equal, is not predictive of success, just as with race, gender and maybe even education or age (adjusted for experience). As for the original subject, I think a lot of people who grew up well off or have had a few years to build some security do not realize how valuable those early marginal dollars are to someone without connections and a rich daddy. A "normal" person might well take 5 years to save the $100-200k necessary for a safe bootstrap; if they fail, they're back to the grind for another 5, delaying kids and life accordingly. It is perfectly rational for the founders to attempt to circumvent that if the market generously offers the opportunity, by taking out enough cash for a few trials should this one not work out. [1] http://www.amazon.com/Richistan-Journey-Through-American-Wealth/dp/0307341453 http://www.amazon.com/Richistan-Journey-Through-American-Wea... [2] http://www.amazon.com/The-Million-Stuffed-Shark-Contemporary/dp/0230620590/ http://www.amazon.com/The-Million-Stuffed-Shark-Contemporary...
  - numair 11y ago
    Excellent reply, thanks for this. A lot of people in SV/SF are upset that "the finance guys" have shown up and changed the economics of the game; I say, thank God they finally showed up. (And the Chinese, of course!) I don't know if you've ever watched the "Trader" documentary that profiled the life of thirtysomething Paul Tudor Jones, but it provides an 80s-era glimpse into world you talk about. Legend has it that PTJ bought every VHS copy and had it destroyed.
chetanahuja 11y ago
It never fails to amaze me the type of comments that get to the top of HN threads. Makes me wonder if a large number of HN readers truly believe the behavior described in numair's post (buying expensive cars on investor's money etc.) is A-OK? Or is it some sort of Jedi double-cross troll upvoting?
- infinitone 11y ago
  I don't think you understood what he said. Even in the article, the GV guy tries to disown relations with the founders (even though they are ex-Googlers), as if trying to elude that Googlers wouldn't do that. Reality check: Googlers are just ordinary average people that have desires and temptations and no amount of genius will remove that fact.
capkutay 11y ago
"Too bad those crazy kids ended up building a $250B company, huh?" I actually don't know which company you're talking about. Facebook?
- deleted 11y ago
  [deleted]
- philippnagel 11y ago
  Microsoft would be my guess.
  - hkmurakami 11y ago
    MSFT was founded in 1975. Ron Conway was 24 at that time. The numbers won't add up for it to be MSFT.
manigandham 11y ago
It's rich/immature to tell entrepreneurs how to spend the money that is invested in them? What world are you living in? There are always rules on how you are allowed to spend money that you borrow, it's never just a blank check. VC funding probably comes with the most freedom but it's still meant to be used to build the business, not cars/drugs/entertainment, regardless of the eventual outcome. It's basic integrity.
- pbiggar 11y ago
  No, the $6m was a secondary investment. That is, the founders sold their personal shares to the VCs. That money is not intended to build the business, it's a cash out for the founders so that they're not tempted to take other liquidity offers.
  - manigandham 11y ago
    I'm responding to the situation described in the parent, not Secret.
nrao123 11y ago
Apparently Bill Maris of Google Ventures hadn't yet spoken to David Byttow of Secret when he spoke to New York Times. He changed his mind after the conversation with Byttow. Its only fair on NYT's part to reprint the Maris's updated note which basically takes back everything he told NYT. https://medium.com/gv-notes/a-few-thoughts-on-secret-3cb50a338fae https://medium.com/gv-notes/a-few-thoughts-on-secret-3cb50a3... Here’s the text of an email I sent to Mike Isaac at the NY Times earlier, and thought it was important to share this context and nuance. Hi Mike, Regarding the article on Secret earlier today: http://bits.blogs.nytimes.com/2015/05/05/the-lessons-google-ventures-learned-from-secret/ http://bits.blogs.nytimes.com/2015/05/05/the-lessons-google-... I want to correct and amend a few things. I wanted to let you know how my views had evolved since we spoke. I aspire to be someone that says when that’s the case and it is here. I hadn’t spoken to David Byttow when you and I chatted, and I should have done that. I’ve spoken to him now and have a better understanding of things. We weren’t part of the secondary. I don’t know what the agreement was among David, Chrys Bader and those that did. And I don’t know the status now — maybe they’ve returned the money, maybe they don’t need to or can’t. But even if they returned all of the money, it wouldn’t affect GV, as we didn’t participate. I do want to make clear that this was not a “bank heist,” and that was a poor choice of words on my part. That implies that the founders were trying to line their pockets at the expense of others. After having a heart to heart with David, I don’t think that’s true. David rightly pointed out to me that he and Chrys worked extremely hard. They built something that captured the imagination of a lot of people and had a huge amount of users. The tone and content of my comments as printed don’t pay the appropriate respect to that fact. As a fund, one thing remains true — we are not excited about founders selling stock early in a company’s life cycle. It provokes the question — if founder’s are sellers, why would we or others be buyers. As for it not being “sustainable,” there is no way to ascribe that to the founders any more than the million other reasons a start up can fail. This one did. But credit to the founders for not just running out the clock and spending all the money — and instead returning some capital to investors rather than running it into the ground. That takes bravery. It doesn’t happen often. As I now understand, David is doing a lot to make it as right as he can with his investors and employees. I’m glad your article sparked the conversation that had enough truth in it to help me evolve my opinions to some that I think are more correct. Best, Bill
- 11y ago
dennisgoldstein 11y ago
Proof? I can make random claims too.

by numair 11y ago

sunnyps 11y ago

Can't tell if you're justifying embezzlement.

untog 11y ago

Oh, come on. Anecdote is not data. I'd wage a considerable amount of money that people who do not trash cars and inhale kilos of drugs are a better investment return, on average. The perception that VCs should consider themselves lucky to have invested in an immature asshole's startup sums up much that is wrong with Silicon Valley. I don't wish for another burst bubble, but if it happened it might be a useful reset.

numair 11y ago
Secret was one of the most aesthetically impressive apps I'd seen on iOS, ever. It had all of the little usability details nailed on its first attempt. Even those of us who didn't appreciate its use case (myself included) couldn't help but feel jealous of the technical ability of its creators. The founders weren't random "immature assholes," and one would hope that the investors weren't either. A lot of people were chasing those guys with money, and they all knew what they were getting into. I wish people would spend less time obsessing over the money and more time figuring out why the company (and the two cofounders) fell apart; that's far more useful to learn/discuss. Hating on people just because they got a couple mil is pretty stupid and childish, especially when they are clearly more technically talented than their critics. If there is a bubble in this industry, it is a bubble of amateurs; people who shouldn't be investing or working in a field that is driven by extremes, and always has been. Extreme people chasing extreme success at extreme odds. And you know, everything in those extremes is going to look weird to people on the outside. Young Gates also wrecked sports cars and nearly went to jail; maybe these are all anecdotal, but the fact remains that you've got to accept a bit of eccentricity in this industry, if you want eccentric returns. If this whole Secret backlash thing continues, the kids in this industry might need a history lesson on why Peter Thiel called his VC firm the Founders Fund, and why it was so novel at the time. Investors always want to give founders a tough time; until Thiel and Co. came along, Valley VCs practically colluded to ensure that young entrepreneurs remained poor until an exit. I'm sure they would love for that era to return, but thankfully there's just too much capital for such a thing to happen anytime soon.
- dmix 11y ago
  This is a great analysis. The founders parlayed multiple VCs chasing them into gaining $3m for themselves. I don't see anything wrong with that personally, it's the investors money and it was voluntary. I agree with Bill Maris though that it was far too early in the startup to be doing that. The VC must have assumed their pull in the VC scene would take them to some sort of success later on - so why not. But that is a risky gamble.
  - pbiggar 11y ago
    I don't agree that it was too early to take money off the table. It's about aligning incentives: the founders likely had other liquidity offers that must have looked mighty tempting at the time. $3m each keeps everyone pointing in the same direction. It should be pointed out that the investors were no amateurs. Redpoint and Index are Tier 1 VCs, who know exactly what they're doing. They were investing in the next Facebook, and it turned out this was not it. That's the game VCs play.
x0x0 11y ago
Oh good god. The VCs are cold hearted capitalists until the hot second founders have negotiating power and make the VCs compete. Then they whine. They need to grow up and, as @sama says, if you don't like the deal? Stop whining and don't buy. Whining about how your values aren't aligned? Don't invest. Don't like founders taking cash out? Don't invest.
crdb 11y ago
Look at finance for more data. I personally know many successful traders and managers who live very quiet, middle class lives despite having the means to do much more (usually because they get their kicks off business success, not consumption). Cf stereotype of the Swiss billionaire in jeans driving a beaten up Volvo. The head of a derivatives desk in the London HQ of a global bank used to drive a 10 year old hatchback to the office and lived in Zone 2 or 3 in the same house he bought as an immigrant with his first years' savings. Obviously, these guys don't appear in press releases. I would argue they are also relatively rare. However, on the work hard play hard side, you can name literally hundreds of Gordon Gekko types like S. Cohen who bought Hirst's famous $8m stuffed shark or S. Schwarzman who likes to put his name on entire museum wings around the world. Some very driven people have more intense fun on the side and the only thing that matters to the VC/FOF is a. the possible ROIs under different scenarios and b. the probability of each happening; to calculate the NPV and therefore desirability of the investment. Some of the more extreme characters from this world are documented in "Richistan" [1] and "The $12m stuffed shark" [2]. The common trait amongst the "nouveau riche" is that they are intensely focused and good at their work, not letting their fun permeate. If I had spare capital right now, I would happily take the other side of your trade; I'm pretty sure that spending behaviour (hard fun, tendency to consumerism, whatever you want to formalize it as), all else being equal, is not predictive of success, just as with race, gender and maybe even education or age (adjusted for experience). As for the original subject, I think a lot of people who grew up well off or have had a few years to build some security do not realize how valuable those early marginal dollars are to someone without connections and a rich daddy. A "normal" person might well take 5 years to save the $100-200k necessary for a safe bootstrap; if they fail, they're back to the grind for another 5, delaying kids and life accordingly. It is perfectly rational for the founders to attempt to circumvent that if the market generously offers the opportunity, by taking out enough cash for a few trials should this one not work out. [1] http://www.amazon.com/Richistan-Journey-Through-American-Wealth/dp/0307341453 http://www.amazon.com/Richistan-Journey-Through-American-Wea... [2] http://www.amazon.com/The-Million-Stuffed-Shark-Contemporary/dp/0230620590/ http://www.amazon.com/The-Million-Stuffed-Shark-Contemporary...
- numair 11y ago
  Excellent reply, thanks for this. A lot of people in SV/SF are upset that "the finance guys" have shown up and changed the economics of the game; I say, thank God they finally showed up. (And the Chinese, of course!) I don't know if you've ever watched the "Trader" documentary that profiled the life of thirtysomething Paul Tudor Jones, but it provides an 80s-era glimpse into world you talk about. Legend has it that PTJ bought every VHS copy and had it destroyed.

chetanahuja 11y ago

It never fails to amaze me the type of comments that get to the top of HN threads. Makes me wonder if a large number of HN readers truly believe the behavior described in numair's post (buying expensive cars on investor's money etc.) is A-OK? Or is it some sort of Jedi double-cross troll upvoting?

infinitone 11y ago
I don't think you understood what he said. Even in the article, the GV guy tries to disown relations with the founders (even though they are ex-Googlers), as if trying to elude that Googlers wouldn't do that. Reality check: Googlers are just ordinary average people that have desires and temptations and no amount of genius will remove that fact.

capkutay 11y ago

"Too bad those crazy kids ended up building a $250B company, huh?" I actually don't know which company you're talking about. Facebook?

deleted 11y ago
[deleted]
philippnagel 11y ago
Microsoft would be my guess.
- hkmurakami 11y ago
  MSFT was founded in 1975. Ron Conway was 24 at that time. The numbers won't add up for it to be MSFT.

manigandham 11y ago

It's rich/immature to tell entrepreneurs how to spend the money that is invested in them? What world are you living in? There are always rules on how you are allowed to spend money that you borrow, it's never just a blank check. VC funding probably comes with the most freedom but it's still meant to be used to build the business, not cars/drugs/entertainment, regardless of the eventual outcome. It's basic integrity.

pbiggar 11y ago
No, the $6m was a secondary investment. That is, the founders sold their personal shares to the VCs. That money is not intended to build the business, it's a cash out for the founders so that they're not tempted to take other liquidity offers.
- manigandham 11y ago
  I'm responding to the situation described in the parent, not Secret.

nrao123 11y ago

Apparently Bill Maris of Google Ventures hadn't yet spoken to David Byttow of Secret when he spoke to New York Times. He changed his mind after the conversation with Byttow. Its only fair on NYT's part to reprint the Maris's updated note which basically takes back everything he told NYT. https://medium.com/gv-notes/a-few-thoughts-on-secret-3cb50a338fae https://medium.com/gv-notes/a-few-thoughts-on-secret-3cb50a3... Here’s the text of an email I sent to Mike Isaac at the NY Times earlier, and thought it was important to share this context and nuance. Hi Mike, Regarding the article on Secret earlier today: http://bits.blogs.nytimes.com/2015/05/05/the-lessons-google-ventures-learned-from-secret/ http://bits.blogs.nytimes.com/2015/05/05/the-lessons-google-... I want to correct and amend a few things. I wanted to let you know how my views had evolved since we spoke. I aspire to be someone that says when that’s the case and it is here. I hadn’t spoken to David Byttow when you and I chatted, and I should have done that. I’ve spoken to him now and have a better understanding of things. We weren’t part of the secondary. I don’t know what the agreement was among David, Chrys Bader and those that did. And I don’t know the status now — maybe they’ve returned the money, maybe they don’t need to or can’t. But even if they returned all of the money, it wouldn’t affect GV, as we didn’t participate. I do want to make clear that this was not a “bank heist,” and that was a poor choice of words on my part. That implies that the founders were trying to line their pockets at the expense of others. After having a heart to heart with David, I don’t think that’s true. David rightly pointed out to me that he and Chrys worked extremely hard. They built something that captured the imagination of a lot of people and had a huge amount of users. The tone and content of my comments as printed don’t pay the appropriate respect to that fact. As a fund, one thing remains true — we are not excited about founders selling stock early in a company’s life cycle. It provokes the question — if founder’s are sellers, why would we or others be buyers. As for it not being “sustainable,” there is no way to ascribe that to the founders any more than the million other reasons a start up can fail. This one did. But credit to the founders for not just running out the clock and spending all the money — and instead returning some capital to investors rather than running it into the ground. That takes bravery. It doesn’t happen often. As I now understand, David is doing a lot to make it as right as he can with his investors and employees. I’m glad your article sparked the conversation that had enough truth in it to help me evolve my opinions to some that I think are more correct. Best, Bill

11y ago

dennisgoldstein 11y ago

Proof? I can make random claims too.