> Remember that raising money is not success. Raising huge amounts of money early on is very rarely how companies win (though it is sometimes how companies lose)
I honestly think one of the reasons the company I worked for was successful was our inability to raise money while we were young, which forced a real discipline and creativity for how to do more with less. It also made us skeptical of investors and ensured we didn't base our internal feelings about the company based on what a bunch of incredibly fickle investors thought. This was important both when investors hated us, and perhaps more important when they switched and loved us.
And to the second point, I saw first hand how easy money made one of our competitors so cocky they had no chance of success, and another one got too much money and got distracted spending it all to actually make a core business that made sense.
Money is necessary and important, but having too much of it is also a risk that you need to take seriously.
Counterpoint: if you're running out of money, the next investor you try to raise from is going to be tough to negotiate with. If you have years of runway left, you're in control when talking to investors, when you have 6 months, they're in control. Another point is that when everything comes down crashing, as it did in 2008, and you can't raise money anywhere nor, in many cases, make a profit in the near future since demand for everything also crashes, then if you've squirreled away enough money, you don't have to fire anyone, nor close shop.
This is not to say that too much money can't cause the problems you mentioned. The cure is to keep the money in the bank and not spend it.
All of the above is what my employer did, not my own personal idea. (Also no VCs, these gut the company if it's neither public nor profitable in 5 years, or at least they used to.)
Agree, I saw a startup where I worked go down because of too much money.
They had a very good seed round and raised $2M. They used this to develop their first product, which did really well. After 2 years we had 50 employees and were breaking even, sometimes even a bit profitable, so we had even some extra in the bank. Obviously such numbers drove investors crazy, and they went to the highest amount they could raise without selling most of the company. So they raised about $20M.
After a few months our product (and our income) started to dwindle (competitors were upping up their game, different platforms became relevant,...), but the founders were very chill about it - I guess because we had enough cash in the bank to run the business for years without firing anyone.
But after a year of so the investors started to panic - no wonder since our revenue numbers were in freefall. After another year or so the founders were forced to sell the company for small change compared to what it was valued at its peak.
Caveat: I'm a seed stage VC, so obviously I have a horse in this race.
I don't agree with this advice. Well, in theory, I strongly agree that avoiding excessive dilution is ideal. But the suggested numbers (10% dilution for a seed round) feel very unrealistic to me. It's very hard to get far on that kind of money for a seed stage company. If anything, the proliferation of bridge rounds and seed extensions and series of convertible notes show that even after raising seed rounds, many companies need more capital to get to a series A.
It's also interesting to note that the 10% figure is coming from YC, which takes 7%. That's a considerable amount of dilution, too (and very worth it, IMO).
Finally, I've never been a founder, but I imagine if a company becomes enormous, I'd care less about whether my net worth was $200m or $250m as a founder. So the dilution seems less important than having enough capital for a successful outcome. I'd rather have 60% of a small exit than 80% of a $0 exit.
I do believe in constraints and good cash management, so regardless of how much founders raise, they should be conservative with spend until they have strong product market fit.
> I imagine if a company becomes enormous, I'd care less about whether my net worth was $200m or $250m as a founder
As an ex-founder I never understood why people make this argument because it's completely symmetric. I.e. I could rephrase it as "I imagine if a company becomes enormous, I'd care less whether my outcome was $200m or $250m as a VC"
I agree with the advice in the article but would phrase it slightly differently -- work hard to structure your company such that you can get away with raising as much as you need and still give away only 10%-15% each round. (Or, yet another way to put it, build a company so successful that you can dictate the terms)
I agree. Ironically, this was the advice we got while going through YC (yours, not Sam's.)
Specifically: don't worry about valuation because success is binary. You either make enough money that you don't care too much about percentage or you make zero dollars in which case you don't care about percentage.
The idea of constraints helping to focus a team sounds true, as long as people have enough to not worry about money. Note that this advice comes from Sam, who literally got scurvy from eating too much Ramen while a founder of Loopt.
One big problem with dilution isn't that you make less money but that you lose control of the company. And poor decisions by investors are a good contender for the #1 thing killing companies. For a VC this is yet another bet which they don't quite understand or care about, compared to a founder for whom it's the bet, and they understand it and care about it much more. Founders being in control is better than VCs being in control.
We are VC/early stage investors in New Zealand, and give the advice constantly to raise as little as possible at each stage - and plan to get back to cash-flow positive if another round does not turn up. It's a function of our lean investor ecosystem here, but it also creates companies that treasure every dollar and are even more attractive for investors.
I agree, this is hard to do. Because most investors triangulate on 15-25% per round, and use the amount of money you expect to raise as a way to back into a valuation.
As a founder, the best way to do this in a seed round would be to raise (all or most of) your seed round from Angels, who are more likely to sign off on a note / safe at a specific cap without knowing the total amount raised, and then you can triangulate on 10%.
It's worth noting that this game is even harder outside of the valley, because while operating costs are significantly lower, so are valuations, and most companies will bump into minimum cash needs for 12-18 months.
Sam made a good point: running out of money is way worse than optimizing for your cap table.
Let me make a second point: Optimizing for success is way more important than optimizing your cap table. In other words: If you believe a specific investor meaningfully adds to the probability of a success state for your company, then its probably a good bet even if you are not happy about the dilution.
In order of what you should care about:
1. Not running out of money.
2. Finding people who can be value-add and help you prevent mistakes and find success.
...
3. Dilution (within reason).
Also, you can always recap founders in later stages. It happens.
To me it's about the control more than it's about the money. If preferred shares got half the voting rights as common then the difference between a 10% seed and a 15% seed isn't as bad, but after accelerator / angel takes 7%, seed takes 15% and possible bridge + series A takes 30% you're down to raising a series B and admitting that you're no longer in control of the company.
> I'd rather have 60% of a small exit than 80% of a $0 exit.
60% is one funding deal away from becoming a minority stake, while 80% leaves room to do another deal while still maintaining control. Money is not the only concern here.
My first reaction was "wow my company must have sucked." And granted on many levels we did (and were never close to being the hottest company in the world), but if I fought for 10% seed dilution I would have been laughed out of the room.
Maybe it's different if you're a shit-hot YC company, but man. I thought you were successful if you stayed below 20% at seed.
If you're asking yourself this question, you're not focusing on building your business. How to spend it becomes a distraction.
The converse also happens: for any business problem the easiest solution is to spend money. Leads? Leadgen firm. Hiring? Recruiters. Code? Outsource, or contract out. Testing? you get the picture.
Throwing money at a problem is a short term fix but fails to build competence at doing that thing. The lack of experience weakens your company in the long term. It's organizational muscle that didn't get exercised. It atrophies over time.
This might make sense for certain areas, but having too much money on hand makes it very tempting to solve all problems with this one hammer.
Somebody please make this: like TransparentStartup [1] but instead of sharing revenue numbers the startup shares their cap table so that we can see how it changes over time after multiple rounds of fundraising.
I feel like seeing concrete examples of how the founders' share of their company changes based on the size/details of a fundraising round would be super useful for founders as they negotiate funding rounds.
Are there any companies currently sharing these details that I'm not aware of?
I would love to see that along with the founder and early employee stakes broken down on the company side. This is all so easy when you read it on various websites and haven't actually done it on your own. Then you get in the driver seat and there's all this crap flying at you that doesn't fall into any one bucket. The guy who is critical to your business doesn't care how much equity he gets. The gal who is not as critical is ready for a cage match. The investor wanting to throw you 5 million makes the offer over a burger and a beer. The guy in the next town over wants pages of documentation for his $20,000.
Serious question here for people who know about this.
"I have recently seen several examples of companies doing pretty well and going out to raise B rounds with investors already owning 50-60% of the company. In all cases, they are having a tough time."
I know a company in this position. Not quite going out to raise a Series B, but lots of interest from current Series A investors in doubling down (doing an internal growth round).
What's special about this scenario is that the company is profitable and has millions in revenue and grew 1,200% since the Series A investment round just a couple years ago. But because the pre-Series-A financing was at depressed valuations, there is only 30% of stock for the common, and the founders/employees are (rightfully) worried about dilution. The cap table is clean, but the distribution is unfavorable.
In this case, could founders make a reasonable argument that Series A investors should buy out seed investors and angels rather than diluting the common stock holders further? It seems like secondary liquidity for the angels would be attractive to them, and I heard that when offering secondary liquidity for those seed-stage investors, one could do some sort of "stock-cash swap" that avoids dilution of the common. Anyone heard of something like this or have good reading material about it? It seems like an esoteric "third way" between Series A and exit.
That seems reasonable if you can find Seed investors willing to sell. The very fact that the new investor wants to put money in at a favorable valuation may be the type of thing that makes the seed investor think "this company might be getting hot" and decide they don't want to sell.
A classic comment from the CEO of a startup I worked at during an all hands after a new round of funding, someone asked about dilution. The CEO (with a straight face) said, "you weren't diluted, the share price increased." The question was from one of the early employees. It was one more item that made a few of us who were already fed up about a few things leave before even vesting.
Could you link to some resources to help understand this kind of stuff? It's hard to navigate between all the numbers people at startup throw like it's always good things.
For example in your case why was it bullshit? It sounds like you potentially own less but it got more expensive.
In other words, companies are taking investment later and later in their lifespan so founders need to be sure thy have some left many years and many rounds after they started. Capital is dirt cheap and desperate for return - and only getting cheaper.
Tangential question: How do founders typically retain control of their company? I've specifically been told that it's wise for one person to own 51pct of the company and be CEO. However, with 20 pct of equity for investors and 10 reserved for future employees, this doesn't seem to leave much for cofounders who are potentially putting as much skin in the game as the CEO.
Historically, when this has happened, it's because the founders have managed to build the product & get on the growth trajectory before taking investment. Bill Gates built Altair Basic, sold it to hobbyists, and reinvested the profits to buy MS-DOS and sell it to IBM. Larry & Sergey had a working search engine that was using up half of Stanford's bandwidth before they took their first angel investment. Facebook was a dorm-room project. SnapChat was a final project for a Stanford product-design course and had 100k users before it took investment. The Apple 1 was done in Steve Wozniak's nights & weekends, and had sold out before they took investment for the Apple 2.
If you have a working product and ideally money coming in, the early negotiation leverage changes dramatically. You can skip the seed round entirely, because you've already seeded the project. You can usually get a very good valuation on Series A, since your metrics look great and every VC wants a piece of you. You can negotiate to give away very low equity stakes in later rounds, since at that point you seem like a sure thing.
The flip side is that most side projects don't go anywhere. You need to be both very dedicated and very lucky to strike it big without investment.
That would only happen when you have a line of investors waiting to invest and you can dictate the terms because of your high growth trajectory. In most cases though, it's not going to happen because of the standard numbers outlined in the article.
You're assuming that all equity is equal. It isn't. For example, shares given to employees are often non-voting. A company could have 99.99% of the equity in non-voting stock, meaning whoever holds the 0.01% that have voting rights controls the company.
When it comes to shares "ownership" does not directly correlate with "control".
This felt more from a VC perspective than a founder's one..
1. VCs have portfolios and can talk about averages. As a founder, you're dealing with your particular reality, and as startup phases are inherently high variance... your terms will be all over the map, and not driven by your dilution aspirations. Oh, SaaS crashed this quarter and you lost your F100 account? Too bad for you. Bots are in? Sweet!
2. I'm surprised by the dilution percentages here: I'm guessing they're for the top 10% or so, where everything already aligned anyway. Likewise, I'd expect it for something like a SaaS snack boxes -- stuff where averages and predictability make sense from day 1, not crazy bumpy tech etc. Otherwise, for example, VCs will fight HARD for their % minimums. So, 10-15% sounds like one VC at their absolute bottom... and therefore not normal.
3. 7% might be what accelerators converged on... but that's high compared to F&F, angels, & specialized advisors in your field (vs "startups").
Do I understand correctly that every time you have pitched VCs in the past 5 years they wanted to give you money? If pitched to many VCs over the years and never been offered investment. The rest of you make it sound so easy
Bug fix: in an earlier version I used 12.5% and 20% as the rough targets for seed and A rounds. Then I decided to switch to 10-15% and 15-25% ranges. Somehow that change only partially got made, indicating 10% and 15-25%. Now it's fixed.
I think it's a bit insensitive not to mention that at the seed stage most companies throughout the world cannot raise any money on any terms, period. (Literally: period.)
This includes companies with revenue and built product.
The rest of the advice is good and interesting - but it really is for companies that can raise in Silicon Valley.
The other consideration with raising a large round is that you are going to have a high valuation. If your company is awesome and growing really fast, this is no problem. However, if you overestimated your market and struggle to grow into that high valuation, you limit your options for a successful exit.
I've raised money, couldn't raise money, have had friends that couldn't, have ended up having friends slogging through to become millionaires without any vc, and even turned down rounds hoping to get more.
Now when I look back and think "how would I do this now?" I come to two conclusions.
1. If I want to own an idea as a business owner over the long term, then I don't care about investors. This is my Basecamp spidey sense and convictions. My happy path.
2. My idea is great, I need some money. However.... Nowadays I'm thinking along the lines of "long term (hopefully,, but I suspect that most people don't care bs long term"", which is not SV or wall st friendly. I am seriously looking at non-profit.
Uggggh!
I've been through #1 a gazillion times and now, since I have a family and a diff outlook on life, I'm looking longer term.
But, how does the 'family dude' perspective conflict with the Uber perspective?
Growth is the altar that we all kneel to. The Iron Throne. But, it doesn't have to be this way. Granted, we all have Maslow's needs and that varies based on a number of factors (geographic, personal, etc). But in the end, what is our purpose?
Are we here to sustain sexual harassment via star pupils at Uber so they that their 'CEO' can grow? (At the expense of human beings?)
What is the point of growth or even exponential growth? Money? Riches?
Look, I think YC is better than not and I think that we - we tech people - need to lead the way because we 'can'. Thumbs up on riches, algorithms, and technology. These are awesome progressive things!
But, seriously, after going thru the vc grinder, seeing the cap tables of founders and everyone else and then THEN (stupidly) agreeing to this inequity.. Well, the fault is obviously mine but there is is (a lot) of fault with these pump and dump startups.
Do startups ever pre-allocate blocks of equity for investors? I understand it's common to carve out N shares for employee options.
Say pre-raise look like this...
- 30% for founders
- 20% for employees
- 50% for future investors
Then when raising initial funds, you sell 20% the total pie (40% of the investor block) of the company to investors, making the share split look like this...
- 30% for founders
- 20% for employees
- 20% for current investors
- 30% for future investors
When an exit occurs, any unallocated shares get split up among the existing shareholders using whatever formula is used to calculate how the money is distributed.
I did something like this with our company, but it doesn't really do anything other than make round share counts. All that matters is the proportions between shareholders, not the number of unissued shares.
Diluting founders' equity is the least important point. A messed up cap table can make your startup uninvestable. It hurts the whole company, not just you, the founder. Which is why you mostly see these deals peddled by VCs without a track record.
Even if you can't get a different deal you might want to pass. There's just no point. Unless all you want is a salary.
[+] [-] birken|9 years ago|reply
I honestly think one of the reasons the company I worked for was successful was our inability to raise money while we were young, which forced a real discipline and creativity for how to do more with less. It also made us skeptical of investors and ensured we didn't base our internal feelings about the company based on what a bunch of incredibly fickle investors thought. This was important both when investors hated us, and perhaps more important when they switched and loved us.
And to the second point, I saw first hand how easy money made one of our competitors so cocky they had no chance of success, and another one got too much money and got distracted spending it all to actually make a core business that made sense.
Money is necessary and important, but having too much of it is also a risk that you need to take seriously.
[+] [-] yosefk|9 years ago|reply
This is not to say that too much money can't cause the problems you mentioned. The cure is to keep the money in the bank and not spend it.
All of the above is what my employer did, not my own personal idea. (Also no VCs, these gut the company if it's neither public nor profitable in 5 years, or at least they used to.)
[+] [-] sydd|9 years ago|reply
They had a very good seed round and raised $2M. They used this to develop their first product, which did really well. After 2 years we had 50 employees and were breaking even, sometimes even a bit profitable, so we had even some extra in the bank. Obviously such numbers drove investors crazy, and they went to the highest amount they could raise without selling most of the company. So they raised about $20M.
After a few months our product (and our income) started to dwindle (competitors were upping up their game, different platforms became relevant,...), but the founders were very chill about it - I guess because we had enough cash in the bank to run the business for years without firing anyone. But after a year of so the investors started to panic - no wonder since our revenue numbers were in freefall. After another year or so the founders were forced to sell the company for small change compared to what it was valued at its peak.
[+] [-] k__|9 years ago|reply
I mean, I do contract work with startups and get paid with investor money all the time, so it's good for me.
But I think most investors are a liability.
First you have to make your employees and your customers happy and now you also have to make investors happy? How shoult this be a good thing?
It's hard enough to build products for users I can't directly interact with, why should this equation get another variable :\
[+] [-] lpolovets|9 years ago|reply
I don't agree with this advice. Well, in theory, I strongly agree that avoiding excessive dilution is ideal. But the suggested numbers (10% dilution for a seed round) feel very unrealistic to me. It's very hard to get far on that kind of money for a seed stage company. If anything, the proliferation of bridge rounds and seed extensions and series of convertible notes show that even after raising seed rounds, many companies need more capital to get to a series A.
It's also interesting to note that the 10% figure is coming from YC, which takes 7%. That's a considerable amount of dilution, too (and very worth it, IMO).
Finally, I've never been a founder, but I imagine if a company becomes enormous, I'd care less about whether my net worth was $200m or $250m as a founder. So the dilution seems less important than having enough capital for a successful outcome. I'd rather have 60% of a small exit than 80% of a $0 exit.
I do believe in constraints and good cash management, so regardless of how much founders raise, they should be conservative with spend until they have strong product market fit.
[+] [-] coffeemug|9 years ago|reply
As an ex-founder I never understood why people make this argument because it's completely symmetric. I.e. I could rephrase it as "I imagine if a company becomes enormous, I'd care less whether my outcome was $200m or $250m as a VC"
I agree with the advice in the article but would phrase it slightly differently -- work hard to structure your company such that you can get away with raising as much as you need and still give away only 10%-15% each round. (Or, yet another way to put it, build a company so successful that you can dictate the terms)
[+] [-] tyre|9 years ago|reply
Specifically: don't worry about valuation because success is binary. You either make enough money that you don't care too much about percentage or you make zero dollars in which case you don't care about percentage.
The idea of constraints helping to focus a team sounds true, as long as people have enough to not worry about money. Note that this advice comes from Sam, who literally got scurvy from eating too much Ramen while a founder of Loopt.
[+] [-] yosefk|9 years ago|reply
[+] [-] lancewiggs|9 years ago|reply
[+] [-] Brushfire|9 years ago|reply
I agree, this is hard to do. Because most investors triangulate on 15-25% per round, and use the amount of money you expect to raise as a way to back into a valuation.
As a founder, the best way to do this in a seed round would be to raise (all or most of) your seed round from Angels, who are more likely to sign off on a note / safe at a specific cap without knowing the total amount raised, and then you can triangulate on 10%.
It's worth noting that this game is even harder outside of the valley, because while operating costs are significantly lower, so are valuations, and most companies will bump into minimum cash needs for 12-18 months.
Sam made a good point: running out of money is way worse than optimizing for your cap table.
Let me make a second point: Optimizing for success is way more important than optimizing your cap table. In other words: If you believe a specific investor meaningfully adds to the probability of a success state for your company, then its probably a good bet even if you are not happy about the dilution.
In order of what you should care about:
1. Not running out of money.
2. Finding people who can be value-add and help you prevent mistakes and find success.
...
3. Dilution (within reason).
Also, you can always recap founders in later stages. It happens.
[+] [-] 3pt14159|9 years ago|reply
[+] [-] codingdave|9 years ago|reply
60% is one funding deal away from becoming a minority stake, while 80% leaves room to do another deal while still maintaining control. Money is not the only concern here.
[+] [-] austenallred|9 years ago|reply
Maybe it's different if you're a shit-hot YC company, but man. I thought you were successful if you stayed below 20% at seed.
[+] [-] achou|9 years ago|reply
If you're asking yourself this question, you're not focusing on building your business. How to spend it becomes a distraction.
The converse also happens: for any business problem the easiest solution is to spend money. Leads? Leadgen firm. Hiring? Recruiters. Code? Outsource, or contract out. Testing? you get the picture.
Throwing money at a problem is a short term fix but fails to build competence at doing that thing. The lack of experience weakens your company in the long term. It's organizational muscle that didn't get exercised. It atrophies over time.
This might make sense for certain areas, but having too much money on hand makes it very tempting to solve all problems with this one hammer.
[+] [-] Abundnce10|9 years ago|reply
I feel like seeing concrete examples of how the founders' share of their company changes based on the size/details of a fundraising round would be super useful for founders as they negotiate funding rounds.
Are there any companies currently sharing these details that I'm not aware of?
[1] http://www.transparentstartups.com/
[+] [-] god_bless_texas|9 years ago|reply
[+] [-] antidilution|9 years ago|reply
"I have recently seen several examples of companies doing pretty well and going out to raise B rounds with investors already owning 50-60% of the company. In all cases, they are having a tough time."
I know a company in this position. Not quite going out to raise a Series B, but lots of interest from current Series A investors in doubling down (doing an internal growth round).
What's special about this scenario is that the company is profitable and has millions in revenue and grew 1,200% since the Series A investment round just a couple years ago. But because the pre-Series-A financing was at depressed valuations, there is only 30% of stock for the common, and the founders/employees are (rightfully) worried about dilution. The cap table is clean, but the distribution is unfavorable.
In this case, could founders make a reasonable argument that Series A investors should buy out seed investors and angels rather than diluting the common stock holders further? It seems like secondary liquidity for the angels would be attractive to them, and I heard that when offering secondary liquidity for those seed-stage investors, one could do some sort of "stock-cash swap" that avoids dilution of the common. Anyone heard of something like this or have good reading material about it? It seems like an esoteric "third way" between Series A and exit.
[+] [-] bartmancuso|9 years ago|reply
[+] [-] jmspring|9 years ago|reply
[+] [-] grosbisou|9 years ago|reply
For example in your case why was it bullshit? It sounds like you potentially own less but it got more expensive.
[+] [-] alexmingoia|9 years ago|reply
[+] [-] oculusthrift|9 years ago|reply
[+] [-] nostrademons|9 years ago|reply
If you have a working product and ideally money coming in, the early negotiation leverage changes dramatically. You can skip the seed round entirely, because you've already seeded the project. You can usually get a very good valuation on Series A, since your metrics look great and every VC wants a piece of you. You can negotiate to give away very low equity stakes in later rounds, since at that point you seem like a sure thing.
The flip side is that most side projects don't go anywhere. You need to be both very dedicated and very lucky to strike it big without investment.
[+] [-] hbhakhra|9 years ago|reply
[+] [-] onion2k|9 years ago|reply
When it comes to shares "ownership" does not directly correlate with "control".
[+] [-] jacquesm|9 years ago|reply
Well, if that CEO puts up 51% of the capital that might happen. But otherwise the better formula is to be equals as co-founders.
[+] [-] lmeyerov|9 years ago|reply
1. VCs have portfolios and can talk about averages. As a founder, you're dealing with your particular reality, and as startup phases are inherently high variance... your terms will be all over the map, and not driven by your dilution aspirations. Oh, SaaS crashed this quarter and you lost your F100 account? Too bad for you. Bots are in? Sweet!
2. I'm surprised by the dilution percentages here: I'm guessing they're for the top 10% or so, where everything already aligned anyway. Likewise, I'd expect it for something like a SaaS snack boxes -- stuff where averages and predictability make sense from day 1, not crazy bumpy tech etc. Otherwise, for example, VCs will fight HARD for their % minimums. So, 10-15% sounds like one VC at their absolute bottom... and therefore not normal.
3. 7% might be what accelerators converged on... but that's high compared to F&F, angels, & specialized advisors in your field (vs "startups").
[+] [-] matchagaucho|9 years ago|reply
Maybe I over-corrected by choosing to bootstrap, but you can never own too much of your own company.
In the VC's defense, their funds are increasing at a rate disproportionate to the number of partners available to manage the investments.
VCs simply cannot focus on 100 $1M investments with 5 partners.
[+] [-] gmarx|9 years ago|reply
[+] [-] sama|9 years ago|reply
[+] [-] logicallee|9 years ago|reply
This includes companies with revenue and built product.
The rest of the advice is good and interesting - but it really is for companies that can raise in Silicon Valley.
[+] [-] dandare|9 years ago|reply
"...during my career I have raised $100 million..."
Yeah? And how much value did you create?
[+] [-] Quanticles|9 years ago|reply
money to do stuff = good
wise spending = good
these are all known things, i'm not sure this article actually digs much into how to balance them
[+] [-] SFJulie|9 years ago|reply
Because I have none of it.
[+] [-] jartelt|9 years ago|reply
[+] [-] equalarrow|9 years ago|reply
I definitely have an opiniosn.
I've raised money, couldn't raise money, have had friends that couldn't, have ended up having friends slogging through to become millionaires without any vc, and even turned down rounds hoping to get more.
Now when I look back and think "how would I do this now?" I come to two conclusions.
1. If I want to own an idea as a business owner over the long term, then I don't care about investors. This is my Basecamp spidey sense and convictions. My happy path.
2. My idea is great, I need some money. However.... Nowadays I'm thinking along the lines of "long term (hopefully,, but I suspect that most people don't care bs long term"", which is not SV or wall st friendly. I am seriously looking at non-profit.
Uggggh!
I've been through #1 a gazillion times and now, since I have a family and a diff outlook on life, I'm looking longer term.
But, how does the 'family dude' perspective conflict with the Uber perspective?
Growth is the altar that we all kneel to. The Iron Throne. But, it doesn't have to be this way. Granted, we all have Maslow's needs and that varies based on a number of factors (geographic, personal, etc). But in the end, what is our purpose?
Are we here to sustain sexual harassment via star pupils at Uber so they that their 'CEO' can grow? (At the expense of human beings?)
What is the point of growth or even exponential growth? Money? Riches?
Look, I think YC is better than not and I think that we - we tech people - need to lead the way because we 'can'. Thumbs up on riches, algorithms, and technology. These are awesome progressive things!
But, seriously, after going thru the vc grinder, seeing the cap tables of founders and everyone else and then THEN (stupidly) agreeing to this inequity.. Well, the fault is obviously mine but there is is (a lot) of fault with these pump and dump startups.
[+] [-] 65827|9 years ago|reply
[+] [-] CalChris|9 years ago|reply
[+] [-] amorphid|9 years ago|reply
Say pre-raise look like this...
- 30% for founders
- 20% for employees
- 50% for future investors
Then when raising initial funds, you sell 20% the total pie (40% of the investor block) of the company to investors, making the share split look like this...
- 30% for founders
- 20% for employees
- 20% for current investors
- 30% for future investors
When an exit occurs, any unallocated shares get split up among the existing shareholders using whatever formula is used to calculate how the money is distributed.
[+] [-] jkarneges|9 years ago|reply
[+] [-] auganov|9 years ago|reply
Even if you can't get a different deal you might want to pass. There's just no point. Unless all you want is a salary.