I have very limited knowledge of this situation, but, I'm gonna pile on anyway:
With that kind of money raised, the founders didn't get "nothing". They got a salary, probably a decent one, for however long they were running the thing. Which is more than many startup founders get out of businesses that fail. If they don't have personal debt, or didn't lose relationships or friendships, they came out ahead of many startup founders who started a business that failed.
They raised more money than the business was worth. I don't blame them for doing so; many people have done it, and no amount of seeing other people make that mistake will necessarily prepare a founder to turn down several million dollars of extra runway to try for the big exit. But, it sounds like there is simply less money on the table than there are people wanting that money (and that have contractual rights to it).
Given the interests of GetSatisfaction were always misaligned with the interests of their customers (i.e. the business model was effectively a shakedown, in the same vein as Yelp), it shouldn't be surprising that eventually their dreams didn't align with the reality of how many people wanted to pay for it. No matter how good the product is, if you have to extort people to buy it, you're not building a sustainable business.
I'm all for ranting about VCs being assholes, because sometimes they are. But, as far as I can tell, that's not the case here. Founders made some bad calls, probably some other people did, too. The business failed. It happens. If I were them, I'd take this as a valuable lesson...and probably wouldn't burn bridges with the people who invested in me in the past, because history indicates they'll be the same people to invest in me in the future (a failed business is not a death sentence in the valley, and many investors have invested in the same team for multiple businesses).
We'll see! The founders of GetSatisfaction weren't spring chickens, unaware of the costs-of-capital raised. But sometimes later management and investors do engage in shenanigans. Some will remember Naval Ravikant et al's suit against a cofounder and VCs back in 2005:
> prepare a founder to turn down several million dollars of extra runway to try for the big exit.
Every huckster thinks he can pull off the big pump-n-dump. Most don't.
> the business model was effectively a shakedown,
Sure sounds like it. Protection rackets only work if you can beat people up and burn their stuff, and GetSatisfaction failed to do either. Too bad, so sad.
VCs aren't assholes, generally, but their standard terms are a bad deal for founders, generally. I've thought about this a lot over the past 25 years. In the past I've seen VCs do really bad things (like force decisions that set the company back 18 months bad.) The problem is, when you get a "good" VC that doesn't force bad decisions on you ,the cost of the money, mostly in deal terms, is too damn high.
And when you push back on them about this the response is you get are generally:
"This is a standard term" eg: everybody else is doing it. Well, tough. I'm actually reading before signing.
"If we don't have this method of double dipping [one of the four different ways they are doing so], then you could take the company and sell it for the money we put into it and that would be a bad deal for us." You mean your share of the company in such a situation isn't equal to the amount of money you put in? First off, I don't believe you because this valuation is kind of a joke and you've spent weeks telling us scary stories to try and keep it down, and secondly, your inability to get the equity you want for your money is your problem, not mine. That is like saying you think you're getting a bad deal so you want to cheat me to get a better deal? So let me get this straight, I took real risk and built up sweat equity, but you want my shares to be discounted effectively because you don't trust me? Ok, how about we discount your shares because I don't trust you? (I don't trust anyone who doesn't trust me. Usually they're projecting their own intentions.) Also, all you're doing-- at best-- is putting money in. Money can be acquired from any number of places and methods. The expertise we gained while building the company is irreplaceable and the knowledge of our own product and the risk we took getting it to here is far more valuable than your money. So, we have a split of the shares that accounts for that. The shares you get account for all of that.
"trust us". Nope, if you don't trust me, don't do a deal with me.
Don't even get me started on founders vesting their shares. You build a company, you have sweat equity, but the VC wants to reset the vesting? Why ? You can't vote unvested shares. They will give you a song and dance about "what if a founder leaves?" Well, we covered that in our articles of incorporation because we're not idiots, but they will ignore that and insist that "all founders must vest all their shares". (this is more common on early VC deals.) That's straight up taking paid for (with equity) and earn shares and turning them into a class of potential shares. Nope Nope Nope. Give founders part of the option pool as an incentive, fine. But reseting is just setting you up to be sucker punched when they want to replace a founder (because they don't like how things are going and need a scapegoat, no matter that it's the worst thing for the business at that point. But Tada! All your shares you already earned are now vesting again! Look at that! Even thought the other founders don't want you out, you don't have enough votes!
I think that the culture of "startups" over the past decade has become a bit cargo cult where there's a specific plane you build to get the money to rain from the sky.
This is: Go to accelerator, do VC deal, take the VC money and buy growth, use that to do another VC deal, rinse and repeat until you either stumble onto a working business (Uber, AirBnB) or you go bust (get Satisfaction)
The problem with this is that the cost of those VC deals are not in the founders interests. Far too often they hit base hits and build viable fast growing companies and then get taken out and don't get adequately compensated (and all the non-founder employees really get screwed.)
The other problems with this is once you take money from a VC you're locked into trying, and repeatedly betting the company, on being the next Uber. Being 37 Signals is not sufficient. Being Github (before the A18Z investment) is not sufficient.... even though both of those are obviously great fast growing companies that would make their founders and employees a lot of money at a liquidation event. And such event is far less likely under VCs because they want a $1B valuation (in fact their fund NEEDS a $1B valuation to cover all the losers)... whereas a $50M, $100M, $250M or $500M valuation (with no dilution from taking VC money) even though it's drastically smaller would result in the founders and early employees getting rich, and even the later employees getting a nice bonus.
Take angel money on good, clean, simple terms. If you need that to get going, go for it.
I think the age of the VCs is past. They just haven't realized it yet.
Ok, whenever I say things that are critical of VCs I get a lot of responses that are sorta knee jerk defenses of VCs. I've been working for startups and founding startups for over 25 years. I've seen it back when it was much worse and it cost a lot more to do a company. I've ridden this industry from BEFORE the dotcom bubble started to inflate. I'm speaking form experience here. Even when the VCs are "good" - in the top %10 of the VCs I've had direct experience with-- the deal isn't good for the founders in the end. They paid too much for their money.
You want VC money. Ok, why? Because that's your dream? Your dream should be to build a company.
Your plan should be to build a compelling product or service that really makes people go crazy with desire to throw money at you for it. I'm talking about CUSTOMERS.
All the time you spend dealign with VCs takes away from that and the deals aren't good.
You need money? Ok, go on Angel.co, get backed by a syndicate. Find Angels in your community. Charge for your product from day one. If github can do it, you can do it. Plow your profits into growth and product development. Take as little money as you can to get top product market fit. VC money is wasted before that point anyway. Even angel money should just be used to keep the lights on until you get to product market fit. Once you haver that, you have revenue, maybe take some more angel money to jumpstart marketing, but plow your operational profits int growing the business.
Don't delude yourself into thinking your pokemon website is a billion dollar business. It isn't.
Don't even waste time chasing VCs. By definition that are bad at picking and they will try to force you to bet it all only our pokemon wiki being a billion dollar business.
GS may have made a bunch of mistakes, but I'm using decades of experience here to reach my conclusions.
If you go thru YC or TechStars (but not any other accelerator) then maybe you might have a real business that could be a billion dollar business, but even then why not raise angel money instead of VC money? And I mean angel money on terms like the YC deferred-valuation deal that replaces convertible notes. (can't remember the name at the moment.)
Don't do any deal with liquidation preferences or any other kind of shenanigans. (And don't wave your hands about why VCs need LP in front of me. Your math doesn't add up, it can't add up.)
The model will never change until VCs realize they are dinosaurs. Or let VCs fund late stage deals, I'm sure their terms are not so terrible (unless the company is dying.)
Sounds like the premise of the latest episode of Silicon Valley (season 2)
The raised more than they they needed, sold for less. Founders got nothing. Literally the same :)
"They got a salary, probably a decent one, for however long they were running the thing." - I want to second this. I worked for a startup that the C level's made huge bucks (we were paid really well too) and they would wine/dine on the companies $$ all the time. They sold the company for a little more then the funding they got, but spun a new company off where investors got little and they cashed out.
"With that kind of money raised, the founders didn't get "nothing". They got a salary, probably a decent one, for however long they were running the thing. Which is more than many startup founders get out of businesses that fail. If they don't have personal debt, or didn't lose relationships or friendships, they came out ahead of many startup founders who started a business that failed."
Well, you should always consider the alternative cost. I don't know the founders but I can assume that if they would have work somewhere else they had much higher salary/ benefits etc
The VC industry is ripe for disruption it would seem?
I wonder how quickly the landscape would change if billionaires from various other fields started investing arms to fund tech. Considering the trend in club football where billionaires who have nothing to do with football started investing in football clubs all over Europe. The way they went about running the whole business changed the face of club football forever. Disruptive is mildly putting it as European football's premier footablling body (UEFA) has tried to regulate the flow of cash and has imposed strict investment guidelines ever since, to cope with it. Sort of.
Agreed, although GetSatisfaction describes itself as "the leading customer engagement platform" - a broad area like customer engagement seems like it has gigantic revenue potential and if they're the leading business in that sector..
Wow, the arrogance of expecting 'hush money' and complaining if you don't get it? Liquidations preferences are pretty much the norm in Silicon Valley, if they didn't understand how they worked when they chose to get outside investment, then they never should have agreed to the liquidation preferences to begin with (which may easily mean they never should have gotten outside investment to begin with).
When startups don't sell for above their valuations, the investors are going to get their money back first (and in varying cases more, depending on liquidation preferences).
Post valuation at over $50M - no data yet on the amount of the acquisition, but if it was equal to that or less (or if the liquidation preferences for the A/B rounds were greater than 1X) it's pretty clear the founders wouldn't have gotten anything from the acquisition. But as someone else pointed out, it IS likely they got a salary from those early rounds of investors, which, is better than most startup founders see.
The acquirer, Sprinklr, is funding multiple acquisitions out of their recently raised $46M, so it's fairly certain that the amount of this acquisition was less than $50M
The thing I was surprised by is that the preferred stock had a 6% dividend. Is that common nowadays?
Back around 30 years ago when I was at startups, the preferred didn't get any dividends. It existed to allow the VCs to stay ahead of founders/employees in case of IPO, liquidation, etc. Not to collect a dividend along the way.
This is interesting, because according to the screenshot from PitchBook elsewhere in the thread, OATV and First Round both participated in the Series B, which was the last equity round.
If that's accurate, in order for OATV and First Round to get nothing, whoever did that debt financing in 2014 would have had to have gotten 100% of the proceeds, with none left to trickle down to the Series B.
We don't have the details, of course, but taking on debt and then selling for less than the amount needed to cover the debt a year later certainly sounds like a party foul. If your company's in such a precarious position, normally you can't even get debt financing.
Based on the equity rounds, the founder has nothing to kvetch about - they raised and the company didn't get to where it needed to be. But if I were investigating this, I'd dig into the terms of and decision to take that final debt round. Could be nothing, but there's a lot that could've happened there that'd make a founder tetchy.
As a technical founder, I'd be very careful to start a company again.
I used to ignore finance and bureaucracy, but the industry has changed a lot. The popular quote 'just passionately build something' is nothing but a trap. Although something like YC doesn't fit this profile, one will eventually find himself in a hostile situation.
Maybe don't take buckets of cash that you don't/shouldn't need? That $XXmm isn't free and is a good way to hand someone a leash tied around your neck.
It looks like Get Satisfaction raised $20mm. Why that much? Did all that money contribute towards success? Or was a good chunk of that money not utilized well? Why did the company tank? Were they not acquiring enough customers? Was their business model unsound? What forced the fire sale?
I don't think founders are supposed to get a big payout for a failure, but we need more info before agreeing with this sob story of founders who didn't get a dime.
I think that's a pretty blind statement. Just because you're a technical founder doesn't mean you have to ignore the finance and other non-engineering activities. That's just a bad way to run any company.
Also, being a technical founder doesn't mean you don't have common sense. Yes, GS's founders got nothing, but really it's the employees that saw the largest loss... They signed up to see the company really take off, and it didn't.
But at the end, if your company doesn't make enough money and requires raising amount of money you just don't know how to waste you shouldn't expect a big payday. Being technical isn't an excuse.
I think as more and more tech co-founders go through the meat grinder and deal with the realities of the business side of VC backed startups, we'll start to see technologists start very interesting companies with very different ideologies and goals then people seem to have today. Diversity in how we approach business is a great thing.
Founders probably had a lower liquidation preference than early investors. The acquisition didn't meet the minimum return requirement of these early investors, so nobody else received anything.
Read your term sheets carefully, this isn't uncommon nor something to be surprised about.
According to their website they have 1000s of customers paying 1200+/m. At the low end they're getting 1.2 million in revenue a month and only have 9 employees. Why did they sell? Something is not adding up.
Not sure where you're seeing 9 employees. At the end of 2013 they had 40 employees, and while they laid 10% off in early 2014, they still had over 30 a year ago. Larger customers (of which there weren't 1000's) were paying much more than $1200/year, too. But still, the money coming in wasn't anywhere near the burn rate.
There were more than 9 employees at GS - about 40. There's only 9 employees / former employees that have CrunchBase accounts, so that's why you're seeing that number.
That's happened to other companies. Havok, the physics engine people, went through that. The founders and early investors way overexpanded the business (they had locations in three countries), blew through the initial funding, and tanked. Another group bought the business cheaply, replaced the management, and eventually sold out to Intel.
That's extraordinarily strange - in general, the founders will always get a bonus when a company is acquired. The only scenario in which I've not seen that happen, is when they've left the company - in which they are treated like any common shareholder - they are wiped out if the preferred liquidation preference isn't covered - but, of course, that's precisely why the common is valued at 1/10th of the preferred early on - because it really is worth much less.
The one scenario I've seen where founders who have left the company still get a "consulting" fee during a liquidation, is where they held enough common shares to cause issues during a lawsuit over minority shareholder rights - but typically the employees/founders still with the company being acquired have enough shares to not make it an issue - and, as I noted earlier, it's almost always the case that founders still with a company being acquired get some type of bonus, even if it's a retention fee.
Every time you raise money you negotiate the terms for that private placement. Lets say your start up has 3 rounds, A, B, and C, and raises $1M, $2M, and $10M with a 1x liquidation preference. Now you're business is sagging and you're about to close up shop, but an investor comes in and says "We'll provide the money but we want 3x senior liquidation" which is to say they get paid back 3X their money before anyone else. Lets say they put in $1M, and the company sells for $3M. It all goes to the last investor because they were senior in liquidation rights. Nobody else gets any money.
In terms of that last raise it is sometimes "nothing" (ie close the doors) or one more shot at making it. So from the founder's perspective the 'close the doors' option has them getting nothing, and keeping it alive long enough to sell it may or may not give them a return.
It's not at all uncommon. My third startup, Smart Charter, was acquired pre-launch by Richard Branson and launched as Virgin Charter. Virgin then ran it into the ground. I never saw a dime. :-(
Sounds like some investors took a wash too, so it's likely they had significant debt. Otherwise, it's because other investors held liquidation preferences (possibly at a multiple).
"...if you prefer to provide great support on your own site with your own forums and your own help section and your own feedback mechanisms and your own FAQs, well, Get Satisfaction doesn’t play fair." ~Jason Fried, 37 Signals
Almost any significant round outside of seed would come with liquidation preference. CrunchBase says a total of $20.9 was raised, so if the final sale price was less then $20,900,001.00, there's likely no money left for common stock.
Vcs deal in these companies like poor people deal in Beanie babies. No factory worker in China ever got a bonus when a beanie baby got sold for 10k. Cry me a rive.
SwellJoe|11 years ago
With that kind of money raised, the founders didn't get "nothing". They got a salary, probably a decent one, for however long they were running the thing. Which is more than many startup founders get out of businesses that fail. If they don't have personal debt, or didn't lose relationships or friendships, they came out ahead of many startup founders who started a business that failed.
They raised more money than the business was worth. I don't blame them for doing so; many people have done it, and no amount of seeing other people make that mistake will necessarily prepare a founder to turn down several million dollars of extra runway to try for the big exit. But, it sounds like there is simply less money on the table than there are people wanting that money (and that have contractual rights to it).
Given the interests of GetSatisfaction were always misaligned with the interests of their customers (i.e. the business model was effectively a shakedown, in the same vein as Yelp), it shouldn't be surprising that eventually their dreams didn't align with the reality of how many people wanted to pay for it. No matter how good the product is, if you have to extort people to buy it, you're not building a sustainable business.
I'm all for ranting about VCs being assholes, because sometimes they are. But, as far as I can tell, that's not the case here. Founders made some bad calls, probably some other people did, too. The business failed. It happens. If I were them, I'd take this as a valuable lesson...and probably wouldn't burn bridges with the people who invested in me in the past, because history indicates they'll be the same people to invest in me in the future (a failed business is not a death sentence in the valley, and many investors have invested in the same team for multiple businesses).
gojomo|11 years ago
http://www.nytimes.com/2005/01/26/technology/26iht-dotcom.ht...
http://venturebeat.com/2005/12/09/epinions-settlement-a-blac...
Though I'm not sure it's the case here, I'm of the epinion that occasionally, you need to sue to getsatisfaction.
username223|11 years ago
Every huckster thinks he can pull off the big pump-n-dump. Most don't.
> the business model was effectively a shakedown,
Sure sounds like it. Protection rackets only work if you can beat people up and burn their stuff, and GetSatisfaction failed to do either. Too bad, so sad.
MCRed|11 years ago
And when you push back on them about this the response is you get are generally:
"This is a standard term" eg: everybody else is doing it. Well, tough. I'm actually reading before signing.
"If we don't have this method of double dipping [one of the four different ways they are doing so], then you could take the company and sell it for the money we put into it and that would be a bad deal for us." You mean your share of the company in such a situation isn't equal to the amount of money you put in? First off, I don't believe you because this valuation is kind of a joke and you've spent weeks telling us scary stories to try and keep it down, and secondly, your inability to get the equity you want for your money is your problem, not mine. That is like saying you think you're getting a bad deal so you want to cheat me to get a better deal? So let me get this straight, I took real risk and built up sweat equity, but you want my shares to be discounted effectively because you don't trust me? Ok, how about we discount your shares because I don't trust you? (I don't trust anyone who doesn't trust me. Usually they're projecting their own intentions.) Also, all you're doing-- at best-- is putting money in. Money can be acquired from any number of places and methods. The expertise we gained while building the company is irreplaceable and the knowledge of our own product and the risk we took getting it to here is far more valuable than your money. So, we have a split of the shares that accounts for that. The shares you get account for all of that.
"trust us". Nope, if you don't trust me, don't do a deal with me.
Don't even get me started on founders vesting their shares. You build a company, you have sweat equity, but the VC wants to reset the vesting? Why ? You can't vote unvested shares. They will give you a song and dance about "what if a founder leaves?" Well, we covered that in our articles of incorporation because we're not idiots, but they will ignore that and insist that "all founders must vest all their shares". (this is more common on early VC deals.) That's straight up taking paid for (with equity) and earn shares and turning them into a class of potential shares. Nope Nope Nope. Give founders part of the option pool as an incentive, fine. But reseting is just setting you up to be sucker punched when they want to replace a founder (because they don't like how things are going and need a scapegoat, no matter that it's the worst thing for the business at that point. But Tada! All your shares you already earned are now vesting again! Look at that! Even thought the other founders don't want you out, you don't have enough votes!
I think that the culture of "startups" over the past decade has become a bit cargo cult where there's a specific plane you build to get the money to rain from the sky.
This is: Go to accelerator, do VC deal, take the VC money and buy growth, use that to do another VC deal, rinse and repeat until you either stumble onto a working business (Uber, AirBnB) or you go bust (get Satisfaction)
The problem with this is that the cost of those VC deals are not in the founders interests. Far too often they hit base hits and build viable fast growing companies and then get taken out and don't get adequately compensated (and all the non-founder employees really get screwed.)
The other problems with this is once you take money from a VC you're locked into trying, and repeatedly betting the company, on being the next Uber. Being 37 Signals is not sufficient. Being Github (before the A18Z investment) is not sufficient.... even though both of those are obviously great fast growing companies that would make their founders and employees a lot of money at a liquidation event. And such event is far less likely under VCs because they want a $1B valuation (in fact their fund NEEDS a $1B valuation to cover all the losers)... whereas a $50M, $100M, $250M or $500M valuation (with no dilution from taking VC money) even though it's drastically smaller would result in the founders and early employees getting rich, and even the later employees getting a nice bonus.
Take angel money on good, clean, simple terms. If you need that to get going, go for it.
I think the age of the VCs is past. They just haven't realized it yet.
Ok, whenever I say things that are critical of VCs I get a lot of responses that are sorta knee jerk defenses of VCs. I've been working for startups and founding startups for over 25 years. I've seen it back when it was much worse and it cost a lot more to do a company. I've ridden this industry from BEFORE the dotcom bubble started to inflate. I'm speaking form experience here. Even when the VCs are "good" - in the top %10 of the VCs I've had direct experience with-- the deal isn't good for the founders in the end. They paid too much for their money.
You want VC money. Ok, why? Because that's your dream? Your dream should be to build a company.
Your plan should be to build a compelling product or service that really makes people go crazy with desire to throw money at you for it. I'm talking about CUSTOMERS.
All the time you spend dealign with VCs takes away from that and the deals aren't good.
You need money? Ok, go on Angel.co, get backed by a syndicate. Find Angels in your community. Charge for your product from day one. If github can do it, you can do it. Plow your profits into growth and product development. Take as little money as you can to get top product market fit. VC money is wasted before that point anyway. Even angel money should just be used to keep the lights on until you get to product market fit. Once you haver that, you have revenue, maybe take some more angel money to jumpstart marketing, but plow your operational profits int growing the business.
Don't delude yourself into thinking your pokemon website is a billion dollar business. It isn't.
Don't even waste time chasing VCs. By definition that are bad at picking and they will try to force you to bet it all only our pokemon wiki being a billion dollar business.
GS may have made a bunch of mistakes, but I'm using decades of experience here to reach my conclusions.
If you go thru YC or TechStars (but not any other accelerator) then maybe you might have a real business that could be a billion dollar business, but even then why not raise angel money instead of VC money? And I mean angel money on terms like the YC deferred-valuation deal that replaces convertible notes. (can't remember the name at the moment.)
Don't do any deal with liquidation preferences or any other kind of shenanigans. (And don't wave your hands about why VCs need LP in front of me. Your math doesn't add up, it can't add up.)
The model will never change until VCs realize they are dinosaurs. Or let VCs fund late stage deals, I'm sure their terms are not so terrible (unless the company is dying.)
But VCs for startups are obsolete.
drops mike
seivan|11 years ago
shadowcaster|11 years ago
orenbarzilai|11 years ago
Well, you should always consider the alternative cost. I don't know the founders but I can assume that if they would have work somewhere else they had much higher salary/ benefits etc
staunch|11 years ago
The lesson is not to raise VC money for a business where it does not make sense.
reustle|11 years ago
> Taking VC is like getting the world’s worst boss: Shitload of opinions, undue level of influence, never actually shows up for work.
https://twitter.com/monstro/status/587413328055635968
ignoramous|11 years ago
I wonder how quickly the landscape would change if billionaires from various other fields started investing arms to fund tech. Considering the trend in club football where billionaires who have nothing to do with football started investing in football clubs all over Europe. The way they went about running the whole business changed the face of club football forever. Disruptive is mildly putting it as European football's premier footablling body (UEFA) has tried to regulate the flow of cash and has imposed strict investment guidelines ever since, to cope with it. Sort of.
petercooper|11 years ago
faramarz|11 years ago
nacs|11 years ago
Also:
https://twitter.com/monstro/status/585798828822892545togepi45|11 years ago
They made a gamble and they lost.
leereeves|11 years ago
https://signalvnoise.com/posts/1650-get-satisfaction-or-else
yuhong|11 years ago
sharkweek|11 years ago
When startups don't sell for above their valuations, the investors are going to get their money back first (and in varying cases more, depending on liquidation preferences).
Pulled GetSatisfaction's tables from PitchBook, take a look at their B round: http://i.imgur.com/zUzDrFp.png
Post valuation at over $50M - no data yet on the amount of the acquisition, but if it was equal to that or less (or if the liquidation preferences for the A/B rounds were greater than 1X) it's pretty clear the founders wouldn't have gotten anything from the acquisition. But as someone else pointed out, it IS likely they got a salary from those early rounds of investors, which, is better than most startup founders see.
neil_s|11 years ago
PhantomGremlin|11 years ago
The thing I was surprised by is that the preferred stock had a 6% dividend. Is that common nowadays?
Back around 30 years ago when I was at startups, the preferred didn't get any dividends. It existed to allow the VCs to stay ahead of founders/employees in case of IPO, liquidation, etc. Not to collect a dividend along the way.
TheOsiris|11 years ago
gyardley|11 years ago
https://twitter.com/monstro/status/585808886508040192
This is interesting, because according to the screenshot from PitchBook elsewhere in the thread, OATV and First Round both participated in the Series B, which was the last equity round.
If that's accurate, in order for OATV and First Round to get nothing, whoever did that debt financing in 2014 would have had to have gotten 100% of the proceeds, with none left to trickle down to the Series B.
We don't have the details, of course, but taking on debt and then selling for less than the amount needed to cover the debt a year later certainly sounds like a party foul. If your company's in such a precarious position, normally you can't even get debt financing.
Based on the equity rounds, the founder has nothing to kvetch about - they raised and the company didn't get to where it needed to be. But if I were investigating this, I'd dig into the terms of and decision to take that final debt round. Could be nothing, but there's a lot that could've happened there that'd make a founder tetchy.
dataker|11 years ago
I used to ignore finance and bureaucracy, but the industry has changed a lot. The popular quote 'just passionately build something' is nothing but a trap. Although something like YC doesn't fit this profile, one will eventually find himself in a hostile situation.
beering|11 years ago
It looks like Get Satisfaction raised $20mm. Why that much? Did all that money contribute towards success? Or was a good chunk of that money not utilized well? Why did the company tank? Were they not acquiring enough customers? Was their business model unsound? What forced the fire sale?
I don't think founders are supposed to get a big payout for a failure, but we need more info before agreeing with this sob story of founders who didn't get a dime.
arielm|11 years ago
Also, being a technical founder doesn't mean you don't have common sense. Yes, GS's founders got nothing, but really it's the employees that saw the largest loss... They signed up to see the company really take off, and it didn't.
But at the end, if your company doesn't make enough money and requires raising amount of money you just don't know how to waste you shouldn't expect a big payday. Being technical isn't an excuse.
erichmond|11 years ago
wpietri|11 years ago
https://www.crunchbase.com/organization/satisfaction/funding...
And here's a handy explanation of "participating preferred" which is one way early sharholders can end up with nothing:
http://www.feld.com/archives/2004/08/to-participate-or-not-p...
joshu|11 years ago
meritt|11 years ago
Read your term sheets carefully, this isn't uncommon nor something to be surprised about.
onewaystreet|11 years ago
macspoofing|11 years ago
burger_moon|11 years ago
therealwill|11 years ago
lobster_johnson|11 years ago
Edit: Actually $1200/month according to the pricing page, nevermind. That's insane, and way above competitors like ZenDesk.
fps|11 years ago
andyhite|11 years ago
socceroos|11 years ago
I for one would love to see the intricacies of investor influence. This sounds like it was a total fluster cluck.
StavrosK|11 years ago
Does the extra "l" bother anyone else?
Animats|11 years ago
ghshephard|11 years ago
The one scenario I've seen where founders who have left the company still get a "consulting" fee during a liquidation, is where they held enough common shares to cause issues during a lawsuit over minority shareholder rights - but typically the employees/founders still with the company being acquired have enough shares to not make it an issue - and, as I noted earlier, it's almost always the case that founders still with a company being acquired get some type of bonus, even if it's a retention fee.
r0naa|11 years ago
ChuckMcM|11 years ago
In terms of that last raise it is sometimes "nothing" (ie close the doors) or one more shot at making it. So from the founder's perspective the 'close the doors' option has them getting nothing, and keeping it alive long enough to sell it may or may not give them a return.
lisper|11 years ago
mikedouglas|11 years ago
lukasm|11 years ago
gesman|11 years ago
mgav|11 years ago
https://signalvnoise.com/posts/1650-get-satisfaction-or-else
gchokov|11 years ago
unknown|11 years ago
[deleted]
tomglindmeier|11 years ago
prostoalex|11 years ago
braum|11 years ago
serve_yay|11 years ago
irascible|11 years ago