
Why you should take the money - omergertel
http://blog.asmartbear.com/rand-take-money.html
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tptacek
Isn't the conflict - of - interest here just enormous? The best interests of
the company, and in particular the employees, is the funding round with the
least onerous terms. If all a VC needs to do to get a board to accept worse
terms is to kick back some money to a few strategic board members, where does
that leave everyone else? And while I'm sure Rand Fishkin (who I do not know
from Adam) is not jacking up his company in this case, what about appearances?

~~~
webwright
I think it's pretty common for founders to take some money off the table in B+
rounds, so I wouldn't sweat appearances much here. It's also not uncommon for
early angels to see liquidity (partial or total) in later rounds as well.

It's not a kick-back, it's a stock sale. If Rand takes a million off the
table, he's selling a million bucks in stock (and reducing his ownership
accordingly). This actually helps other shareholders a touch in the B round
because the company has to issue fewer new shares (causing early investors to
get diluted less in the new round).

But yeah-- theoretically an investor could sell broadly crappy terms to some
founders by buying out a mess of their shares. If founders want to screw their
employees, they can often find a way (see Skype).

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bostonpete
> This actually helps other shareholders a touch in > the B round because the
> company has to issue fewer > new shares

I'm not following this logic. If a founder sells their own shares in a B-round
and pockets the proceeds -- that doesn't do anything to allow the company to
issue fewer new shares because none of the money from those shares went to the
company.

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webwright
Option A: Series B investor buys shares from the Company. Company issues new
shares and the Series B guy owns 20% of the company. This dilutes everyone
else's ownership (for him to own 20%, everyone else's stake has to come down).

Option B: He buys all of his shares from existing shareholders. This requires
no additional shares so people who are NOT cashing aren't diluted at all.

I'm just guessing here-- I've never taken money off the table. But I can't
imagine it working any other way.

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skmurphy
Option B puts no money into the company. In option A existing stockholders are
diluted but the company has more cash. So "taking money off the table" comes
at the expense of what the company can raise. If there was additional demand
for the stock (as evidenced by someone willing to pay for the shares in Option
B) then this could have resulted either in a higher stock price (and less
dilution for more money) or more funds raise (possibly with more dilution).

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mashmac2
"Your drive was never about money"

I think this is an increasingly popular viewpoint these days, and is being
recognized by lots of startups taking funding and taking some money off the
table. Money makes you comfortable, yes, but you need the rest of your
environment to be comfortable (relatively) to focus on your business and put
your effort into that.

And I, for one, am very glad that founders these days have this option, do to
what they love and want to do without having to worry about financial security
(well, in some cases anyways).

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TamDenholm
I just wanted to reflect on the point that $25,000 in the bank is "no personal
savings".

To me thats 6 months at my current rate and a year being frugal. I'm aware its
totally different economics than myself, but it just kinda made me laugh.

~~~
sliverstorm
Just wait until you climb the ladder a bit more, and begin to believe that you
cannot possibly survive on less than $200,000 in the bank.

Expenses add up, and you make your way down the slippery slope of labeling
things as "necessities".

~~~
TamDenholm
Perhaps. I do like to consider myself one of those people who think i wouldnt
be like that, but obviously i'll never truly know until it happens. I remember
when i had my first job, i thought my £650 a month wage was loads, now thats
just my rent.

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lsc
I think the important bit here is the time/money tradeoffs. I mean, sure, I
can live on two grand a month, but that means I'm cooking most of my own food,
repairing my own car, etc... I mean, those are all fine things to do, but if
you are investing in my business, it might be worth the cash to pay me enough
that I can afford to pay other people to deal with my personal needs. I mean,
if I spend the money on a new BMW, that doesn't help you. But for the same
money, I can have someone come by and clean my house once a week, and have
enough left over to get takeaway on busy nights. Both of those things will
free up time for me to make money for both of us.

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knarf55
I think it depends on what he wants to do with the money? He already mentioned
that money isn't going to change his life style (but we'll see if that's
really the case) but having only 25k in the savings with a family? That's just
being a bit reckless. I do agree with the points of a few commenters here that
he should just take a 1M or 2 off the table so he can focus on the company and
not worry about his personal financial circumstances. Also, you never know in
this world when a medical emergency happens and he needs to use this money.
Having the money gives him breathing room and overall the benefits of just
having options in life.

If nothing else, he can reinvest that money to other startups as an angel.

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andrewcross
I've always thought this is the way I'd like to go with a startup if it became
successful.

Sure not having money is a great motivator, but the time spent doing other
things just to save money often costs you more. As an example, I've spent a
lot of time writing a script for a product overview video for my startup. I
could be spending this time on more valuable tasks, like product dev or sales,
if I had the money to go with another company.

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sliverstorm
_It sounds like you won’t accept the “you deserve it” argument_

Good for him then. That's an argument I hear far too often that, in my
opinion, appeals purely to greed and fosters self-entitlement as if it was a
good thing.

~~~
Cyranix
A counterpoint opinion: although "I deserve it" may be a rationale to which
many greedy or self-entitled people cling, there does exist a point where a
well-balanced person can make a reasonable value judgment about the worth of
their efforts. If you deny that it's possible to make this judgment fairly,
your perspective implies that there is no meaningful correlation between
effort and positive outcomes -- it's a mentality of "nothing is good enough",
which can work as a long-term view (perhaps better said as "there is always
room to improve") but in the short- to mid-term is a destructive mindset which
can lead to burnout.

My two cents, as a guy who struggled with depression for several years due in
large part to having held such a negative opinion of myself that I couldn't
celebrate any intermediate successes.

~~~
sliverstorm
In my mind, you're talking about deserving vs. _earning_. To me, deserve is
intrinsic (e.g. You deserve the right to a speedy trial) while earn is value-
based (e.g. You've worked hard, you earned it)

The two words are close to eachother, but I am wary of 'deserve' because it
seems to be abused.

~~~
Cyranix
That's fair. I feel like Jason may have been using the former word to describe
the latter situation.

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fomojola
> You are like Michael Dell and Bill Gates and Steve Jobs and Warren Buffet
> and Sergey Brin and countless others who have achieved financial success so
> massive it’s almost impossible to wrap your brain around the implications of
> their net worth, and yet their work ethic, drive, and ability to innovate
> hasn’t flagged for a decade or more.

Hate to do this, but Micheal Dell and Bill Gates have innovated in the last
decade? Really? Is this the same decade or has there been a different decade I
somehow missed?

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sliverstorm
Bill Gates is 55. Microsoft was founded 35 years ago.

You're really going to hold it against him that he isn't _still_ a dynamo of
ideas and innovation?

~~~
runako
Microsoft was founded in 1975, over 36 years ago.

~~~
sliverstorm
You're right, math fail. Thanks.

