
People who destroy entrepreneurial value are the scum of the earth - ryanwaggoner
http://ryanwaggoner.com/2010/10/people-who-destroy-entrepreneurial-value-are-the-scum-of-the-earth/
======
grellas
There will always be hustlers a-plenty ready to exploit entrepreneurs.

A few examples from my years working in Silicon Valley from the legal side
(where, unfortunately, a lot of this crops up):

In the days when founders were generally less informed than they are today, I
would often see them fall prey to "consultants" who would promise to open
doors to funding and the like in exchange for a significant equity stake in
their venture, only to show themselves to be nothing but B.S.ers.

I have seen lower-tier VCs who cared not a whit about their reputations take
control, fire the founders and do a 100 to 1 reverse stock split in exchange
for modest additional funding, reducing the entire equity holdings of the
founders to less than 1% of the company in one fell swoop.

I have seen founders sell in acquisitions, take their full compensation in the
form equity in the acquirer that had to vest over 4 years but without
acceleration protection in the event of termination without cause, be told
that "we wouldn't do this unless we wanted you to succeed," and then get fired
within a few months as the acquiring company took years' worth of work from
them for what amounted to a pittance.

I have seen a young founder build up incredible value in a new venture and,
after a few years of devoting everything to it and building nice revenues,
take in a "partner" who was a "player" in Silicon Valley, only to have that
person maneuver him down from an initial 100% ownership stake to 50% to 5%
and, finally, when a $30M buyout is about to happen, grant to himself massive
amounts of additional stock (all for bogus reasons) to put the original
founder under 1% right on the eve of the acquisition.

I could go on and on but the lesson in all of these is that entrepreneurs
should always be vigilant to ensure that the deals they do are prudent and do
not expose them to this sort of exploitation - it can come at you from all
sides.

Very nice piece, by the way, Ryan - I find your posts consistently insightful.

~~~
helmut_hed
_I have seen lower-tier VCs who cared not a whit about their reputations take
control, fire the founders and do a 100 to 1 reverse stock split in exchange
for modest additional funding_

So... why was additional funding needed? Why were the founders not able to get
it on their own?

 _I have seen a young founder build up incredible value in a new venture_

How incredible? Maybe the partner believed the founder's estimate to be
literally that...

I don't want to defend the company described in the OP, but overconfidence is
endemic to the startup culture. There's plenty of companies out there with
nothing more than a clever gimmick, or worse yet, an imitation of someone
else's clever gimmick, and that are destined to vaporize the carefully
collected funds of their investors. Is it wrong to act decisively to turn such
companies around? Or to collect whatever "value" remains when the end is nigh?

It's easy to criticize the VC guys, and they certainly can act badly at times,
but every entrepreneur thinks their company is the best thing in the world -
or acts like they do - and can be a little blind about these things.

~~~
bad_user
> _every entrepreneur thinks their company is the best thing in the world_

Nevertheless, it is their company.

~~~
helmut_hed
After they have received an investment it is _not_ their company, but a
company that belongs to both them and their investors. Indeed, unless those
investors are individuals, they have a fiduciary responsibility to act when
the company is being mismanaged.

~~~
btilly
Just because you legally can, doesn't make it right.

There is no good excuse for maximizing your profits by suddenly changing the
ownership structure of the company to your direct financial benefit. Doing so
is wrong.

------
alain94040
Is this Generational Equity (<http://www.genequityco.com/Conferences.aspx>)?

PS: Ryan, is putting a big HN submit button and begging for an upvote a little
too much, or is it how "the games needs to be played"?

edit: more stuff from the disclaimer from Generational Equity seminar, that I
really hate (of course it's in small print). See how well it matches the post:

 _Generational Equity does accept clients or customers that may later prove to
be unviable or unmarketable_

 _Please be advised that no particular buyer has expressed a specific interest
in your business._

 _Generational Equity does not conduct a detailed or sophisticated screening
process for its potential customers_

 _Only after a customer relationship is established can Generational Equity
assist in identifying the value of your business_

If you read between the lines, it says, in plain English: you must pay us
first, then we'll tell you that no one wants to acquire your company, but hey,
we told you so, despite our sales pitch to the contrary.

~~~
pavel_lishin
Confirming it here would probably open him up to just as many potential legal
pitfalls.

~~~
allwein
I'd expect a sly wink of a response that would serve as cover.

Something like, "I've seen that website before, but I can't comment on whether
they're the ones who contacted me."

~~~
alain94040
GW Equity is a master at SEO optimization, I'm really impressed. If you google
"Generational Equity scam", then you find plenty of juicy stuff. But if you
had just googled their name, Google shows you 3 pages of links that are all
variations on their name, obviously designed to obfuscate good results.
Really, it's worth a look. Where can I report SEO abuse to Google?

Read for instance: [http://www.acquisitionadvisors.com/ma-
blog/2009/03/another-b...](http://www.acquisitionadvisors.com/ma-
blog/2009/03/another-business-seller-feels-scammed/)

~~~
smokinn
Google's suggestions sure seem to paint a clear picture though.. Shame the
suggestions are at the bottom and not the top in this case:

    
    
      Searches related to Generational Equity
        generational equity scam
        generational equity named runner
        generational equity rip off
        generational equity blog
        generational equity complaints
        generational equity m&a

------
edw519
I'd be curious who actually gets taken by scams like this.

I know 2 kinds of people who own businesses, those who worked their butts off
for years building them themselves and those who inherited them from their
parents. I've noticed a disproportionate number of the inheritors who have
taken family money that took 40 years to amass and have lost it in a year or
two. Founders and builders that I know seem to be much more wary of "get rich"
scams. They know what it takes to be successful; they've already done it
themselves.

Ryan, I'm guessing that you questioned this because you built your own. But
would you have been more receptive if you had inherited Daddy's business and
wanted out to "live the good life"? Just wondering.

~~~
maxawaytoolong
Entrepreneurs of all stripes can get taken by scams like this. Often times
they are not "scams" per se, just very overpriced services. Like agile
programmering groups charging $200/hr and delivering worse code than the in-
house teams. I've worked for four boot-strapped-then-venture-funded startups
and ALL of the founders at these startups have fallen for something like this
at one point. It's pretty easy to fall for this. Startups are very frustrating
and stressful, so when your in-house guys are telling you it's going to take 4
months to do something and some external guys are telling you it's only going
to take them 1, you WANT to believe the external guys. And hey, they have the
balls to ask for $200/hr, so they must be able to pull it off, right?

There are also legitimate scams, like life coaching or various overpriced
seminars or "consulting" from "strategists." I won't comment on these as there
seems to be a strong internet entrepreneurial contingent who thinks this stuff
is very valuable. I'm also pretty sure my founder friends who have paid out
the nose for stuff like this would claim it was worth the money, so I don't
really know what to say, here.

~~~
ahoyhere
Are you really saying that all coaching/life coaching is a scam?

~~~
maxawaytoolong
No, if you include actual sports coaches. But life coaches, yes.

~~~
shadowfox
What is your rationale for including life coaches, but excluding sport
coaches?

~~~
elai
Sport coaches are more operational managers, tacticians and physical trainers
who have authority over a team than the pure teacher types that life coaches
are. You also don't directly pay him money, or are getting paid.

------
igrekel
Sadly I have often seen the type of people mentioned in the article as the one
considered "entrepreneurs" and are often the ones saying we need more
entrepreneurs. When I was a teen, its all I saw and developed a strong
aversion with all things related "entrepreneurs", it just seemed like a moral
license to screw people and not care.

If it creates that perception for other people growing up, they really do a
disservice to the world!

------
ultrasaurus
I think adwords & blogging and other actually effective forms of advertising
are upping the amount of pressure on people who sell worthless things. I get
called almost every day with someone who tries to sound like a customer to
keep me on the phone long enough to sell me something. There's an air of
desperation where we're finding out that some companies who were profitable
before the recession are not actually adding value when you need to justify
their services.

------
jasonmcalacanis
name of the business is? jason at calacanis dot com if you don't want it
public.

------
DevX101
OK, I'll be the contrarian here but although their pricing/compensation
structure is off for a small entrepreneur, I don't see anything morally wrong
with the concept of this type of business.

There are many business owners who want to sell for a variety of reasons --
divorce, need a large amount of cash, tired of running the business, etc...

Almost every entrepreneur has a "price" at which he'd be willing to sell. If
this consulting business changed around their pricing scheme and took a
percent cut of a successful sale, where everything was transparent, there are
many people who would find value in this.

For a smalltime entrepreneur, of course it doesn't make sense to drop $30k on
the HOPE that these guys find a buyer. However, if your company is making $1M
in profit per year, it may well be worth MORE than $30k upfront to hire well-
connected brokers to get multiple parties to bid up a purchase price for your
company.

------
sdrinf
> I'd be curious who actually gets taken by scams like this.

Theory of multiple intelligences suggests, that, when working in the right
context, the ability for building strong & profitable businesses does not
necessitate the "intelligence" of strong BS-filter. This is why you have a
lawyer friend, a strong peer group of entrepreneurs, and that guy full of
cynicism, whom you still listen with half an ear. Or if you don't, you
_should_.

------
barnaby
There area lot of "incubators" that do pretty much exactly this... but the
seminar never ends, and the list of services they can charge for doesn't
either.

------
wnoise
s/entrepreneurial//

------
facebookChina
Would say, scum of the scum :-) Can you disclose the nationality of the guy
who called you?

------
wccrawford
If you enter into a contract, knowing the details, that's your responsibility.
They are not 'scum' for making the offer. And the people who take them up on
it are not necessarily 'stupid'. Obviously, some of their clients are very
happy.

At this point, you don't even have any proof that they have unhappy clients.

~~~
ryanwaggoner
_If you enter into a contract, knowing the details, that's your
responsibility. They are not 'scum' for making the offer._

Your second statement doesn't follow logically from your first. They can be
"scum" even if I'm responsible for my actions. Perhaps we just have different
perspectives, but I believe that if you spend your time trying to rip off
people who don't know any better, you're destroying value. The fact that they
agree to it doesn't absolve you of any responsibility. If I sell a car with a
critical defect that I fail to disclose to the buyer under the assumption that
it's their responsibility to get the car checked before they buy, I've done
something wrong. I wouldn't want someone to do that to me, and it's not right
for me to do it to them.

Further, it's not at all obvious that some of their clients are very happy,
but the collection of blog posts, magazine exposés, BBB complaints, and
lawsuits is sufficient evidence for me that they definitely have unhappy
clients.

EDIT: I don't have any proof of this, but from the conversation I had and the
research I did, I highly doubt that the people forking over $32k have "all the
details". This sounds to me exactly like any other high-pressure exploitative
sales seminar.

