
Founder Friendly - _gbc
http://avc.com/2017/08/founder-friendly/
======
thesausageking
For those wondering about the allusion to Hatching Twitter, it describes in
detail how, when Ev was CEO, Fred and the board told him he was doing a
fantastic job and while secretly meeting with Jack and coming up with a plan
to push Ev out and bring in Dick Costolo as CEO (with Jack under him).

Here's a quote from the book after Ev was told he was out with a vicious quote
from Fred:

Williams, stunned, picked up the phone and began dialing. Bijan Sabet was
apologetic and insisted that they wanted to keep him on in a product-advisory
role. According to several people at the company, Fred Wilson, however, said
he thought Williams had always been a terrible C.E.O. “I never considered you
a founder,” he said. “Jack founded Twitter.”

Other portfolio investments of Fred's have followed a similar pattern of
having the original CEO pushed out once they get to a certain level of
success.

~~~
falala1
This is a great example of how a company was undone by greedy VCs. A little
history lesson. The founders of Twitter really believed in a vibrant ecosystem
for Twitter. They gave the developer community a slew of APIs, gracious
quotas, and support.

The ecosystem thrived and created dozens of major companies that made Twitter
truly useful. The user numbers grew as well because those very same companies
marketed their new and innovative solutions. Then Ev was fired. Dick was
brought in and month of after month they lay waste to the ecosystem. Dozens of
companies died and hundreds of millions of dollars in VC money was lost.

Why? Fred wanted to cash out with a lot of other VCs. They wanted to turn
Twitter into a media company. Run up the revenue and go IPO to dump their
shares. Sure, if Twitter went along with their founders vision it could have
been much bigger over time but going that route didn't help Fred cash out his
100x return and report back to his LPs.

The reality is founders spend years even getting off the ground. The "board",
represented by VCs, rarely add value to the operation and vision of the
company. They invest because they believe in the vision. Make sure that
reality is in writing so people like Fred don't stab you in the back so they
can cash out early.

~~~
logicallee
>This is a great example of how a company was undone [...] , if Twitter went
along with their founders vision it could have been much bigger over time

For anyone wondering why parent uses "undone", "could have been much bigger",
at a time that Twitter is a household name, the President tweets, people hold
public conversations over Twitter, and list Twitter handles instead of their
emails.[1]

It's because Twitter is "only" an $11.9 billion company by market cap, whereas
Facebook is at $492B or 44 times bigger. I can't think of any other metric by
which Twitter isn't a resounding success story.

[1] [https://levels.io/hoodmaps/](https://levels.io/hoodmaps/) \- Very bottom
"I don't use email so tweet me your questions."

~~~
ckastner
As a metric, popularity can be misleading.

Take Hollywood, for example: few things nowadays are as ever-present as motion
pictures, but the total box office revenue for 2016 was around $11bn [1].
That's about 19 days worth of revenue for Apple, going by their last quarter
[2].

Just because you see it everywhere, or everyone talks about it, doesn't
necessarily mean that it's a huge moneymaker.

[1] [http://www.hollywoodreporter.com/news/2016-box-office-
record...](http://www.hollywoodreporter.com/news/2016-box-office-record-year-
crosses-11-billion-959300)

[2] [https://www.apple.com/newsroom/2017/05/apple-reports-
second-...](https://www.apple.com/newsroom/2017/05/apple-reports-second-
quarter-results/)

~~~
logicallee
I'm shocked you consider a tiny little $0.8t company like Apple to be a "huge
moneymaker". Last year alone, which "hasn't been kind", just the top 25 oil
companies made $2.6t in revenue¹: so what you call 19 days of revenue they
made every 36 hours; in the year they made enough to buy Apple at its current
market cap with its staggeringly high P/E multiple of 17.91, in its entirety
3.2 times. Just because everyone talks about them doesn't make Apple a
moneymaker. Get some perspective. /s

Seriously though, I think you're being totally unreasonable. :) $11 billion is
_huge_ revenue for movies. That's not chump change.

¹
[https://www.forbes.com/sites/laurengensler/2016/05/26/global...](https://www.forbes.com/sites/laurengensler/2016/05/26/global-2000-worlds-
largest-oil-and-gas-companies/#17998b8e28b6)

~~~
evgen
If we get to lump all of big oil into one pool do we do the same for all of
tech? The largest oil company, ExxonMobile, had only $3.5b more in revenue
last year than Apple. Then again, you don't get to buy things with revenue,
you need profit to pay for expensive baubles. Apple made as much profit in
their "weak" (Q3) quarter of 2016 as Exxon made all year.

~~~
chrisco255
Don't you think you're comparing Apples to Exxons?

------
TrobarClus
> But there is another important participant in the VC/entrepreneur
> relationship and that is the Company the entrepreneur creates and all of its
> stakeholders; the employees, the customers, the suppliers, and even the
> community around the Company.

The stakeholders are - the employees! The customers! The suppliers! The
community!

He makes it sound like that anarcho-syndicalist commune in Monty Python and
the Holy Grail.

I guess it slipped his mind to mention - the VCs! The LPs! The LPs looking for
their exponential unicorn returns within ten years.

Benchmark is alluded to, and Benchmark has a long history now where you can
look into their machinations on boards - Uber. Twitter. Epinions.

An LP is an LP. VCs have a few decorative ones for PR, but ultimately the LPs
are just the LPs - the real ones.

There are those who work and create wealth. There are also those that do not
work - like LPs. Rentiers who expropriate surplus labor time from those of us
who do work. Since the dawn of civilization there has been a tug of war
between those who do work and those rentiers who do not. This is yet another
occurrence of the tug of that rope from one side to the other. Today it is
Uber, but it has been a host of other companies before, and if they have the
ability they will be pulling the rug out from those who built the company
again in the future.

Wilson's doggerel here is a transparent apology for what is ultimately rentier
parasitism. Parasitism on those of us who work by those who do not.

~~~
elmar
_> He makes it sound like that anarcho-syndicalist commune in Monty Python and
the Holy Grail._

It as been successfully done at Valve

[http://hbhblog.blogspot.pt/2013/03/valve-steam-anarcho-
syndi...](http://hbhblog.blogspot.pt/2013/03/valve-steam-anarcho-
syndicalism.html)

[http://www.econtalk.org/archives/2013/02/varoufakis_on_v.htm...](http://www.econtalk.org/archives/2013/02/varoufakis_on_v.html)

------
WisNorCan
VCs used to oust founders and bring in experienced operators as soon as a
company started scaling. Cisco is one of many high profile cases of founders
getting kicked out [0]. With the success of Google and Facebook, VCs pattern
matched and became enamored with the founder.

The pendulum swung too far with and things started going wrong. When things go
wrong in founder controlled company, things can go really wrong. Uber is the
poster child.

The question is how VCs can take back some control without being painted as
founder hostile. You can see that happening with Benchmark. I am impressed
that USV is speaking up. It is easy to hide in the shadows.

[0] [http://www.businessinsider.com/how-ciscos-founders-were-
oust...](http://www.businessinsider.com/how-ciscos-founders-were-
ousted-2014-12)

~~~
keganunderwood
I have no inside information but from my vantage point it looks like benchmark
just wanted to get out but under isn't ready for an IPO. Maybe Travis isn't a
good guy but I can't see how benchmark is any better.

Also I think Google did bring in adults: notably Eric Schmidt.

------
hoorayimhelping
> _The VC industry is highly competitive_

VC 'industry?' Please Fred, VC's don't produce anything. It's very charitable
to call the class of people with access to money and the desire to lend it out
under very favorable terms to company founders an industry.

------
tarr11
This blog proves the point of the initial tweet.

VCs are founder-friendly until they have to side with the company.

VCs are company-friendly until they have to side with their LPs.

------
abstractoutlook
I am glad this whole charade of investors pretending to be founder friendly is
finally getting over. There isn't / has never been such a thing as "founder
friendly". Investors pretend to be friendly so that they can convince
entrepreneurs to take their money. It's not their true nature, just something
you need to do to get into the right deals. Investors are always worried about
their reputation, not character - if you know the difference.

I learnt this lesson after getting kicked out of my company by VCs from NY
(the story is not dramatically different than what Fred did at Twitter). My
VCs always pretended to be incredibly supportive, but when we found ourselves
in a tough spot, I saw the really ugly side of the VCs (making baseless
threats to get the founders off the board, telling porkies to other investors
to sullying the founders repuation, etc etc). In my experience, the east coast
VCs are the worst - they play a lot more games / most of these guys are banker
types. Most of them have never built a company before and have no clue what it
takes to really build a successful startup (sorry, just because you sit on a
board doesn't mean you understand the hard work, tears, daily ups and downs,
personal sacrifice it takes to build a business).... These people know how to
schmooze, and then stab you in the back if they don't get what they want....

Investors have 1 goal - maximize their ROI. They are your friend as long as
they think they are getting the maximum return they can get. If you are an
entrepreneur and you believe anything else, you are waiting to be screwed. As
an entrepreneur, it's your job to protect yourself.

If you are an entrepreneur reading this, take the following advice from
someone who got f __ __ __by people like Fred.

1\. Read Brad Feld's book "Venture Deals" before you take money from any
investors. Make sure you know every single terminology in the term sheet (this
is where the wolf in the sheep's clothing reference is really true - VCs will
screw you over if you don't understand the term sheet).

2\. Hire an exec coach or a successful entrepreneur who has seen the ups &
downs on your advisory board - someone you trust completely (Never trust your
board member to be this person - no matter what anyone says). The advisor and
the exec coach are your 1st phone calls - they are fully aligned with, unlike
VCs. IA good exec coach can really help if you are dealing with tough board
situations. f you are part of YC, you always have that support.

3\. If you are a valley based company, avoid all east coast VCs if you can.
They are all made from the same dirty cloth.

4\. Maintain board control as long as you can.

5\. Try to negotiate and get a final say on the independent board seat (often
hard to get).

6\. Learn how to manage your board - this is probably the most important
advice. You need to know how to play the game, so that in tough times you have
enough support to keep your job. If you don't have a board control, then try
to build allies - perhaps build a strong relationship with 1-2 board members
that will support you when others are trying to screw (which they will!).

At the end of the day, it's all about leverage - as soon as you are about to
get your first board member, think how you build leverage. There is nothing
wrong in taking money from VCs, you need them, and they need you. But if you
get into the relationship knowing this is not about friendship/relationship -
it's just business, and when it comes to money, people act in all kinds of
ways, you will not be under delusion. You will protect yourself from day one.
Good luck!

~~~
HNNoLikey
> Most of them have never built a company before and have no clue what it
> takes to really build a successful startup (sorry, just because you sit on a
> board doesn't mean you understand the hard work, tears, daily ups and downs,
> personal sacrifice it takes to build a business)....

Couldn't agree more with you. There is one VC who echoes these very
sentiments. Vinod Khosla never hires someone in his firm (especially those
that sit on startups' boards) if they have not been entrepreneurs. When he
does hire non-entrepreneurs, they don't sit on boards and within 2-3 years
they're expected to go out there and do/join a start up before they can be
allowed back at KV.

His logic being that, one cannot truly empathize with what an entrepreneur is
going through without having started a business of their own or being at a
start up during its infancy.

------
_lex
This is the principal agent problem in private, illiquid companies.

There are issues with founders, employees and VCs, where each invest in "the
company" with an expectation of different payoff schedules, and each is not at
all looking out for the best interests of the others.

So this is really a fight for the high ground - who gets to set payoff
schedules: the founder, or the VC? Who gets to set strategic direction? And
who's just along for the ride? [Note that the employee is not really in the
running here, and that since they aren't allowed to set any rules, they should
be as ruthless in extracting value (pay, career development & benefits) from
companies as VCs and founders would be in extracting & securing their
payoffs.]

In the end, these people aren't your friends, and any friendliness is simply
another form of currency, which they can chose to invalidate at any time. Like
Benchmark Bucks.

------
TheHeasman
Y'all know that there are business models where you don't need to take VC
money to scale right?

------
HNNoLikey
I think that it is incumbent upon an entrepreneur to apply they same magnitude
of rigor (if not more) when conducting due diligence on investors as investors
do when deciding whether to invest. This is, sadly, something that most
entrepreneurs overlook due to eagerness to take up financing.

