

The Wisest Entrepreneurs Know How to Preserve Equity - credo
http://dealbook.nytimes.com/2011/11/15/the-wisest-entrepreneurs-know-how-to-preserve-equity/

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kalvin
Andrew Mason may only own 7.5% of Groupon, but the absolute value of Andrew's
stake right now is almost certainly much higher than if he had decided to
"preserve equity" and skipped one of the many rounds Groupon has raised.
(Long-term, maybe not.)

YC's advice for founders is the opposite: don't optimize on valuation (or
valuation cap, for debt)-- whether you give up an additional few percent
matters less than other factors, like how much value the investors add or the
time and effort spent completing the deal (and not working on product).

This is related to YC's argument for why they're worth their 2-12%:
<http://paulgraham.com/equity.html>

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bravura
From the article: "What is the lesson here? Entrepreneurs need to not only
have a great idea and successfully manage their business but also to be
careful not to sell too much of the business too soon. ... In part,
[Zuckerberg owning 24% of Facebook right now] was a result of aggressively
setting a valuation for his company early, ensuring that Mr. Zuckerberg kept
substantial ownership. A high valuation benefited Mr. Zuckerberg because he
needed to sell less stock to raise the same amount of money."

The article suggests that you should fight for aggressively high valuations.

There is a flipside to this. Setting your valuation aggressively high only
benefits you if you win big. As Chris Dixon and others have warned (e.g.
[http://techcrunch.com/2011/06/08/fred-wilson-platforms-
valua...](http://techcrunch.com/2011/06/08/fred-wilson-platforms-
valuations/)), a too-high valuation can lead to a down round if you don't meet
expectations. This can harm your company and make it _harder_ to raise your
next round.

So following the advice of this article is a risky gambit. You can't
anticipate all roadblocks or obstacles that could prevent your company from
growing as much as you intended when you raise that money. You can't control
all external factors, e.g. the economy. It's your choice if you want to roll
the one-hundred sided die.

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MicahWedemeyer
_When the time comes for the company’s initial public offering_

That's where I quit reading. The time for most companies' IPO comes just
slightly after pigs fly over a frozen hell. Is strategizing your way to a
personal multi-billion dollar exit really how you should be running a company
in the early days?

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cellis
I think so. If you're going to spend the better part of your life trying to
make it big, at least make sure you keep the lion's share of the wealth you
create, otherwise you could make the same amount of money with less risk (and
blood,sweat, and tears) by working for a corporation as a highly paid
engineer.

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wyclif
This piece really dropped the ball by failing to mention the unethical ways
certain startups (I'm looking at you, Zynga and Mark Pincus) preserve equity,
such as clawing back early options to key employees on pain of firing. Sleazy.

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greenxc
It is interesting that this article brings only very successful companies to
mind. What it doesn't mention is the number of companies that have failed as a
result of not taking the money in fear of giving up equity. Ultimately, if you
don't have the money to keep your company afloat, everyone fails. If your
company will fail without it, does giving up a little extra equity in order to
make it succeed seem so bad?

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BornInTheUSSR
Ownership isn't the important thing, it's the only thing - Felix Denis

