
Buffer raises $3.5M - moritzplassnig
http://open.bufferapp.com/raising-3-5m-funding-valuation-term-sheet/
======
patio11
Good on them.

Secondary sales are, anecdotally, getting more common these days, despite the
fact that many VCs dislike them. They're so obviously in the best interests of
founders and early employees, and the VC arguments against them are frankly
odious, that I'd wager we see a realignment on how acceptable this term is
seen to be.

The argument advanced against secondaries is, phrased to be maximally
charitable to it, that having founders and employees in the same boat as
having to wait for an exit to really reap the rewards of the company keeps
everyone's interests aligned and avoids causing any bad blood at the company
caused by founders getting a very happy outcome prior to employees having
gotten one.

Phrased less charitably: rich people (VC partners) think paper-rich-cash-poor
people should continue being cash-poor so that rich people have better
negotiating leverage over them.

~~~
zaidf
_Phrased less charitably: rich people (VC partners) think paper-rich-cash-poor
people should continue being cash-poor so that rich people have better
negotiating leverage over them._

Doesn't this work _against_ the VCs when the startup with cash-poor founder
gets a subpar M&A offer? I thought VCs had become accepting and even
encouraging of early founder liquidity.

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minimax
_This is our intention with this new round, to really set a precedent for
multiple liquidity events going forward. Different investors will have
different stages at which they’d like to get liquidity, and now they’ll be
able to cash out at the time which is comfortable for them. New funds which
are more focused on later stage capital can invest as we grow more and become
more stable and predictable with our growth and revenue. The same applies for
team members: if someone wants to put their kids through college or buy a
house, they can choose to sell some of their equity. Others might not have as
many commitments and may choose to keep their shares._

So basically the Silicon Valley VC ecosystem is reinventing secondary markets
for equity shares. This scheme has the same basic purpose as traditional stock
markets (i.e. capital formation for companies and liquidity for investors),
but is limited to a restricted set of participants, and price formation occurs
only during specifically timed liquidity events (rather than continuously). I
wonder if investors and founders are really happier this way than they would
be on the public markets. If you are an early employee and you want to buy a
house (or whatever), would you rather be able to sell your shares at any time
to the best bidder or be stuck waiting for the next liquidity event at who
knows what price?

I think this is an interesting development for a couple of reasons. First it
probably is indicative of the huge regulatory burden involved with going
public (Sarbanes Oxley &c). Second it shows how much capital really is
available in SV VC these days. There is so much money that founders and early
investors don't even care about access to capital available in the public
markets because they can get all the cash they want without having to leave
the VC world. I wonder if we will see a shift back to the public markets if
the VC money ever dries up for whatever reason.

~~~
DesaiAshu
Related reading on why companies don't want to go public:
[http://www.vox.com/2014/6/26/5837638/the-ipo-is-dying-
marc-a...](http://www.vox.com/2014/6/26/5837638/the-ipo-is-dying-marc-
andreessen-explains-why)

In short, a couple factors have made IPOs less appealing: 1\. More regulation
and reporting requirements 2\. Hyper short term investors

The first incurs great costs, and counterintuitively reduces transparency. The
second drives heavy gaming of the market. You can't hold a company accountable
to day to day events, you probably can't even hold them accountable to month
to month growth, it's an unnecessary burden and short term predictability
doesn't correlate to long term value growth.

As a result companies wait longer before going IPO, and individual investors
(read: the 99%) are no longer able to invest in the growth stage of companies.
The implications of this are interesting: 1\. Rich get richer, poor can't.
Retirement funds and the likes get no real returns. 2\. Things like second
market, the JOBS act and more will provide real alternatives to the public
market. Extend this out 100 years, the IPO market becomes day to day gambling
with 0 connection to real growth. People will write algorithms to play this
game, and it will roughly be a zero sum game. Private unregulated markets will
replace the public market once individuals have the freedom to invest. They'll
look like public markets of the past where there wasn't rapid trading and
there were less regulatory requirements.

As a company, I would much rather list on a private market where people were
only allowed to buy and sell my stock once per quarter. You could design an
auction system that allowed the price to be set based on how many shares were
requested to be bought / sold (could be similar to the way IPO prices are
originally set). I wouldn't have to deal with short term ebbs and flows of the
market, and worries of cascading crashes due to day to day events and rumors.
Instead I'd get to release a comprehensive quarterly report explaining how the
company is doing and why people should buy into our growth, and give a
gameplan for how we plan to deal with crisis. Someone should build this, and
figure out a way to let individuals invest.

~~~
minimax
I think #1 is obviously a huge issue. I am less convinced about #2. A lot of
the tech IPOs in the past few years (mod Zynga?) have done well since the IPO.
I Andreesen's argument about shorts driving the price to zero is kind of
silly. To cash out on a trade, the number of shares you buy has to match the
number of shares you sell. So if you start the trade on the short leg and the
stock goes down, why wouldn't you expect the price to be driven back up when
you buy back to cover your position?

You can look at a tech company like Apple whose shares are some of the most
frequently traded shares in the market, and you can see that in the long term,
as the company has done better, the share price has gone up. The market still
works even in the presence of all the short term trading.

~~~
kamakazizuru
you seem to have fundamentally misunderstood how shorting shares works.

~~~
minimax
I don't think I have, but feel free to explain it to me.

------
porter
Pretty awesome watching these guys grow. I also love how they question the
norm in the VC/startup world of being poor until you hit a real homerun. You
only get one life. Don't let a VC dictate how you live it just so they can hit
their IRR projections.

~~~
porterhaney
I'll second my name-twin's sentiments and add:

It's fantastic to see a dividend based model being introduced into early round
VC fundraising. It's an alternative to liquidity and something that should/can
move upstream. Bravo to Buffer for leading the charge.

------
nedwin
Bold move to take most of the round off the table for founder liquidity.

Edit: I think this is great for the founders and I hope they gave a similar
option to their employees who have been with them a long time.

High fives for the massive transparency success of the business while
maintaining a positive work culture.

~~~
skrebbel
> _and I hope they gave a similar option to their employees who have been with
> them a long time._

Looks like they did. Up in the article they say they're splitting $2M among
the two founders, and later it says that they're taking in total $2,5M for
cashing in founder and employee equity. I assume the $0,5M is the employee
part. Seems like a small fraction, but I assume most of it goes to the earlier
employees (and then only those who opt for it), so it might be a year's salary
right there anyway.

~~~
joelgascoigne
That's right, good eye Egbert and thanks for chiming in with the details!
Interestingly, Leo and I have been doing this for almost 4 years, whereas most
of the team is much earlier in the journey. We have a couple of the earliest
members of the team taking some liquidity, however most chose not to at this
stage (we offered it to everyone).

Thanks, guys!

~~~
skrebbel
Joel, I like seeing how well you're doing. I truly wonder how much of it is
luck, but I really hope that only very little of it is.

~~~
joelgascoigne
Oh, I think most if it is :) Lots of right time right place.

~~~
skrebbel
Ha :-)

Ok, well good for you then!

------
leoncrutchley
I think Buffer is creating a third way for startups in general. Everything
i've seen and heard these guys do since launch has been unorthodox. They're
outliers and I mean that as a big compliment!

~~~
hkmurakami
My sentiments are: (1) love what they're doing and the path they're
trailblazing (2) unsure how replicable it is for other companies (3) hoping
for more companies/founders that leverage their initial success (combination
of luck and skill) to further push the envelope on what is accepted and
possible in this little corner of the world if ours.

The best leverage is to not need the financing, and one you get to that point,
all sorts of possibilities open up. Great to see a wildly successful company
show us what's possible if you have leverage.

~~~
leoncrutchley
I agree their financing path is unique to the way they've built their product
and team, but I think parts of it can still be replicable to other startups.
ie not gearing the whole future of the company towards the big exit, but using
VC money to create a more organic route..

------
sashagim
If one of the founders is reading - why not taking the money in the bank as
dividend right before the fund raising (with full disclosure to the future
investors, of course). You get a similar amount of money (although sharing it
with the early investors), but all the money you're raising goes to the
company, which I assume is a simpler model. Wouldn't that be simpler?

Best of luck with completing the round, and with future growth!

~~~
leowidrich
Yup, great questions! We considered a number of things: dividends, loans,
buying back shares without raising money, debt. Dividends for a c-corp are
taxed super high (big fan of paying taxes, but you end up paying something
like 60-70% tax, not a good idea!). So raising extra cash with minimal
dilution (2.5% for this round) was most efficient.

Right now, all money raised goes to company, then company buys back shares
from early team members - investors still get preferred stock. We're not
selling our common stock directly to investors - you're right, that'd be too
complicated and not in investors interest.

Would love to answer more questions on this, keen to explain our full
thinking!

~~~
sashagim
Interesting, thanks!

------
mblevin
This is an interesting and unusual (but not unprecedented) move that actually
aligns interests.

99% of founders have a goal (it may not be the primary or secondary, but trust
me it's there) to be "F you" rich. Maybe 99.9%.

This move doesn't make either of the founders remotely close to that. If the
founders checked out now, they wouldn't be able to retire - they certainly
won't worry about paying for college for their kids, but they're sipping pina
coladas on the beach either.

Taking "just enough" money off the table de-risks the whole operation for
everybody. The risks in a startup this size are

a) Founder fallout / burnout

b) Running out of enough runway to really scale the biz and make the right
long-term product investments (being cash-flow positive doesn't mean you can
do this - plenty of breakeven startups out there just treading water who are
one bad product cycle or market shift away from biting it)

c) Inability to hire and retain the right people

This helps tackle all three.

Win-win for everyone.

------
sreyaNotfilc
I've been hearing a lot about Buffer lately. I'm about to release my project
and wanted to earn some money with affiliated marketing.

Everywhere I turned, people mentioned Buffer so I grabbed an account a couple
of days ago.

Its a great service that falls in that "why didn't I think of that?" category.
Really cool.

I'm happy for them and I hope they can go very far with this venture. They
have paying customers and as word spreads around more and more about the need
to utilize social media to market your online business (There's a CNN article
recently released about it
[http://www.cnn.com/2014/10/01/world/europe/bloggers-six-
figu...](http://www.cnn.com/2014/10/01/world/europe/bloggers-six-figure-
salaries/) ), the need to organize content release is essential.

So, congrats guys at Buffer!

------
mingabunga
They're doing pretty well for how much little info is on their website. What
do they do? Apparently they're the easiest way to publish on social
media...but there's not much more info

~~~
jldugger
They make it easy for people to manage multiple accounts, and build a buffer
of posts for later release. So your account is always active, even if nobody's
on the clock 24/7.

------
sah88
Congrats! Just a comment. Your landing page seems very sparse. I hadn't heard
of you before and from that landing page I had no good idea of what your app
does or how popular it is.

I feel like adding your blurb from the about page + including something about
who uses your website along with a bigger button for businesses would at a
minimum be worth A/B testing.

Also it seems a bit awkward to navigate with no navbar at the top and for the
business landing page you have to go all the way back to the first landing
page to go to any of the other pages.

~~~
leowidrich
Great point! We A/B tested a bunch of different ones, we haven't managed to
outperform the current one. We'll certainly keep testing it. I like your
hypothesis!

------
rdlecler1
FYI: This was all over TechCrunch, so if someone knows the BufferApp team,
please tell them they'll need to file a Form D 506(c) exemption with the SEC.

~~~
leowidrich
yup, we will, thanks!

~~~
rdlecler1
Sorry, forgot to mention. It's going to also force you to to acctedited
investor verification on each investor. I'm the CEO of AgFunder (and also a
Buffer user) and I can send you a guide to AI verification if you need it.

------
jeffisabelle
I've learned about buffer while looking for job. (probably from who is hiring
threads) Since then, I've been reading their medium posts.[1] Their values,
hiring strategy, salary transparency and managing remote teams seems perfect
to me and I really liked reading their posts. (Highly recommended)

[1] [https://medium.com/buffer-posts](https://medium.com/buffer-posts)

------
hisabness
is this an offer to sell a security?

~~~
leowidrich
Yup, it is! We've filed for general solicitation, which the jobs act made
possible last year! Let me know if I can answer any questions about it!

~~~
UnethicalHacks
I'm curious on how the process works.

------
jeangenie
Commenting so I can find in the future.

------
ecesena
[OT/Ask HN] Is there something wrong with the check for duplicates?

I sent the same post about 25mins after [1] (clearly, I didn't see this one)
and I was able to post it. Just reporting the issue.

[1]
[https://news.ycombinator.com/item?id=8517105](https://news.ycombinator.com/item?id=8517105)

~~~
dang
The urls were slightly different. The duplicate detector is porous in this way
by design, to allow good stories multiple cracks at the bat. We do intend to
replace it with something more sophisticated, but in the meantime a small
number of reposts is ok.

~~~
ecesena
Cool, just wanted to report the case. (got downvoted, not clear why, I'll
maybe delete the comment if this continue)

