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I sold Baremetrics (baremetrics.com)
818 points by anttiai 17 days ago | hide | past | favorite | 497 comments

I've always loved the transparency and frank writings by Baremetrics.

> As part of the structure of the deal, Xenon guaranteed I’d take home $3.7m, regardless of what came up during due diligence

Interesting, I wonder how this is structured - surely there are items that can come up during due diligence that are deal-breakers for Xenon, and surely due-diligence is performed before the contract is closed?

> But they were incredibly gracious and both agreed to write off their investment. General Catalyst’s (who had the lion’s share of that $800k) response showed just how classy they are: “We recognize the work that’s gone into the past 7 years and it sounds like this is a great landing spot for the team. We’re grateful for the opportunity to have supported you along the way.”

I have no idea how they managed to get the investors to walk with nothing, when the founders walked away with so much.

I do due diligence for a living.

> Interesting, I wonder how this is structured - surely there are items that can come up during due diligence that are deal-breakers for Xenon, and surely due-diligence is performed before the contract is closed?

The company was inherently transparent with everything. A big part of DD is QoE and there wasn't much to audit there. This was a deal term that reduced any walkaway risk.

> I have no idea how they managed to get the investors to walk with nothing, when the founders walked away with so much.

Deal flow and it's not worth their time. Be nice to successfully exited founders and they'll speak your praises for eternity. General Catalyst wants $1B exits. If the founder leads to dealflow that brings that in, the $800k will be an easy ROI.

Re General Catalyst: precisely what you said and the brand building they just did. Just ctrl+f in this article to see people's reaction to General Catalyst. This will indirectly help them with even more dealflow.

yeah, this exactly

Now if (theoretically) some founder reading this thread ever has to choose between General Catalyst and another VC, they will ALMOST ALWAYS choose General Catalyst

Over time it will lead to General Catalyst finding a non zero number of 10X or 100X companies because of that

Can you re-use the due-diligence of the previous failed acquisition?

Not a lawyer or an expert, but I did go through due-diligence once.

One of the hard parts of the process, from the point of view of the company, is gathering all required documents/materials. I'm guessing a bunch of that work can be "reused", assuming they kept all the documents organized, which they would've for due-dilligence.

This situation has come up before. The answer is that it depends.

Let's say I do a diligence on behalf of PE Firm A (and the deal falls through) and PE Firm B wants to use that diligence because they're looking to buy the company now. Legally/contractually I cannot let that PE Firm B see the diligence report I created, however I have seen situations where PE Firm B would purchase the report from PE Firm A, or the target would purchase it and give it to PE Firm B.

Through the investors' eyes, "the proceeds from the sale wouldn't even pay for our time and legal fees in reviewing and signing the transaction documents." That's basically it.

Having been through a xenon acquisition, their strategy is entirely based upon arbitrage of vcs’ total lack of interest in non-unicorns.

any other thoughts on how it went with them? was the price fair? were they quick and faithful?

And they probably have "write it off" as a very well lubricated standard procedure costing them as little as possible.

Edit: this is very snarky and not intended. I know the CEO of a failed GC company and his experience seemed neutral to positive; they’ve also bid on something where I knew the founder and generally came across very well also. Trying to discuss the fact pattern and underlying principles, not the specific people involved.


This thread comes off as very tone deaf.

As a small minority shareholder the fees to receive a $800k wire round to zero. Plus it’s not $800k, it’s $800k plus whatever the preferred instrument yields on top.

This CEO seems super slimy and the story doesn’t add up. Much more likely he’s lying for some reason or other.

I don't think anyone's arguing about the wire fees, it's about the tens of thousands of dollars of lawyer time/fees required to hammer out a bespoke contract for what the $800k represents, the terms under which it is changing hands, etc etc.

It would be different if you were an angel and that represented more 1% of your total portfolio, but it's just not the case when it's these big VCs.

They still have to sign the transaction documents. The only difference in the paperwork is a 0 next to their name instead of $800,000. And I guess the onerous work of cashing a check.

Good faith decisions go a long way, if they believe in the founder that 800k becomes an investment to be front-of-line for his next company. The economics make sense insofar as that sum isn’t going to move the fund’s returns a whole lot.

> Good faith decisions go a long way, if they believe in the founder that 800k becomes an investment to be front-of-line for his next company.

Or its the cost of a lesson to stay away.

He did plan to retire so I don't think he would have needed them. It's more of a see you never type of situation.

if you read between the lines he is definitely going to start something again. some people cannot just sit on their hands.

If you read the actual lines, he said he's moving away from software and into the arts

Read again, it says "for a while". Also, he doesn't want to have to do it out of financial necessity.

A 4 million dollar exit is a failure for investors. They don't care about returns of a few hundred thousand dollars.

Apparently the investment was all or mostly through a SAFE. https://en.m.wikipedia.org/wiki/Simple_agreement_for_future_...

I only know what's on that Wikipedia page, but it doesn't look like it's as simple as the investor owning a stake, rather there are events that have to be triggered first which were perhaps very unlikely to be triggered.

An exit would most likely be a trigger on a SAFE. But then it comes down to what the cap was, and how much the VC would get on their return.

I'm wondering if the math worked out that the firm would end up with less than half their investment, it's in their best interest to have a write-off and the founder benefits and potentially comes back to them with a new business later, instead of squeezing the founder for a few dollars.

Yes, an acquisition would be a trigger. Typicaly there's 1x preference so $800k is paid back to the investors before the pie is split up. The cap for Baremetrics was $10m.

They would end up with more than the initial $800k if they wanted it.

Which implies, given the sudden rushed combination of “I’m bad at management” and “please no diligence” and “let’s go fast, 6 weeks”, that he’s lying about some or all of the story. The buyer won’t say anything, the seller won’t say anything, this blog posts remains as the record whether it’s 100% true or 75% true.

Let’s take a specific example. General Catalysts 2001 fund is projected to generate a 11.9% annual return per the public disclosure from Calpers. (1, sort for the name). That same fund is shown as a 7.1% net IRR by the state of New Jersey. (2)

The PR is soooo good, per some of the comments in this thread, General Catalyst is totally fine eating a bottom quartile return in a risky asset class (VC), which if you believed was their general behavior would prevent them from fundraising (therefore existing) going forward? Please.

Maybe the fact pattern is as stated, but it seems fishy at best.



> I have no idea how they managed to get the investors to walk with nothing, when the founders walked away with so much.

If you're not going to make any money and the amount you'll lose won't piss of your LPs then the goodwill from an entrepreneur you like working with is worth more than the cash.

Perhaps they simply had enough confidence in the information readily available at the LOI stage. Baremetrics went through a diligence process not long ago so I’m sure that was a lot already prepared.

Keep in mind it’s a relatively small purchase price.

Really interesting to get a window in on a deal like this when normally details (like this confusing investor behavior) would usually be totally opaque to anyone looking in.

It must be tough though to bear your soul like this and take the heat he's no doubt been getting (including here).

This warmed my heart.

>>>General Catalyst’s (who had the lion’s share of that $800k) response showed just how classy they are: “We recognize the work that’s gone into the past 7 years and it sounds like this is a great landing spot for the team. We’re grateful for the opportunity to have supported you along the way.”

Yeah, same here. That was such a class act. I really hope that they get some serendipity like deal flow from that good will.

Maybe I'm just the Grinch but some rich dudes giving $800k to one rich dude doesn't warm my heart. Especially as someone who's gotten (relatively) screwed twice now when owners sold out.

It also goes to the heart of how messed up our economic system can be. I can be mollified by saying that he worked hard and earned his ~$4 million by building a business. But I can't internally justify the VCs gifting him $800k for AFAICT nothing. I'm going to have to work for the next 4-5 years for that but he gets it basically on the whim of some person at a VC.

It's hard to understand, when taken at face value. But, when you add a little context, VCs can do much worse. They can refuse to sell (through approval rights) and let company die on a the vine. They can force out existing leadership and bring in new leadership. They can force an acquisition. They can kill a company in a million different ways.

For a fund to realize that the company can live on, even if it's not the 10-100x they were hoping for, shows class. Listen, it's not curing cancer - but, it shows a level of maturity and understand that we should praise and not take for granted.

The way that fund economics work, they can write off a lot of small bets. However, the way that partnerships work, there are big egos at play. It's a dirty game, but when people do the right thing, it's worth praising.

I agree, and honestly, I think we can take it further than that.

Because if we set the bar at curing cancer (not that that's what you were doing my friend), then nothing is meaningful. I get that that's a more pragmatic/logical perspective but I believe that change starts small. So it's key to be very vocal about great things they we perceive as small because that can create ripple effects.

I worry when we bash people that do good things with some variation of "Good, But Not Good Enough!" [1] Because, it doesn't inspire people to do even better. In fact, it creates the opposite behavior "why should I even bother at all, can't win with these people."

[1] https://www.youtube.com/watch?v=-0lzyUOjvFw

>VCs can do much worse.

It's, more or less, impossible for them to do worse than $0.

I get that there's some scenarios where they're not going to make money but the business can be viable as a lifestyle type business. But someone is buying this one for $4 million cash. So this isn't giving someone a company worth 0. This is handing out 800k+ in cash.

> It's, more or less, impossible for them to do worse than $0.

Of course they can. They can do $0 _and_ fuck someone else's life over out of spite, vindictiveness, or company policy.

I'm with all the other poster saying what General Catalyst, while almost certainly at least party for self interested reasons, deserve praise and respect for doing this. I know with certainly that there's a bunch of people reading here who'll now move a General Catalyst offer/termsheet right up the top of their pile sometime in the next few years. I hope this works out well for both General Catalyst and for future startups and founders who work with them.

Yes, I fall into that category

I've had multiple offers to buy and invest. And always do your due diligence. One turned out to be a shell company - which means a bigger company secretly trying to low ball acquire my company

In some cases it's VCs or celebrities and you do your due diligence


At the end it comes down to one simple thing

If the VC feels this founder and his team worked very hard and not taking that $800,000 (or $800K + x) means those people will get a bit more (and for the company people it means a lot while for VC it means nothing

Then VC doing it is a genuinely good thing

Now consider what it means to someone considering General Catalyst

At best - they are great guys

At worst - they are smart

It also means for sure that they are not

parsimonious spiteful shortsighted vindictive penny wise and pound foolish

So now any founder taking investment from General Catalyst knows that there is a good chance that

General Catalyst are honest and reasonable They will not sabotage an exit to try and maximize their cut at the expense of founders


Is this deriving too much from a simple act?


However, in an industry where VCs are usually known for kicking out founders, this is a welcome change

hear, hear

They can do a lot worse than $0, reputation is enormously important. If you have a reputation for screwing over founders, then the next super hot startup that can raise from anyone they want is that much more likely to raise from a competing fund instead. And the power law distribution in startup returns makes it such that being able to invest in those few huge successes is all that matters at the end of the day for these funds.

There is a lot of money chasing those, and this is one great way to stand out from the crowd.

> If you have a reputation for screwing over founders

Why do people keep saying this? The dude sold a company for $4 million dollars. Asking for the $800k back that you invested isn't screwing him over.

How is it screwing over founders?

They put in $ for 20%, you put in sweat for 80%. Why again is them not getting 20% the right solution? Unless the agreements said “hey look, sub 5x were okay with you getting it all”.

The business didn’t work. Arguably since only management is involved with running the business, it’s managements fault it didn’t work...why do the investors get 0 and the management team get bailed out? It’s not like they took zero salaries / weren’t compensated...

The world doesn’t work if you sign stuff and then later decide to not honor it just because you can torpedo the guy or girl on the other side of the table.

The ceo also doesn’t seem to have paid the staff either, based on his self disclosure. Not sure exactly how jamming a VC and not giving them at least what they put in back isn’t honorable.

The issue is that their fund business model looks at a 20% roi over 5 years as a loss. If they do that 50% of the time, they don't raise another fund. There is nothing wrong with getting what you are entitled to. But, it's worth praising when someone forgoes what they are entitled to, when the situation really isn't a win - win. The VC took an immaterial loss, by choosing for give up an immaterial gain, so that something material can happen for the founder and their team.

>The VC took an immaterial loss, by choosing for give up an immaterial gain, so that something material can happen for the founder and their team.

But that's not what happened. The business was sold for $4 million. The only difference the VCs actions made was that the founder walked away with 3.7 million instead of 2.9.

There were two things worth pointing out - the acquisition price was lower b/c the founder wanted to walk away and

>>>As part of the structure of the deal, Xenon guaranteed I’d take home $3.7m, regardless of what came up during due diligence. This was important because many times, after months of due diligence, things invariably come up that reduce the purchase price: working capital requirements, unpaid PTO, unrecognized revenue, and a thousand other things. And I wasn’t interested in dealing with that.

I wanted stability and I wanted that $3.7m outcome to hit our family’s financial goals.

Given those terms, I believe the author when he says that this was the best offer he could get that met his terms. If that is true, had the investors insisted on their cut, he founder wouldn't have hit his family financial goal, and would not have sold.

Why are you so bitter dude, the guy worked his ass off and got his exit. Celebrate it and look to see how you can replicate it instead of coming off as jealous.

What a VC does with their money is their choice, a 800k return isn't worth their time and energy if they can spend that time and energy on a billion dollar company within their portfolio.

Because it's scraping the bottom of the barrel. There's not really a sensible reason for the investors to try and claw back their investment every time a company fails, because the business model is based on homeruns.

>It's, more or less, impossible for them to do worse than $0.

Alas, that is not at all true. I once sat through a presentation by a VC on how bad things can go, and they can possibly go much, much further south than $0. Lawsuits, crimes, and total time suck for years are some of the things that can go negative.

  > It's, more or less, impossible for them to do worse than $0.
Far from that being true, it's not even difficult to end up net negative.

Lawyer and employees cost money and directing them towards a small investment will only distract them from doing more important work. In other words, this could've ended with them losing even more money. Also lets not ignore the reputation they gain from this post and people talking about their generosity.

It wasn't $800k for nothing.

Every VC investment is a speculative bet on the future success of the company.

If Baremetrics sold for $800 million, they would have made 1000x their money.

If it was their only investment, then it would be a major fail but VC business model works by making 100 bets. Few bets deliver 1000x return but many of them are 100% loss.

The VC knew what they were doing and their $800k got them exactly what they paid for: an option to make a lot of money in case of a big future success.

>an option to make a lot of money in case of a big future success.

That's why they gave Baremetrics $800k 5 years ago. Why they are giving the founder $800k today is far less clear.

They invested $800K in Baremetrics.

> Why they are giving the founder $800k today is far less clear.

They aren't. They are just writing off their initial investment.

They lose $800K (which is less than that because it can be offset for tax purposes), not $1.6M.

There was only ever one $800k "given". You're making it sound like "today" they went all in on $1.6mil in total. That isn't what happened.

If they had a 20% stake, it would be 200x. Not 1000

ummmm ....

If company grows 1,000 times, their stake also grows 1,000 times

The company wasn't valued at 800k.

I read the post but didn’t understand why they had to walk. Why did they not get their $800k back?

The didn't have to walk. Those chose not to, as $800k isn't worth the time/money for them (see others' post on the size of their funds).

Supporting the founder (and earning goodwill for it) is probably worth a lot more.

I assume the deal he negotiated with the buyer meant he got money and they didn't, and thus that was the only thing on offer.

I doubt the buyer cared one way or another whether the previous investors got their $800k back or not.

I'm guessing it's more that the buyer was only prepared to go to 4mil, and the _seller_ had run their numbers and came to the conclusion "4mil minus that $800k isn't enough to secure my families future, and I'd need to walk away from the deal unless they agree to forgive that $800k" so he asked them, and they agreed.

> We’re also a company that has purposefully operated right around breakeven for years.

And here is the problem. Take VC money and now you are forced to run company at breakeven point.

This company would be perfectly fine operating with half the staff and generating for the CEO half a million in profits per year - every year.

He could have met his family financial goals long ago and still keep the company.

This is what folks at 37signals figured out years ago and good on them. Do not take VC money unless you are already a millionaire and aiming for the moon.

Thankfully lifestyle-business focused "VCs" are a thing: https://tinyseed.com, https://earnestcapital.com, https://indie.vc

I wish we could move past using the term "lifestyle-business", it's basically a slur in my mind.

Sift Finance & Vista Equity Partners as well

This Vista (1)? With the 100 point post acquisition operating plan and intelligence tests? Maybe lifestyle means different things...

“ Billionaire’s Secret Buyout Formula: 110 Instructions and an Intelligence Test

Robert Smith’s private-equity firm revamps software companies by following detailed protocols; ‘their process is like a factory’”


Agreed in general. But, in this specific instance, his outcome is probably comparable to what it would have been had he optimized for profits. Given your 500K/yr estimation, he's selling for 8x earnings - not the best, not the worst.

I've taken the profit optimization route for my own business, and often wonder how much money I'm leaving on the table by not hiring a larger team and chasing (profitable) growth.

Also, "not the best, not the worst" combined with "securing my families financial future" and "doing the right thing by my team/employees" and "relieving myself of a management and company ownership role I don't enjoy" sound like a totally better outcome _for him_, than spending another ~7 years managing something he's bored with and not starting new things.

For a lot of other people, a half mil a year profit from a successful small company they'll own pretty much in perpetuity might be what they'd choose. I can see why he didn't. (I'd almost certainly have made the same choice myself.)

I suspect in most cases you would have quickly hit a growth ceiling with that larger team. Fantastically fast growing companies have generally growth pulled out of them by the market. Yes, there are things you could probably do to grow faster, but those things are the spontaneous insights that occur in the shower.

ha no. do the math on it and you'll see that a sale is far more profitable for equity holders than cashflowing profits for the same nominal amount. I.e. distributing $3.7M in profits yields you personally a lot less than having your equity purchased for $3.7M.

You're comparing apples and oranges - 500K/year of profits first needs to get taxed. Then distributed to shareholders pro-rata, then taxed again at the personal level. Also, you're assuming he could have made 500K year in profit from the very beginning.

Pass through entities wouldn't be subjected to the double taxation.

Yeah but you pay a higher tax rate and get no benefits of QSBS. Generally there is a lot more opportunity for tax optimization on sales than on income.

> higher tax rate

Isn't this only if the distributions are immediate? Forgive me, not an expert in LLC v. corp structures but I have an LLC so I'm curious to hear your expanded thoughts. Thanks in advance.

Income tax rates are usually higher than capital gain tax rates.

> "This is what folks at 37signals figured out years ago and good on them. Do not take VC money unless you are already a millionaire and aiming for the moon. reply"

But 37signals/Basecamp DID take investment money.

They took money from Jeff Bezos investment company named Bezos Expeditions - back in 2006 (14 years ago).


Everyone's talking about how the founder got lucky that his investors let go of their $800K liquid preference.

My guess is that this wasn't all luck.

The VC's in this case knew how transparent this founder was being in reporting his startup journey. They knew that this decision would get publicity.

With this knowledge, the VC firm probably made a calculated decision to forego their liquid pref in return for the good will generated by the founder's transparent PR.

It's cool to see the founder being financially rewarded for his transparency.

If letting go the $800k was purely PR, then that's some expensive PR. Who reads these blogs, a couple thousand people maybe?

If they do this 10 times, they will establish a well-known reputation for being founder friendly. This would cost $8M.

They are investing $1B over all their funds.

Will the impact a founder-friendly reputation has on deal flow and close rate increase their fund's ROI by 0.8%? Almost certainly.

Yeah close rate is a good alternative way to look at it. GC can always have Josh as a founder reference to chat with a founder on the fence - at current market they could probably turn over in one deal (i.e. opp to invest in another business they wouldn't have won otherwise, at the same amount as Baremetrics). Great move for everyone!

There's a _huge_ difference in the PR value for General Catalyst of a couple of million random New York Times readers compared to a couple of thousand HackerNews readers.

This is _brilliantly_ targeted PR. (To the extent that I suspect part of the deal with General Catalyst was that he blog about it and do his best to get it on the front page here...)

10k+ people will read the post, probably more. HN alone can send that much traffic (I speak from personal experience). And it's more about who than how many.

Long term thinking.

I can't think of a better advertisement for these VC's. Calculated or not, it is a great move

yep and good chance these two VCs are the first check in his next business in 24 months.

Very interesting to see the benefit of transparency materializing into real touchable cash.

Jonathan Siegel is mentioned in the article (his company acquired Baremetrics). I dealt with Jonathan in the past, and I could only say good things about him - not just his business acumen, but his integrity and generosity.

Years ago Jonathan was in a position where we needed to buy back his shares in a company in which he invested early. He could have asked for a much higher price, and instead he graciously agreed to a different outcome - he understood the situation and did the right thing.

Glad to see that General Catalyst did the same in relation to Baremetrics, writing off their investment. These things don't go unnoticed. Sometimes reputation is way more important than a few more bucks for your LPs.

Likewise re. Jonathan - we sold filepicker.io (now Filestack) to Jonathan and Xenon Ventures in 2014 and it was a very positive experience. For companies with solid revenues but not venture-scale growth looking for a clean exit, I would highly recommend reaching out to Jonathan and team. Happy to make an introduction if helpful.

Just wanted to say, I used filepicker.io years and years ago on a project and it was wonderful. Thanks for developing something that was easy to use and intuitive, especially when I was still learning the ropes.

I've had a similar experience with Jonathan. He's one of the most founder-friendly people in the VC industry.

+1. Jonathan is great to work with if you are in a similar position as Baremetrics.

At the time I write this comment, half my screen is full of people calling Josh not so nice things.

Folks, this is a founder who's openly sharing the kinds of things we usually keep hidden. I doubt there's been a startup exit in the last decade where a healthy skeptical HN'er couldn't find some wrongs being done, if the details had been available. It's extremely hard to get everything right, from every perspective. The only difference here is that the details are actually available.

Please go easy. We want more posts like these, not fewer.

I have sold a business as well, and I have to admit I am very surprised by this response, too. Not only does Josh divulge information that most founders are legally forbidden from ever revealing, he also was always extremely open about the journey of the business, even facilitating the [Open Startups](https://baremetrics.com/open-startups) page, where Baremetrics itself is listed.

What surprises me most is the lack of understanding of founder risk. Most negative comments are related to employees not walking away from this exit. It feels to me that many here seem to conflate the inner workings of heavily VC-backed businesses with a slowly and sustainably growing company like Baremetrics. I see a lot of assumptions all over the comments.

I appreciate the discussion, though. It's nice to see people sticking up for employees. But a sub-10-people SaaS that's ALMOST self-funded is not the same as a prospective unicorn.

I feel the same way, especially in regards to everyone opining on the investors taking a markdown. For context, it was General Catalyst and Bessemer.

- General Catalyst: $2.5B+ in Assets Under Management

- Bessemer: $4B in Assets Under Management

DISCLAIMER: If you take venture capital, you should obviously always do it as a responsible fiduciary of both the company and the capital.

With that said, I'm positive both of those firms will be fine. They're looking for 100x returns, a $400k write-down from a seed investment is nothing. If anything, it's worth doing that on the off-chance Josh goes on to create the next Uber or Salesforce and they want to invest again. SV runs on relationships.

I don't want to make any moral judgements against people making business decisions, in particular this founder for making the best deal possible. Good for him.

However, no matter how much money General Catalyst or Bessemer made last year, I would not want to invest with them going forward. I get that this is only money on the margins, and they get a benefit from a write off. Still, how hard would they have had to fight to get some of their money back? It sends a disturbing signal to me to write the whole thing off.

Someone will reply: "But they made $10b last year! You don't understand the business." And I am sure I don't. But the world is full of people who made a lot of money or were in the process of making a lot of money and then get careless.

Or reply: "It's part of the model! If they don't get 10x-100x they just want to write it off as fast as possible. That's what there investors want." Sure, but if you are careless people will take advantage of you. Also, I just don't buy that all institutional investors that back VCs are that savvy. A lot of them are just following a trend and over funding an asset class.

Tell me I am wrong. I am no expert.

You don't win 100x-ers by squeezing founders over tiny exits.

VC funds have a duty to their LP base to maximize returns, but I would argue the good will generated by moves like this are what protect their ability to get into "hot" companies and thus protect those returns. Pursuing your strategy would likely harm the fund's reputation and their ability to return LP capital in the future.

Also - a point of nuance. VCs are not in the habit of writing off everything, that would be a false takeaway from this article. If the amount invested was bigger or the exit was more like 2x or 3x for the VCs, your points of criticism would be more valid.

"squeezing founders over tiny exits."

They are not 'squeezing' remotely.

Otherwise, there would be not such thing as 1x participating in the deal in the first place.

Getting your $800K back while the founder gets $3M is not 'squeezing' it's literally just a transaction.

Also - a founder negotiating a price outside the valuation of the shares is getting very close to illegal (Conrad Black went to jail for this).

I think the founder was actually lucky that the funds simply didn't care.

Reading between the lines, this deal wouldn't happen if investors didn't agree to write off their investment.

So their choice was between nothing today or nothing later.

Tax-wise it was probably better to write it off now than carry a zombie investment into the future.

Like you said: their investment was a transaction and they made rational choice.

It's the emotional "we can't loose money" or "how dare the founder sell without us getting a cut" that would be a worse choice.

Either way he's definitely ended his entrepreneurial career. Nobody is going to put a dime into a guy who does that - the risk that he'd do something much grander when the stakes are much higher is obviously there.

He should have sold the company, honoured the terms of his agreement.

People are downvoting you, mostly because you are making a big deal out of a very simple situation. As one commenter said above, they would either get nothing, or nothing, and the VC firm, through the publicity they are getting now, will very likely profit from this sign of good will.

It's squeezing if it impacts your dealflow, which is something VC firms compete for. This 4MM acquisition is a soft landing, not a blowout. Bessemer and GC want a bite at the apple in other deals, where founders and management will be influenced by their behavior in this deal.

It's one thing to maximize your returns in a successful exit. But for Baremetrics' investors, the returns on this investment might as well be $0; the model is that the winners pay for the losers by generating outsized returns. The ultimate returns that these funds will generate for their LPs are defined by the 10+x's, not by the Baremetrics'.

re: 1x participating

Straw man argument. 1x participating are standard terms. I'm not sure why any investor would forego using standard terms, even at the early stage, to their detriment.

re: "squeezing"

You're perfectly free to have that opinion. Clearly both firms with extensive investment experience did not feel that way.

re: "illegality"

I have no idea what parallel you're making here, or what "negotiating a price outside the valuation fo the shares" means. Financing documents typically make it very clear what rights each party has upon a financing event and/or exit event. Whether each party chooses to exercise that right is up to them. There is absolutely no reason to believe Josh did anything illegal here.

>>> '1x participating' are the likely standard terms, meaning the investors should be getting their 1x out of this deal at least.

There's no 'straw man'.

>>> Asking for the 1x back on a sale is not 'squeezing' - it's literally in the contract, a normative part of these transactions. It happens all the time.

"Clearly both firms with extensive investment experience did not feel that way." - no, that they didn't 'go after the money' doesn't imply they would be 'squeezing' if they did. What it implies is that in all likelihood, it probably just wasn't worth the hassle.

The investors got robbed, but at least they can write it off. Asking for money from someone who is essentially refusing to give it back to you is not 'squeezing' by any definition.

>>> "Illegality" - in the article Josh mentioned that he had some kind of deal with the acquirer whereby 'not matter what, he would get his $3.7M'. If the acquirer is agreeing to terms with one 'insider shareholder' to the detriment of the others, that's fraud, and it's illegal.

Josh has a fiduciary responsibility to represent in good faith on behalf of all of the shareholders. Clearly in this situation, he came out with a nice exit, while his investors got $0. It also seems pretty clear that Josh and the acquirer were going to make sure that Josh was 'taken care of as part of the deal'.

Conrad Black went to jail because he was selling off assets of the company, but also getting a large 'consulting fee' from the acquiring entity to him personally. The shareholders felt that was defrauding them of what would otherwise be valuation/money they should receive.

In this companies transaction, it seems pretty clear that the investors were probably into it for $800K (participating) and then 15% or whatever they owned - but they got nothing.

He benefited while the other shareholders did not - this looks like it might illegal - but it probably would only be considered so if someone took them to court over it, which obviously they wont.

It's a fine line between 'negotiating hard' and simply saying 'I have your money, you're not going to get it, so that's that'.

I don't think OP's points would - VC really is about getting into 100x deals, and the "cost" multistage funds would take on to do that is quite high.

See Sequoia walking away AFTER giving $21M funding b/c of a conflict of interest with Stripe - https://techcrunch.com/2020/03/09/sequoia-is-giving-away-21-...

If you make a million dollars an hour, how much time is justified in trying to capture a few hundred thousand dollars when you have limited resources? Oh, you also have to step on the face of a future golden boy to reach it on the shelf. You also have to divert your legal team of several $1000+/hr staff from million & billion dollar cases to this for a month or two. You then have to tell your investors that actually allow you to live that you made a really smart decision and returned them $50 instead of $500MM.

To any normal person or small business, that's a lot of money to be captured and ignoring it is mind boggling, but again for them it's not worth the time and effort. The relationship or good will is worth a lot more, not to mention whatever write off stuff they get and the opportunity cost of their team. There is nothing careless about this.

If you wouldn't work with a VC because they aren't a penny pincher then man you are really going to be in for a reaaaalll treat!

Don't forget the $500/hr crisis management firm when the story hits TechCrunch. "Billion dollar VC firm destroys founder's 7-year path to acquisition".

This is going to sound snarky, but isn't: assuming you're within the normal parameters of an HN commenter --- even a very successful one --- neither General Catalyst nor Bessemer wants your money.

Top tier VC firms aren't like Vanguard. They are choosy about their LPs --- that's why they're called LPs and not "investors". They have an investing thesis, and they go sell it to university endowments and pension funds.

Those endowments and pension funds, in turn, have their own investment goals, and they are not as simple as a first-principles analysis on HN would suggest; in many cases, VC LPs are putting money into that asset class knowing that it's going to underperform other asset classes.

So it's a little cringey reading comments about how people here would choose not to invest with Bessemer based on how they handled a liquidation preference. They really don't care what you think here; you and the partners at Bessemer aren't even working from the same premises.

(A good, though very dated, source on this is the old Kaufmann report on VC as an asset class).

lol wtf, most people are talking about founders pitching for investment.

If they have standard term sheets from GC or Softbank, likely the founder will go with GC

No one is talking about GC's investors....

I don't know what comments you're referring to, but my comment refers to the one it replies to.

I thought the VC was generous here. But there's some benefit to being generous.

How many future founders will read that blog?

If you were a founder, would it influence your choice of investor, to know if things don't work out, they will be magnanimous, rather than squeeze?

Exactly this.

It isn't worth it for either of those funds to play hardball over $400k when hundreds of founders will read that, and will ultimately decide if they want the fund on their cap table for the next Uber/Lyft/Data Dog/Airbnb/etc.

I said it before, but it's worth repeating - SV runs on relationships.

I doubt they knew he would make a blog post with this many details. But still, good will can get around through word of mouth.

Baremetrics and Josh are known for their hyper transparent blog posts. They even publicly share all their revenue metrics. It’s highly likely the firms knew Josh would write a blog post about the exact exit terms.

He mentions his VCs have always been available and engaged, so I think it's reasonable that they knew he would be open and public about the deal; he always has in the past.

You are wrong. But its not the business that you don't understand, its people.

The age-old adage, "There's two kinds of people in the world..." applies to an enormous amount of traits, but here's one where its exceptionally true:

The kind of people who become VCs and have billions of dollars of AUM (assets under management) understand time-value of money calculations, and they understand them almost intuitively. $800,000 sounds like an enormous sum for most people, because for 99% of Americans, $800,000 is life-changing money. It pays off your entire mortgage, or most of it. It sends all your kids to college. It pays for their private schooling.

For the venture capital firm, $800,000 represents a minor clerical error.

Even discounting the goodwill that this displays, engaging the machinery to recoup this $800,000 investment will incur significant financial costs, but more importantly, it incurs opportunity costs. Sometimes its better to just flush the money down the toilet and move on.

"engaging the machinery to recoup this $800,000 investment will incur significant financial costs, " ?

How? They write 1x participation into most contracts, and that's the normative expectation. It's not a 'legal battle' is literally a normal transaction between parties.

$1M is not 'nothing' to a firm with $500M under management - that $500M is not their money, it's other people's money.

If they are getting a %10 return for their LPs at $50M a year, and they are keeping 20% of the upside, which is $10M. So the $1M loss comes out of the fund, not their pockets, but still, $10M/year gross revenue doesn't 'feel' like a huge company now does it? A lot of these VC's are just 'rich' not 'rich rich' like mega-exist founders, just for some perspective.

I think it's a mistake to assume that the VC had the choice between this deal with our 800k recouped, or the same deal without it.

The real choice was likely this deal where we let the 800k go, or future uncertainty.

This isn't "rich people don't care about 800k". This is more like "400k write down makes sense at this time".

> The real choice was likely this deal where we let the 800k go, or future uncertainty

And not just "future uncertainty", but "the future of a company that's spent 7 years trying and doesn't look any closer to launching the rocketship, who's founder is onto his second attempt to sell out, and clearly is out of enthusiasm and ideas".

There was no 3x or even 2x future here for them, certainly no 100x - there was just another 2, 5, or 10 years of slow flameout with a 0x - or a quick and tidy 0x with a significant PR goodwill upside.

No, the 'spin' of the founder puts on this makes no sense - by your very own logic.

>>>> If there was 'no future good outcome' for the company then in what way is the founder's 'threat' to 'not sell' credible in any way? <<<<<

Why would he 'march on for 5 more years with little hope of exit' (by your very own projection?)

He's threatening to 'not sell' and therefore probably end up with $0?

That's an empty threat - and it's also acting agains the best interest of shareholders, which is his legal duty.

The situation is obvious:

They have an offer for $4M, it's probably their only way out, it's a nice 'few million' for the founder, the investors get their 1x participating + a tiny bit.

That's it.

It's not uncommon.

What kind of person would even think to sell a company 'on the premise that the other investors get nothing'?

He basically told the investors to bugger off and that's that.

'There is no significant goodwill' for the investors.

There is however some 'bad PR' for the founder unfortunately.

It's plain as day.

> He basically told the investors to bugger off and that's that.

No, He asked, they agreed. There’s clearly something they both know that we don’t, and the outcome that happened happened. I guess it’s just as easy and valid for you to interpret it as being a bad thing, as it is for me to interpret it as a good thing. Only the VCs really know, I guess.

Just another data point. While I would probably never pursue VC funds, their move resonated with me and now I have the names General Catalyst and Bessemer seared into my brain (not to mention sharing the story to my friends and other people with startups). $800k for that kind of advertising is decidedly not a bad move.

It is a common mistake in tech circles for people to believe that they are smarter than the people making decisions like this. Besides the obvious part about protecting their reputation as being easy to work with, there are always details behind the scenes in decisions like this that make them make more sense. You don’t know their tax position, what relationships/deals that being less friendly here might have endangered, etc.

Investors have given them $2.5 billion for a reason. One of those, undoubtedly, is that they are not stupid. Suffice it to say that they believe that this decision is worth at least $800k to them in the future, or they wouldn’t have done it.

If you are ever in a position to become a LP with General Catalyst, then perhaps you can ask them for their rationale and decide for yourself if they are trustworthy based on all the facts. Until then, making judgments based upon not even close to all the facts is just useless speculation. Your conclusion - that they are just stupid or terrible fiduciaries - is almost definitely wrong. You are no expert, but they are.

In this situation I think General Catalyst and Bessemer got more than 800k worth of good-will by not blocking this deal that they knew wouldn't get them the results they were originally looking for.

If a single founder decides to accept their money based on this action, and then has a VC-style outcome, they've made a good decision.

Ideally all investors want their returns. In this case, it’s a drop in the bucket for their portfolio and they are incentivized for investing in seed rounds (with the hopes of it being an Uber or a Salesforce). It’s quite common. Trend investing is happening too, FOMO, all of that, but their goal is to take $400k seed and turn it into a $40m exit. If you diversify enough it will happen, not if.

Four parts: 1) the bulk of returns are the few best performing investments, 2) there are material fixed costs in carrying an investment (partner attention, conflict management, admin overhead), 3) it's a way to get proprietary insight into a new space, and 4) there's value in founder relationships (deal referrals, recruiting). Large funds write small checks to get an early view into promising companies that are too early for bigger investments. They are aware that many won't out but they believe they are better served getting in early & divesting most vs waiting and having less information or access.

Also, it just occurs to me - I wonder if Josh and Baremetrics have _already_ helped these the VC firms our with enough deal referrals, contact, networking, and deal closing ammunition (and I suspect not, but given this is SV, data on other startups that was not publicly available but that Baremetrics was collecting?) - that made it an easy choice for them to say "Sure! We're totally happy with everything you've done for us overt the last 7 years already. Thanks man!"

There's the time-opportunity cost - they can't afford to be perfectionists and squeeze 100% of what they potentially could from a situation, which is arguably undue stress as well - and will cause further externalized losses in what their other focuses are.

It has to do with supporting the winners that are actually going to return money to your investors. They are refusing to fall prey to sunk cost fallacy, which is a good thing.

I run a bootstrapped SAAS. I really and truly understand where Josh is coming from. I have fully sympathy for him and whatever actions he took for his best interest after a gruelling 7 years. I am really grateful that he has shared the numbers so openly. Josh, you don't know me but please go and do whatever the F you want to do and don't listen to what others say. You deserve it!! It is disappointing to see comments like "what did employees get" ? Employees get salary and as long as they are happy working for the company and company takes care of their well being, they are not entitled to any additional founder benefits. Not all companies are unicorn where "early" employees get a big piece of the pie.

I agree, I'd like to see more posts like these. While I'm impressed by the unicorn startup stories, I want to also hear from those that did/could not take that path, which is a majority of the startups. One of the most impressive things is that Josh did all of this with a level of transparency few founders would be willing to.

Of course, some posters here are talking about employees getting a raw deal, but it was there for all to see that the company had decided long back to prioritize profit more than growth. Any employee that would have expected a unicorn like exit would have known it wouldn't be the case and would have left long ago. Blaming Josh for that doesn't feel right to me.

I see this "HN is toxic" sentiment on tech twitter a lot, particularly from tech folks on twitter with a lot of followers and fans. My own experience on HN has been that folks may be more cynical than average, and sometimes lacking empathy, but I've found most arguments are at least made based on reality, facts and good faith. Those that aren't usually get downvoted and/or flagged pretty quickly. Meanwhile twitter threads are frequently full of trolling, memes and reaction gifs. Where does this "HN is toxic" mindset come from?

You hit the nail on the head: the cynicism. Cynicism isn’t a morally neutral stance. Assuming everyone else is arguing in bad faith and in favor of their crude short-term political/economic interests. Asserting that all property is theft and that the system is rigged. Dismissing those who disagree as gullible or stupid or (themselves) cynically trying to manipulate people. There is so much of it here and it comes from every angle. It is disgusting. That people who are here tend to self-identify as high-IQ does not help.

> Asserting that all property is theft and that the system is rigged.

There is definitely a discussion to be had about property, smarter people than us have had it for at least 150 years (even more, if you include the discussion between Locke and Filmer), don't see anything that cynic about it. I'd go on to say that even Cynicism itself was a really interesting philosophical school [1]. I do agree that that there are some people on this website who still take the IQ thing seriously, but even there, I think that the majority regards it as bogus.

[1] https://en.wikipedia.org/wiki/Cynicism_(philosophy)

Right, the comment you are responding to appears to be conflating anarchism with cynicism (which is, ironically, a rather cynical take on anarchism).

No, I was referring to a line of thinking very common among folks I’ve met who grew up in post-USSR Russia vis a vis the worldview of many of the people I know who grew up in the USSR before.

The former tend to think everyone is corrupt and that if people have success or wealth or anything, it’s because those people swindled someone out of it or were connected to the right people.

Those who grew up in the USSR tend to have a more meritocratic worldview, where hard work and intelligence and studying for exams will result in a better life.

Maybe the people I know [strike]are[/strike] aren’t representative of those times and places. No matter, you can find justification for either worldview in nearly any situation, whether it’s 1970s USSR or ‘90s Russia or ‘50s America or Trump’s America. Reality is nuanced and filled with thoughtful insights that oppose each other and yet are equally true. The loudest people on HN are not people trying to square that circle.

HN had the audacity to do something other than shower the subject with unapologetic praise. An actual discussion occurred rather than a congratulatory twitter echo chamber.

I'm actually a really disappointed in Josh's response. I thought that his open stance on what he'd been doing would mean he'd being open to people criticising what he'd done. He doesn't need to agree with that criticism, but dismissing the whole site as toxic based on that disagreement just feels flippant.

From what I've seen and participated in, the discussion mostly centered around whether this was a good deal for everyone involved and whether or not a greater proportion of a company's success should be attributed to it's employees. At least in my eyes very little of it focused on Josh personally.

> I thought that his open stance on what he'd been doing would mean he'd being open to people criticising what he'd done

His goal in publishing this information seems to be to foster a community of transparency. To that end, his actions appear entirely consistent.

Put another way, what additional information do you want him to convey? His goal is to accurately and openly convey information, and he's basically laid it all out on the table.

You're free to have an opinion on whether his actions were right or wrong, but don't expect him to engage with your criticism when that takes a lot of time and effort (and is not part of his goal).

> His goal in publishing this information seems to be to foster a community of transparency. To that end, his actions appear entirely consistent.

I think his goal was to help people. The goal of many people in HN comments is to ‘be right’. It’s a cultural thing. What we prioritize, how the community started etc.

I think HN has ‘trying to be helpful’ forces in the long run. There are ideas, content, links to new information that are helpful. But it’s not the priority compared to what many people think is decent. If you look at other online communities that’ll be pretty self-evident.

But again I think the key to HN is it has no direct interest in being helpful. Only as secondary effects. There’s nothing wrong with that - just as there’s nothing wrong with an incubator with a certain philosophy or writing essays that you think are insightful. In the long run, they help. But they don’t prioritize human decency or kindness and there are a lot of false negatives (startups missed in YC, entitlement and biases in some essays, dismissal of what isn’t clearly the right comment, etc).

It’s a cruder world that way. Take for example the culture of ‘X, Y, and Z read drafts of this’ that everyone has emulated. I used to admire that. Team building and acknowledgments! But it’s also encourages a culture of not being open and trying out new ideas. Living in fear of new ideas that will be rejected etc.

And that is something Josh had the balls to reject. There’s no hiding behind his Harvard / MIT connections. There’s just honesty and transparency. HN and YC people could learn a lot from that bravery.

> You're free to have an opinion on whether his actions were right or wrong, but don't expect him to engage with your criticism when that takes a lot of time and effort (and is not part of his goal).

I don't expect him to engage at all. I do think he should be able to handle dissenting opinions without merely dismissing the whole site as toxic on twitter.

> without merely dismissing the whole site as toxic on twitter.

You are aware that he's not, not by a long shot, the first to have that opinion? There's _way_ more than an element of truth in it.

Maybe I just have a high bar for what qualifies as toxic, but most of the thread seemed to be a reasonable discussion of what had happened.

Obviously some people have made some incorrect assumptions at varying points, but I haven't seen anything that would remotely qualify as toxic.

The HN community is full of incredibly intelligent but often young tech-centric people. I used to be part of the latter, but the reality is they lack a huge amount of context and experience. Being a talented developer-employee, even an early employee is jut not the same as being the founder / maker / starter. I sincerely doubt any of these people spent every single day of the past seven years worrying about the fate of their entire company; if you did, you're an incredible employee but you should have been running your own gig.

On HN every action by anyone is seen as some evil plan.

Apple wants to alert users to genuine / non-genuine batteries (to mention latest downvote blast). That is evidence of how evil apple is (not even considering how many folks were getting screwed by all the trash batteries going into iphones pretending to be real).

Zoom is so evil for X/Y/Z reason - except zoom is actually easy to use which is what most non HN folks care about - so their "evil" is just optimizing for different goals in some cases.

The negativity and the myopic focus on personal need / preferences really highlights sometimes how just out of touch with the rest of the broader world HN can be.

Toxic has become a synonym of "I don't like that"

I think it's extremely valuable as a lesson for prospective early employees.

My own personal takeaway is crystal clear: if you want to benefit from the sale of something, you need to be the owner!

Much like a gardener or builder who doesn't get paid out when the house gets sold, unless you have a LOT of equity as an early employee, you will not be getting founder-type payouts (and rightly so as you took little to no risk)

Companies don't have to be run that way. When we sold Cygnus the receptionist was able to pay off her mortgage and other debt. She was a 65 year old divorced woman and now she could afford to retire (she stayed with the company though).

Of course we were a traditional SV startup -- people are different these days.

Well I think the fact that you're a nice person who made sure the secretary was taken care of is great!

But I wouldn't start generally inferring that it makes sense to take secretary jobs at startups on the chance the founders decide to pay off my mortgage.. Baremetrics is a more typical case, I would think.

the math is still incredibly lopsided. Your secretary can pay off her mortgage or buy a new car; the founders get FU money. This is just how it works; hate the game not the player.

> Much like a gardener or builder who doesn't get paid out when the house gets sold

We may also interrogate this arrangement.

Same thing happens with GitLab somewhat regularly. I don't know of any company that operates with that level of transparency and somehow a select set of folks can't seem to control themselves when supplied with a reason to air their grievance.

GitLab is a poster child of why companies don't publish any details.

Deleted the production database and customer data? You could apologize and move on. There should have been backups to restore from but clearly there weren't.

The gitlab way: Go in great details about how there is no automated backup and the last one that was done manually 3 months ago doesn't work... and how there was no testing/staging environment to try the change before production... and how any intern could delete it the same way by accident on their first day.

There's a reason companies don't publish gory details and internal discussion. At best there's nothing to gain from it and at worst it's highlighting incompetence and wrongdoing.

On the other hand, most of us knows there's a very real risk that things are duct taped together all over the place in companies whose services we depend on, but we don't know what the actual risks are.

That's terrifying.

In some ways it's terrifying to be able to see those risks too. But then we need to remind ourselves that those risks are there in companies that don't dare to tell us as well.

I think it's a good approach, it:

1) Works as a club for developers to get the time they need to improve processes and code. "Do you want to be responsible for the HN article about the incident this will cause?" would give most managers pause.

3) Gives customers the confidence that you'll let them know when issues that might affect their experience or data are occurring.

4) Proves to customers that you can fix these issues when they come up.

5) Makes people wonder what's going on in your competitors that they're not hearing.

On the other hand you don't get to pretend the sun shines out your ass, but that's disingenuous and most people will see through it anyway, you only trick the people that also want to go along with you.

That's definitely the pragmatic view and the obvious downsides are largely why this approach is so rare.

Much like TFA I think there are things to be learned from that level of transparency and hope the experiments continue.

Ctrl-F for 'Salary' and you will understand what really happened. How many years did Josh work for $0 or just below market salary, take no money out of the company, in fact likely dump significant quantities of his own money into the company... all the while his employees enjoyed getting paid a agreed upon amount every pay period?

$4mm after tax (hopefully Josh is getting the QSBS tax break) for a decade of extremely high risk high effort contribution to our economy is not a good risk-adjusted return, but it's at least a decent exit at the end of the day.

They're also mostly from a very SV bubble point of view. A lot of posts point to the employees not getting very much from the sale. But there are lots of places in the world where employees of small businesses are not granted large equity stake, and work for a salary like most employees everywhere else. This is especially true for a steady profit driven company that's not aiming for hypergrowth (another very SV centric view of startups).

We don't know how much the employees are paid, for all we know they could be paid the prevailing wage for their location.

As a founder who's faced his fair share of public criticism, I used to share this sentiment.

However, over the years, I've learned that facing critics and doing impactful work goes hand in hand.

Put another way, if you don't have critics, you're likely not doing anything very impactful.

In my experience, the key to maintaining equanimity in the face of harsh criticism is to:

1) Have a strongly held mission and set of core values. Commit to this mission/core values regardless of what anyone says.

2) Recognize that it's sort of funny how pretty much any action can and will be twisted and criticized by critics online. There was an article a few months back about Bezos dedicating $10B to fighting climate change, and the entire comment section was negative. Lol!

Everyone is weirdly mean to you when you sell. I sold to fb in 2018 (height of cambridge analytica.) Even ppl who are now my bffs were mean on HN. (they didn't know me at the time.)

Can you please be specific about what "not so nice" things you are/were seeing? I'm not seeing any inappropriate criticisms beyond what I would normally expect.

Half screen? I see a comment or two. I think it's normal/human thing to have discussions in comments like this one. Especially, when it's an exit related topic that gets shared on startup/VC related forum-site like this one?

Prefer just "good job" comments, or what?

I agree. I read all the comments in this thread and this time and the negativity isn't there. It just doesn't exist. I don't know if those comments were removed, but I just suspect they never existed.

I was incredibly confused to read "Investors are writing off their $800,000 investment". Sure, $800K isn't huge money for a fund, but it still seems... odd... to be so nonchalant about it?

Then I checked General Catalyst, they manage multiple funds in the $500M - $1B range[1]. In that context the $800K really is a rounding error, around 0.1% of a single fund's size.

It never ceases to amaze me how money stops being money past a certain amount (which would be life-changing for most people), and just becomes numbers to move around.

[1] https://www.crunchbase.com/organization/general-catalyst-par...

I imagine there must be a bit more to the story.

It's not common for investors to write off $800k out of good will (doesn't seem like something in the best interest of their LPs).


> It’s a really exciting day here at Baremetrics! I’m stoked to announce that General Catalyst has invested $500,000 in Baremetrics, as part of a new fund they’ve created for businesses on Stripe.

Turns out there is more to the story.

Baremetrics got their cash from a fund specifically intended to promote companies integrating with Stripe. In other words, the goal of the fund was to promote Stripe moreso than to generate returns for LPs

So they invest in a company and then they invest in a bunch of companies to raise the turn-over of the first company. Seems legit.

Ahh good find, and according to CrunchBase that Stripe fund was $10M total.

That makes a bit more sense now.

Interesting - I truly expected Stripe to buy Baremetrics.

It's not that they had an option to collect that $800k in some way - I'd presume that their share in the company was objectively worth much less after all these years, and the only difference that some hardball squeezing might make would be that they get a chance to write off, say, just $500k instead of $800k but more likely just block the deal so that nobody gets anything.

I really appreciate the lack of “our incredible journey” platitudes in here.

It was a wild ride, but all journeys come to an end. Our customers and employees are our most valuable asset.

Why? Building a company is a journey.

I'm referring to the trite overused cliches that often fill these sorts of blog posts.


See also the recent example of https://www.slingbox.com/discontinued, which makes this funny pair of claims:

Q: Why is Slingbox being discontinued?

A: We’ve had to make room for new innovative products so that we can continue to serve our customers in the best way possible.

Q: Will Slingbox be releasing any new products?

A: No.

> But they were incredibly gracious and both agreed to write off their investment.

So the investors just accepted to lose $800k while the founder was getting $3.7M?

Can someone explain the logic here?

> So the investors just accepted to lose $800k

$500k came from a fund General Catalyst set up specifically to encourage startups to build new businesses that integrate with Stripe. [0]

The goal for the money was to enrich the Stripe ecosystem. Not generating returns for investors.

If the money came from a regular fund without the Stripe affiliation, General Catalyst 100% would not have accepted the $800k loss.

[0] https://www.prnewswire.com/news-releases/general-catalyst-in...

> If the money came from a regular fund without the Stripe affiliation, General Catalyst 100% would not have accepted the $800k loss.

Doubt it. $800k is not a lot of money in the investment ecosystem.

This is what I came here to find. Thanks!

They are investment funds that manage billions of dollars. They invested 800k hoping to make 80-800M out of it.

It's pretty obvious the business didn't pan out as well as intended. It's not really worth their time anymore.

Still. They could have caused troubles and tried to recoup their $800k out of the $4M. They were nice not to.

The money will be written as a loss and go through some accounting/tax trick to minimize the effective loss.

In what way would it have been trouble? Surely they legally own that bit of the company?

Something doesn't make sense. $800k is not a small enough amount for any responsible investment fund to walk away from.

I wonder if maybe it was actually worth way less. I think he said they walked away from their $800k investment, but maybe that was at a much higher valuation. If it was only worth $80k I can see them not bothering.

800k actually is small enough to give away when you're dealing at that scale. The lawyers fees and other fees wouldn't even be worth that much from a sale.

The bigger reason is reputation. If Techcrunch posted an article saying, founder screwed out of acquisition by billion dollar VC, it wouldn't work out so well for the next founder considering that VC.

But he would have still walked away with almost $3m, how would that be screwing him?

Why would they just want their original investment back? They'd demand 5 or 10x the original amount (as VCs) which completely wipes out the acquisition.

Because some money is better than no money? VCs don't really get to demand a certain amount. Investment doesn't work like that.

That is incorrect, VCs absolutely have preferential shares with liquidation preferences which can be multiples of their returns. Some money is not really better than no money if their reputation comes out as nickel and diming their founders, and future founders don't want to take their money, and if the VC misses out on a big exit as a result, now the VC has lost potentially much more than getting the 800k back.

The positive PR/social value of walking away from it is worth vastly more than the money. You're talking a tiny percentage of the fund value – if having a reputation for a willingness to do the "founder friendly" thing helps you get into competitive rounds in the future, it's absolutely worth it.

$800K is not worth the effort of collection, welcome to the world of venture capitalism.

So if they sold for $4M, and the investors got $0, and the founder pocketed $3.7M ... where did the other $0.3M go?

If it went to the existing employees (they have 7 of them on the About Us page), that's ~$42k per employee.

He said it in an another comment; to employees.

Wow, such a great read. I love people who are so open and honest. btw, how does tax work in the US for acquisitions? is the money he's getting is taxed the same as income?

He'll likely pay no federal taxes.

If the business is >1 year old, it's treated as capital gains. Since the company is >5 years old, he can likely take advantage of the Qualified Small Business Exemption up to $10m and pay no federal taxes.


Thanks for the info. That's pretty amazing.

To be specific, since it might help someone and it’s important to get the technicals right, dig into the IRS portion of the federal code, section 1202, or QSBS. Note, doesn’t apply to LLCs ... so you eat double taxation if cash flow positive but it’s less burdensome now with the Trump tax rule.

Decent link here: https://www.svb.com/blogs/svb-private-bank/understanding-qua...

I believe, but can’t find, that you need to trade cash for the shares to qualify, so if your basis isn’t zero, it might require writing a check into the entity to cleanly qualify.... moral of the story here is pay someone to help you on this :)

it's only amazing because he spent so long making so little

Thanks for actually giving real numbers here. I hate startups that spin fire-sale acquisitions into something more substantial than they are.

So I am super happy to see some real transparency with real numbers and a real talk about the earn out.

The part about the investors getting nothing while the founder gets millions is really interesting. How does something like that even happen?

This is just an idea, but I suspect taking the tax benefit of writing the investment off in Year 1, compared to blocking the sale and getting a 1x return (maybe) in 2-3 years (or more), actually has a negligible effect on the fund's IRR.

General Catalyst latest fund was $2.3B and BVP’s was $1.85B.

I’m unsure which exact BVP and GC funds Baremetrics raised from, but that $800K likely doesn’t matter to either of their returns with funds of that size. Even at $100M, it probably doesn’t matter to a fund. VCs expect over half of their investments to outright fail.

What’s much more important to the VCs is the good will they just built with that founder. Most founders will give back door reference checks to other founders about investors. Josh is likely to say good things about BVP and GC now. Also, they got that mention in his blog post too. It’s likely they knew Josh would write a post like this and chose to just write it off for the “we’re founder friendly” story vs. looking founder unfriendly.

As a founder, I don’t think there’s anything wrong with what happened here for the investors given their fund sizes. They’re professionals investing other people’s money and expect this type of thing to happen. In fact, most VCs likely expect you to fail. If these were angel investors putting in their own money, I’d have a different opinion.

Agreed. Why on earth would investors agree to not getting their money back?

Did they get anything? It doesn’t sound like it.

What are we missing here?

Two things come to mind.

1. At the end of the day, investors are people too. They may care that the team ends up whole.

2. 800k is non-trivial money, but it’s a small percentage of, say, a $100MM VC seed fund. The economics of VC are that some investments will net zero return. While they could have tried to claim back something here, letting go with grace gives them a lot of goodwill to be first to invest in the founder’s next project (assuming there is one).

> letting go with grace gives them a lot of goodwill to be first to invest in the founder’s next project

Also a halo effect with other people who are reading this.

But I'm guessing there were some animated discussions about this.

Plus, per https://news.ycombinator.com/item?id=25045874

> We've had carryover losses for years, so from a tax perspective, there was no hit on either side.

"A small but reasonable exit is life-changing for me, and a nulled-out investment is expected for you in most of your investments."

Some investors are gonna be ruthless sharks. Others are not.

It might make them more attractive to the next generation of founders, especially if it is widely communicated as here.

Advertising money well spent?

I was shocked by this too. The only thing that makes sense is that it's a form of advertising/branding for them. Baremetrics is a startup whose main audience is other startups and the posts like this have a good reach.

Other startups looking into them will see this. And breaking even might be about the same as taking the thing as a loss in the grand scheme of the VC model to them. I do wonder if other lower profile companies would have gotten the same deal.

tax loss harvesting

I interviewed for Baremetrics a while ago and a major reason for this was because I am a fan of Josh and its openness culture. Ended up not following through the process as I got a job offer in the mean time.

I enjoyed even my first impressions at the interview process and I'm happy Josh got a nice payout, congrats!

I do hope Baremetrics transparency continues in some fomr as its a big inspiration.

Congratulations on the sale and thanks for sharing. Very interesting for someone who's probably a few years behind you.

$3.7 million sounds like a lot of money, but he could have earned more than that over 7 years if he just took a mid-level job at a FAMANG company.

EDIT: saw that the founder lives in Birmingham, Alabama. So yes, $3.7 million IS a lot of money.

It averages out to $420k/yr. There's this sentiment on HN that "all you have to do" is get a job at a big tech company and you'll make a million dollars a year. It's idiotic, and not true. Yes, there are people who make $500k+ writing code in a cubicle for 40 hours a week. They are the vast, vast, vast minority compared to the people a) making $100-200k doing the same thing; b) making that $500k+ doing everything but writing code.

Unless you're doing infrastructure stuff at Netflix, ad work at FB or Google, or some high level stuff at Microsoft you're not making half a million a year, and you're not doing it at a mid-level anything, anywhere.

As a Belgian, I can't help but look at these numbers in disbelief. 100-200k/annum for churning out code 40 hours a week? Where do I sign up for this? I'm the best paid employee I know, work insane hours, and I'm not even in that bracket.

Addendum: it's very rare to make more than twice the average wage in Belgium as an employee. It's a different matter if you're self employed.

As a Belgian myself: self-employment is the key here. It's not that hard to pull in 100-200K annually in the current belgian tech space, I've done it consistently for the past 5 years, with lots of periods where I did not work full time.

In the US at least, as a contractor, you have to make a lot more in gross pay to come out equivalent to what you'd earn at a lower salary somewhere else. You have to cover:

* Health Insurance

* No paid time off: Want 4 weeks off a year? That's a 7.6% reduction in pay.

* You have to pay both the employee & employer side of payroll taxes

* You're not eligible for unemployment, so you need to save more money to cover that possibility

* No retirement fund so you don't get any matching funds and have to really be on top of what your long term needs are and take that off the top of your income.

As an example, I have a normal salary full-time job, but I also have a hobby business on the side. The money I make from that given the tax bracket I'm in, federal, state, payroll taxes, means my "take home" pay from is taxed around 43%. And that's without needing to take anything extra out of it for paid time off, health insurance, or retirement, all of which are well covered by my salaried position.

Any advice on how to get there? I'm a contractor after having worked full time for a few years. Working with a very few long term clients, just me.

Is your daily rate very high, are you delegating work to other people, or what is it?

I'm working in Belgium as well and really wondering what space you were working now because 100K-200K net is way above developer wages here.

Did you have to specialize in some kind of technology or sector? Or is it simply because self-employment means paying less taxes?

Same here in the UK.

I know a couple of guys in the UK who are essentially just coding all day, in full time jobs, making £100k a year.

BUt it's very rare IMO, I'm not even on 50% of that.

In the UK you could make good money but the trick is to be a consultant and bill your employer through your Limited company.

At one place where I worked with a permanent contract, the consultants were billing at 800-1200 gbp per day depending on seniority. There was agency cut of course but overall they made real well. this is when working at the same office at the same hours right next to me, just like an employee.

I haven’t been in the UK since a while so I hear that now things changed so you can no longer pretend to run a company when being essentially an employee.

I haven’t been in the UK since a while so I hear that now things changed so you can no longer pretend to run a company when being essentially an employee.

That's actually been the case for about 20 years now. The relevant term is "IR35".

Hmm, I have been driving relatively fast lately. must be the relativistic speeds that 20 years is not the same for both of us!

Anyway, apparently the changes are postponed to April 2021 at stationery frame of reference: https://www.taylorhopkinson.com/ir35/

Those are merely administrative changes. The law and tax rules themselves will still be much the same as they have been since 2000 or so.

The reason this is big news anyway is that for the first time, large clients will themselves become responsible for determining whether an engagement falls under IR35 or not, and may also become liable to the government for the shortfall if the determination made is incorrect. Until that point, it's the freelancer/contractor operating through an intermediary who is on the hook (except for various government contracts, where the analogous change came in a while back).

In a surprise to no-one who has ever worked in the independent sector, this has made lots of big businesses that were formerly quite regular users of the flexible workforce much more sceptical, and many big names appear to have outright shut down this way of working for now.

At some point, presumably our government will realise that it has to pay for its spending spree during the coronavirus and that getting the economy back on its feet is going to need that flexible workforce, so with a bit of luck they'll come to their senses and finally do something about IR35, though I'm not holding my breath.

It depends on the industry.

I'm graduating this year, and many of my friends (and myself) are going to work for FANG+ and finance companies and hitting that figure.

In London?


Interesting. What area of tech are you all being hired to do?

Hedge funds, prop shops, etc. Few of us are joining Jump/Two Sigma/Citadel/D E Shaw. Comp tends to be 80k salary and 40-50k bonus.

I am always deeply suspicious of the figures on that site. Right now, I'm looking at a L4 at Google, in London, listing $367K total comp at 0 years of experience.

Figures for my company are spot on, so I assume that they are correct for other ones as well. Usually base salary for a given level is set (you can see that majority of entries have very similar base salary if you remove outliers). Bonus is usually preset as % of base salary and therefore will be same/similar for most people. What could make difference are RSUs. If you are coming from another FAANG or startup and leaving behind lot of unvested stock, you might get that matched. Or if you have other offers they will prefer to increase RSUs rather than base salary. Every year you then get refresher RSUs which are quite significant (as big as your base salary but spread over 4 years).

You need to move to Silicon Valley for that, but cost of living and lose of other benefits of living in Belgium might outweight the higher paid. You can try Switzerland if you want 6 digits salary in Europe.

Be aware that tech salaries in the US are roughly twice what you get in Europe (and most other parts of the world). So don't be too shocked.


Google in Switzerland my friend.

Or generally contract work in Switzerland.

This year for a brief, beautiful moment(two months) I was making 750CHF daily before taxes.

Regular, experienced employees can count on 100k+ before taxes.

As a freelancer in Paris, I've been invoicing 625€ daily in 2018 and 2019, and 700€ in 2020, doing Big Data / Scala development with a sprinkle of devops, for the same customer. I think I could get 800-900€ if I find a customer that pays better and focus on the Big Data / GCP sectors. Just need to find a contract through word of mouth, and not through a recruiter that takes a 100-150€ margin...

You get less as a salaried employee in France though...

Become a contractor, you'll be in the 100 to 200k/year. (ok yes, that's before taxes)

>Where do I sign up for this?

In California

>it's very rare to make more than twice the average wage in Belgium as an employee

Yep, software engineer compensation is crap in the EU, while the cost of living is almost as high as in Silicon Valley. Solution? Apply for H1B at a FAANG. Fuck the EU.

>Fuck the EU.

Yeah? Well that's just, like, your opinion, man.

In my experience, most engineers, even those fresh out of college, land at above 300k within a few years at Google/FB. You do not need to be a rockstar, and you don't need to work more than 40 hours/week for that (though that can depend on team, I've never encountered one that regularly asks for more than that).

If you're talking finances, Google/Facebook will pay you more, with less risk, and better work life balance than pretty much all startups. There are entirely justifiable reasons to prefer a startup, but you should take a second look at your calculations if you think finances come out favorable on the startup side.

Not necessarily true. I was a mid level product engineer at a recently IPOd company (joined 2 years pre IPO). My base salary was $200k, and the stock and bonus more than doubled that.

There was a little bit of “pick the rocket ship” gamble - I had an Uber offer that probably would have been ended more like $250k/year, but it’s not unreasonable to get half a mill joining a late stage pre-IPO startup, and base salary is high enough you do it with little risk.

Hell, I know some mid-level post-IPO folks at Square making $700k due to it 10xing in share price.

I don't work in FAANG, but I know someone who works at a 1 tier lower big company. He is a mid level engineer. After 1 year at the company - Salary + Monthly vesting comes in at somewhere between 400-450K depending on how the stock performs, and he certainly has room to grow.

I was told FAANG-ers make even more than him, so yeah I tend to believe these numbers.

To make those figures doing "ad work" at FB or Google you probably have to come in as a VP or higher, which already comes towards the end of a very long career arc.

Not necessarily. Bear in mind Facebook's compensation is heavily performance orientated, the bonuses can rack up. You can easily clear $500k at Facebook as a senior engineer, especially if you're getting high evaluations.

Fair enough, I'm talking about the non software engineering side of ad tech.

This is untrue. A Level 6 Engineer or Manager and higher makes $500k+

VPs likely make millions.

Not sure how accurate glassdoor is, but:


Highly inaccurate. Even if you look at the data provided there, it’s 2 data points with an insane spread.

Check out levels.fyi for something more accurate. You’ll see L6 engineers make $500K+.

So even more pessimistic than my already prone-to-pessimism self thought!

Google L5 is $331K a year according to Levels.fyi Eleven years. L6 is half a mil a year. L3 is new grad. L5 is not superhuman. It’s not mid level but it’s not Staff Engineer either, “just” competent and known to be capable of working with minimal direction. FAANG really do pay very, very well.

So true. I could have also hated my life for those 7 years. I make a terrible employee. :)

That assumes he took no salary or dividends for 7 years, which seems highly unlikely given their ARR.

Right. I've been paying myself $100-150k a year for most of that.

dimva also has his sums very wrong, 3.7 mill over 7 years is over 500k per year, you won't get that at any FAANG for a mid-level position.

GOOG has 3x'd in the past 7 years, FB has 10x'd, AMZN has 10x'd, etc. The initial stock grants would be worth a lot more, plus all the refreshers. My friends who are decent software engineers with a few years of experience are getting offers in the >$500k range right now.

And I'm assuming that he would have been promoted at some point. I am comparing what someone with his skills could have earned at a FAMANG, not what an average software developer would earn (they wouldn't even be able to get a job there tbqh).

> My friends who are decent software engineers with a few years of experience are getting offers in the >$500k range right now. ... not what an average software developer would earn...

Which is it? "Decent" developers being courted with $500k+ offers or "average" developers can't get jobs?

That's no different than me buying GOOG/FB/AMZN stock at the time of the grant, it's nothing more than betting on the stock market.

might not be a fair comparison if you consider taxes on salary+rsu vs. being taxed on capital gains.

I imagine he paid himself a salary during that time, and 3.7/7 would be >$500k/y which is >mid level at a FANG+ company.

This reminds me of a recently decried point the British government made encouraging people in the arts to consider technical jobs: https://www.theguardian.com/politics/2020/oct/12/ballet-danc...

Josh seems to be extremely entrepreneurial and independent (https://joshpigford.com/projects) and maybe being a part of a trillion dollar machine isn't worth the $ to him. He succeeded doing what he wanted to do and that's fantastic.

Admittedly, people's attitudes to work differ immensely and being able to live the entrepreneurial life is a privilege, but from my POV, you only live once, so $3.7m made from several years of doing things your own way would handily beat even $10m made from several years of employment (and neither are guaranteed).

$500k is staff/principal level compensation at FAANG companies. No way mid-level engineers make as much.

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