The advice in this article is 100% spot on. I didn't know any of this. I was totally focused on building my company. But if you raise money you can't do that anymore. 50% of your time will always be occupied with working on your next round of funding or managing your board of directors.
I noticed super early that VCs were not "helpful" at all like they had claimed during the fundraising process.
So I got fired, and I thought, "well, at least I still have my founders stock!"
Then a year after I got fired the series A investor led the next round of funding and decided to value the company at $0, so I got diluted by 99.99%. Sounds illegal, right? Well, it probably was, but what am I going to do about it? They have billions of dollars and I had no money.
I just let it go and started something new - bootstrapping of course. On the bright side, the new CEO ran the company into the ground. Meanwhile my new company is doing well and I love my job.
Anyway, do what this guy says to manage your board and just plan on being fired at some point if you raise VC money.
I choose to focus a bit differently on how that all went. There is enough negativity from it all to go around, but I find it better for my own well-being to focus on the positive. (To be fair, you had more skin in the game, so I understand our difference in approach.)
Specifically, you and the other folks who hired me gave me a great opportunity to come join a modern team, learn a more modern stack than I had been on before that time, and it was a good growth experience for me, so you deserve thanks for giving us that chance. Thanks!
I consider that experience to be pivotal to converting me from being just another old legacy coder, and instead empowering me to modernize my skill set. I look back on that experience not as a failed startup, but as a valuable learning curve that has helped me succeed in the work I've done since that time.
Even events with poor endings can bring positive results to who we are, and where we go next.
I haven't seen $0 but I knew a few people who got diluted to a joke. It doesn't take but a factor of 2-4 dilution of your outlook to drastically change your opinion of how you spent that time.
Mark Zuckerberg tried a variation of that game to cut out Eduardo Saverin's shares when they changed the company from a Florida LLC to a Delaware Inc. Well, Saverin sued and Facebook lost that lawsuit; they settled. Saverin got ~4% ownership worth $5+ billion at the time.
So basically, the board will try to screw you over; if you're not in a strong enough position to do something about it then you're out of luck, if you are strong enough to do something about it, then you might be able to recoup some of what you're entitled to.
Bezos was a 30 year old with a decade of experience in finance, I assume he was quite savvy. But Zuckerberg was a teen.
This seems to be falling apart for him right now, as a bunch of those people have recently left FB. But yeah, I generally agree with your main point, he does seem to be very good at this.
(Oh holy fucking mother of Baa[l], only now it struck me that the name of the animatronic series by the Wallace-and-Gromit guys is of course a play on Shorn the sheep!)
Part of your evaluation should be consulting a tax professional to determine if there are any immediate, negative tax consequences. You're not guaranteed to get hit by AMT just because you exercise some stock options.
I have yet to hear a single case of an employee purchasing their options when they left and thinking it was the right decision later on.
I know at least a dozen ex-colleagues of mine who fit this criteria. When the company in question exited, it created 400 millionaire employees.
I don't contest this point.
> I've worked at companies that raised many millions of $s and seemed very promising and a few years later went out of business.
The only narrative I contest with my anecdata is drawing a universal truth from this experience of yours.
As a sibling comment said:
> Salt of the Earth folk love to share their stories of financial misery, but generally keep quiet about their embarrassment of riches.
Obviously not literally "nobody", someone at some point joins google/microsoft/facebook/amazon/etc at an early stage and exists a millionaire many times over. Just like every week somebody wins the lottery. It's just not as likely to happen to you personally as the people selling you on joining their early startup would like you to believe.
Not here on HN.
I was prompted to post on this thread after reading comment after comment about failures.
At the end of the day you're really throwing money into a black box which may turn out to contain a trash can. There is more financial transparency in penny stocks.
I've personally had great success with RSUs, but those are ultimately part of your comp even if you discount them to zero - there is no requirement to put in additional money.
Also, I have heard stories of former employees that didn't exercise their options or cashed out early, and I wouldn't say regretted it, but reflected on the fact that the stock did a lot better than they predicted it would.
Salt of the Earth folk love to share their stories of financial misery, but generally keep quiet about their embarrassment of riches.
My point is that these hard and fast rules don't leave any room for nuance. Consider, as I mentioned in another comment, you don't have to exercise 100% of your options. Exercise whatever makes you comfortable. Maybe that's one under the number that would push you into AMT.
If zero is your comfort level, then so be it. But get to that conclusion by doing a little thought and evaluation, not applying an arbitrary rule.
The people that can make a reasoned and well considered, as impartial as possible judgement about it don't need to be told to do so. In fact, a statement that one should never buy the options can and mostly will (rightly so) just be ignored by such people.
But, judging by the number of people that have NO CLUE about how it works, need only the tiniest thing to grab onto to make the wrong decision. There is zero need to recommend "well consider your risk". If you have to ask, then my advice is always as I gave it: not to skip it as a rule, but if you re-read you'll notice all I said was, the odds are not in your favor and you "should" just leave the options behind. I think there is a subtle but important difference. Maybe I'm splitting hairs, if so, sorry.
You're actually arguing survivor bias as being some kind of counter argument! You are in the pretty small minority, I do hope you understand that.
Tell me, how do you feel about COVID vaccine? Shouldn't we just be allowed to make up our own mind about it? If masks and vaccines work, well the scientific set can wear masks and vaccine up. The anti-vax crowd can do as they please and die. We don't need the government to TELL US what to do, do we? No one gets out alive anyway, amirite?
What is your recommendation on COVID? Evaluate the risk and decide for yourself? Surely you prefer Florida's or Texas' take on COVID to California's then?
I now come full circle: humans are really bad at assessing risk.
Except it's not like any other investment. It's an investment that you are too close to. You can't think 100% objectively about an investment that you're too close to. For many people the solution is unambiguous: If I can't be objective about a decision then the answer is automatically 'no'.
FWIW, I'm speaking from experience. Had I taken GP's advice and "never exercise unless it's early exercise" then I would have missed out on a lot of money.
The other thing to keep in mind is you don't have to exercise 100% of your vested options. If you're too nervous or don't trust your own judgement, maybe go for 10%, or whatever makes you comfortable. There's a lot of room between 0 and 100 here. Go ahead and explore it.
It's a democracy where the wolves vote that the sheep will be dinner.
> Having a board vote isn't the same has having a veto over every possible decision.
My comment did not imply that a board vote grants veto power. I suggested that the union could "veto deals ... via strike or mass resignation". This means that the union decides on a maximum dilution and agrees to strike or resign if the board makes a deal that dilutes employee positions more than the maximum.
> Unions don't necessarily get board observer status, let alone board seats, AKA a board vote.
My comment did not mention anything about board seats. The board would grant the union permission to attend board meetings, lest the board inadvertently trigger a strike or mass resignation.
Next time, please read the comment carefully before replying.
Board meetings are for board members, so I gave that person the benefit of the doubt.
Your replies go against the guidelines :
> Be kind. Don't be snarky. Have curious conversation; don't cross-examine.
> Please respond to the strongest plausible interpretation of what someone says, not a weaker one that's easier to criticize. Assume good faith.
> Please don't post shallow dismissals, especially of other people's work. A good critical comment teaches us something.
Btw. The blog is very informative and have subscribed.
A very good question that I don't have a good answer to. Management likes that there's a steady stream of new people who don't know that there's a bunch of tricks that get used and so everyone learns them the hard way.
In fact, why don't the boards of all companies do this? Devalue everyone else's shares so they become the sole owners?
I've seen this up close several times, and countless times afar. Successful company gets bought by bigger company, new owners replace the successful management, new management runs company into ground in short order. Remains possibly sold for scraps to former competitors.
Like... is there something they're getting out of this I don't fathom? Or are they just repeating the mistakes of others again and again and again?
No financing option is without risk.
Equity funding to me should be used less for that and more for R&D and product development where the RoI is harder to calculate, or may not exist at all.
Put simply there's now a glut of money that is waiting to be invested via loans in anything that has a good ROI with low enough risks. In the past due to higher interest rates and various other factors (including regulatory) this glut of money just didn't exist before.
This seems to have been lost over the past 20+ years. I wouldn't even think about going to a bank with a smallish business for financing, you'd instantly think of equity funding instead. Hopefully this changes because debt really is more sensible for many startups.
I wasn't really banking on these options as part of my financial plan, but surely this sort of thing is illegal, right? What are good search criteria for someone who just wants to learn more about these laws and loopholes for the future (I know I can talk to a lawyer if I want to pursue action in my specific case)? What are the ways a company can legally fuck me over?
Preferred shares cost more, but for that extra money they come with preference. What is preference? It can vary, but the term that matters most is that they get to earn their money first. A 1X Preferred share (very generous) will be paid their investment back before anyone else sees a dime. Often shares are not 1X, they can be 2X or 3X, which means they will get more than they put in before anyone else sees a dime. There are more variations, but this is what matters in the story you’re telling.
Common shares, which is what employees receive, are much, much cheaper (the strike price will often be pennies on the dollar compare to preferred shares that investors receive). However they simply convert to common stock when they’re exercised, with no special treatment.
How does anyone make money then? The answer has to do with liquidity events that are large enough that everyone is getting their money. If money is limited, the investors get it first.
PS the last VCs who funded us have a 2x preference (we were out of options and it was the only money on the table.) In retrospect we should have just shut down and gotten a few years of our lives back.
Insight Partners — lead investor
If they like the business but not the guy, why should they forever be forced to have him as a parasite in their mind ?
Dilution seems wrong though, because they were supposed to buy something, not steal it.
Care to elaborate?
Is a board even required for private companies?
Not impossible, but extremely difficult. You need to already be successful to a degree that investors are fighting each other to give you money, to the point where they will still give you that money without asking for any amount of control of or oversight over the company. Google and Facebook founders managed to do this (though not through board composition, but through stock classification and voting rights), but 99.9% of other founders will not have that kind of clout.
> Is a board even required for private companies?
I believe some state laws around incorporation require them, but otherwise it's just a standard way of doing things that a company will lay out in its charter/by-laws. You're going to have a really hard time convincing a VC to give you money if you tell them that you're not going to have a board of directors. Even if you present an alternative structure that gives the VC some form of oversight, they will be (rightly) skeptical, since this is unproven ground and they will be (rightly) afraid that their lack of understanding of your unique structure will come back to bite them later.
 I do think Page and Brin retaining control of Google was especially impressive, considering that their early funding rounds happened during, and in the aftermath of, the original dot-com bust, when investors were probably pretty leery of funding tech companies.
Microsoft, interestingly, was after the opposite. They took a rather nominal $1M VC funding to get someone knowledgeable on their board. Probably helped when it came time to IPO. They definitely didn't need the funding. VCs would love for the world to believe that their funding is necessary. But often that sort of rocket fuel is detrimental to the growth of a company. It puts immense sudden pressure on a company, relationships are strained, and really weird things start to happen as your headcount shoots past 20-30 people.
Microsoft is like Marylin Monroe, or Michael Jackson or that person who lived to 123 years old.
You'll never see a company like that ever again in your lifetime.
They did what Standard Oil did, in perhaps an even cleaner and uncontroversial manner.
Tons of talent and luck aligned in the exact right way for it to be the phenomenon it became.
Formal boards are not required for private companies.
Reading through this and my gutt feeling is that if I had a company doing really well I would do my absolute best to not give up any control over it - but idk how many investors would be willing to invest in that case (if we were doing really well though, I assume at least some would?)
board: many co's give 1 board seat at Seed and another at A, so lose the board around B. but more negotiable, eg, seed investor gives seat to later investor .
So it seems normal: for most, somewhere between A + B, and except for outliers, by C.
Edit: VCs generally have an ownership target, say 15% as a lead, and less as a follower. So that adds up quickly.
Some companies have grown quite large with small boards. The company will need a certain number of people to make up the board, though, so it helps to start identifying such people early.
tl;dr, shares in a non-public company are a lottery ticket at best. Just like options, but more expensive.
It reeks of unaccountable power and information asymmetry, two of my least favorite things.
> It's an iterated game that they play a lot, and you play once, and they have no incentive to play fair.
The player who plays multiple times ("iterated game") has more of an incentive to play fair. That's basic game theory. If you only play once, noone can "punish" you in the next game if you cheat.
It's like when you get a mortgage - it's a once-in-a-lifetime for you, and a Tuesday for them. They know exactly how to (and have mechanisms in place) enforce every part of a contract they've been using and improving for decades; you barely understand the contract because its the first time you've ever seen anything like it, and you have no machinery in place to understand or enforce your side of it. They have one contract they enforce against 1M counter-parties; meanwhile you have 100 different contracts you're supposed to enforce ...at the same level of care and capability? That's never going to happen, and so all you're left with is heuristics like "surely they'll treat me fairly!"
It honestly seems extremely foolish to take VC money under these circumstances.
I think the main reason for these onerous terms is the fact that without them, the founders would cheat (not people like you or me, but rather, they would attract cheaters if they didn't work so hard to prevent them for succeeding)
If someone gives you a contract with an option to purchase shares, you have as much ability to analyse its risks as they do, and frankly if it is a contract to purchase X shares of a class that is so insufficiently specified that it can later refer to a diluted version of the same, then I don't know why on earth people accept them as good consideration. I don't know what laws apply to disclosures around share dilutions in the US, but it is one of the areas in which commercial law often tries to even out a noticeable information gap, just like takeover offers. But they can't save you from accepting it without knowing what it means and looking into how you can protect yourself from its risks.
Bootstrapping is great, but it also has challenged to overcome. Many fail to do it.
Whereas, while the situation described by the GP is not unheard of, it's uncommon.
Anyway, your situation is why the common mantra, value your stock options at $0.
I think that's a wrong statement though. Stock options should have a binary value. $0 or IPO/exit value. If the company doesn't go all the way to IPO, you won't get a partial payout. So then guesstimate the IPO valuation of your options and factor the risk.
I also think that fact that management went out of their way to leave the common shares with nothing is scummy, bordering on unethical. Which is not the same as saying it's uncommon.
(FWIW, I was not one of the downvotes)
Fyi... Zuckerberg didn't "retain" unilateral control. He lost his 65% majority ownership control because it was reduced (diluted) to 40% when Peter Thiel invested in 2004.
What eventually happened was that Zuckerberg later consolidated voting power from other shareholders like Sean Parker and Accel Partners. Why would they give voting power to Zuckerberg?!? Because Zuckerberg was doing a good job running the company.
Yes, Facebook also later set up class B shares with 10x voting power for Zuckerberg. But investors won't accommodate founders with that structure unless the company is a big success.
So in short, MZ lost 65% control, and then eventually got majority voting power back after some business events. Even though he now only owns ~14% of Facebook, an article said his voting share was still at majority of ~58%.
 Facebook ownership was divided between Zuckerberg, with 65%, Saverin, with 30%, and Moskovitz, with 5%. After the transaction, the new company was divided between Zuckerberg, with 40%, Saverin, with 24%, Moskovitz, with 16%, and Thiel with 9%. The rest, about 20%, went to an options pool for future employees. -- from : https://www.businessinsider.com/how-mark-zuckerberg-booted-h...
All these founder-centric stories makes it looks like board will fire the CEO just for fun, or just because they happen to get the idea out of the blue. Actually it is a lot of pain and work for the board to try to find a new (better) CEO and they probably realize that they will fail (statistically speaking). So, the board will fire the CEO only in a situation where they genuinely believe that average replacement from the market will do a better job running the company. They don't fire on a whim.
I see the VC asset class as an arbitrage on private company valuation. As the number of VC increase the arbitrage opportunity disappear and switch sides, from the buyer to the seller. I.e. founders are getting to arbitrage the VCs.
Personally I think that there is a market failure here, where the government protect mom and pop investors from making risky bets on early stage startups, and yet allow them to invest on some crypto scams with no questions.
I envision that, like cannabis, this will be solved soon in the form of some sort of public stock exchange for startups.
I wrote that first comment before finishing the article (which is a good article people should read it).
His first advice is basically to try to do what I asked if you can.
Stop comparing your startup to FAANG.
You are not FAANG. If you were, everyone else would know it. Since you aren't, their strategies don't work for you.
This is a bit later than the first few years, but all of Microsoft, Facebook, Google, Apple were very highly profitable (on gaap, not some xxx-adjusted ebidta bullshit) at their IPO, and for a while before, with hockey stick revenue growth. And the IPOs happened much earlier in the company lifecycle back then. Look up old S-1s.
> Indeed, Kalanick had some tepid support inside the company. But his vote counting rankled even his defenders. He was also calling executives daily, asking for detailed information about the business. Even worse, he ordered the security team to dig through an employee’s email to see if that person was leaking a potentially damaging story. It all proved too much for the 16-person executive team, which signed a letter to Uber’s board—but clearly directed at Kalanick—asking them to refrain from reaching out to employees or meddling in the company’s daily affairs. Kalanick’s own handpicked executives turned against him.
> Somehow, amid the dysfunction, Uber hired Khosrowshahi, who impressed the board with a thoughtful PowerPoint presentation that included a slide that read, “There can be only one CEO at a time.” Khosrowshahi was all that Kalanick wasn’t or couldn’t be: humble, a good listener, and a diplomat. In a pointed reversal of Kalanick’s mantra, he would say: “We don’t have a PR problem; we have an ‘us’ problem—we have behaved poorly.” And when the city of London revoked Uber’s operating license in September, Khosrowshahi visited, met with taxi regulators, and published an open letter. “On behalf of everyone at Uber globally, I apologize,” he wrote. “We will appeal this decision on behalf of millions of Londoners, but we do so with the knowledge that we must also change.”
There are still many options. You just have to search harder...
> On the bright side, the new CEO ran the company into the ground.
And this is the real risk. There are plenty of legal ways to make stock worthless.
Tesla is the world's most valuable car company. What is bad about that now?
He IS the investor who pushed out the founder CEO.
Was it made impossible for you to be an investor in that round? Could you have prevented 99.99% dilution that way?
So with that in mind, you have to understand that none of your "friends" would fire you, but the "board of directors" (even if composed of people you consider friends) could easily decide to do that.
Tom Lyon used to joke that it was only on your third startup that you funded yourself that you are really in control. The wisdom of that took a while to sink in for me.
It's a truism of American culture that any group of people is somehow stupider, meaner, and more hurtful than any of its individual members. Yet our lived daily experience is that often our most rewarding, beneficial, and joyful experiences come when being a member of a group.
I mean, we are a group right here and right now in this thread and I assume everyone participating still feels it is a net positive for them to do so. The idea that all groups become bureaucracies, mobs, or totalitarian regimes is this weird extreme perversion of American values. Call it toxic individuality.
I think a value-free and more accurate observation is that emergent properties exist: a group can have observed properties that are counter to the intentions of any of its individual members. The aggregation process itself can be dynamic, iterative, and complex in ways that break a simple coupling between invidual intent and total outcome.
This can be bad, when otherwise sane reasonable people get riled up in a mob. Or it can be good, when a choir's tone sounds more in key than any of its individual singers. It's highly dependent on both the individual members and the communication structure of the group.
Using the combined tone of a group of singers as a counterexample seems like quite a stretch. Again -- the original quote: "... the total psyche emerging from the group is below the level of the individual psyche." He talks specifically about the emerging psyche, not some arbitrary emergent property of a group.
Can you name one organization that became MORE ethical / smarter / nicer the larger it got?
No, I don't, and I think some of the other people who think that are probably wrong.
- Terry Pratchett
Often, the most interesting insights come from experience and reflecting upon it. You know, old fashioned thinking.
That _sounds_ nice, but the Ancient Greeks (and others, but I've got to pick on someone) tried it and didn't succeed in much more than setting back the scientific method and thinking up all sorts of plausible things like "everything is made of air" and "the first humans were born inside a fish." The problem is that something can sound completely plausible, be internally logical, and also be completely wrong.
Ironically, you don't need to look farther than psychology's reproducibility crisis to see this in action. Tons of great and interesting insights that came from experience and reflection, that led to some bad studies and are completely unreproducible. In fact, they were so interesting and insightful that most people still think they're true. See: Stanford Prison Experiment, most of the stuff in Kahnemann's book, anything Freud said, Myers-Briggs, etc.
You know, making up some shit that sounds good.
... except at moving humanity forward regarding morality, understanding of society, politics, history, organization of civic life, philosophy, theater, poetry, arts, a few millenia forward, while spearheading democrachy, historiography and several other things besides, and establishing the whole basis for this "western civilization" thing...
>That _sounds_ nice, but the Ancient Greeks (and others, but I've got to pick on someone) tried it and didn't succeed in much more than setting back the scientific method and thinking up all sorts of plausible things like "everything is made of air" and "the first humans were born inside a fish." The problem is that something can sound completely plausible, be internally logical, and also be completely wrong.
I think an even more real problem is a lack of knowledge of history, and what exactly those pesky Greeks (and others before and after them) did, combined with a fanboy attitude towards the "scientific process" (as if it emerged wholesale somewhere around the 16th century or so).
The second sentence essentially says "This is due to the fact that that's how it is." I'm sure Jung has a larger context and basis for these claims, but this quote just struck me as super hand-wavy.
No, no, don’t worry. Jung was already dismissed as completely unscientific and not to be taken seriously while alive. Sadly, psychology as a field mostly remains in a dire state and still has to shed part of its let’s generously say less than rigorous past.
I told to directors in multinationals several times that we have to sign this because it is not evident for their eventual successors that it is in their best interest etc.
Trust, but always be careful and assertive.
Think about it from a founder perspective with a bit of reality: who in their right minds would you hire an antagonistic board for the high-minded goal of making corporate governance in America better when you don't even know if your company is going to make another year?
People work for companies for three reasons: mission, people or money. If you enjoy working with the people at your company at least you have that covered. Most corporate companies don't have a real mission people can get behind and money is in the long run for founders.
Tech grows big & fast, and a lot of today's problems can be traced to VC-backed boards noping out of ethical responsibilities.
Startup board members are generally (rightfully) worried about growth or survival, until that's on rails and by then it's too late to fix the monster they've grown.
Today's trends of founder friendliness, wide participation, and big checks makes these trade-offs even more extreme. Startups are so messy that the industry hasn't figured out how to juggle it all yet, or even if the relevant stakeholders even want it to.
That said I don't think it's the boards sole responsibility on ethical choices - that's the management team and rolling up to the board.
It feels a bit how HR is complicit in the company outcome and is a fraught position. The board of directors is the same. Maybe the rest of the world has thought about the board of directors in the wrong way in that they have assumed that they represent an ethical, independent thinking group of people with different incentives then how boards are actually set up.
Not using this as a scape goat of responsibilities but more observing how things seem to be in the real world.
Secondly, independent is not the same as antagonistic.
Where the founder also controls the voting majority of stock, yes, the founder hires the board.
If founder has majority of stocks, he can't be fired.
I am noticing a lot of bootstrappers that are emerging with the ethos that VC isn't what it used to be for some markets, and often a poor choice of the right VC can be a detriment to a project's longevity, with some teams choosing to avoid it at all costs.
Old-timers will remember Jerry Kaplan's Start Up, about the failure/betrayal of Go Corporation. https://www.worldcat.org/title/startup-a-silicon-valley-adve...
Or Sandy Lerner and Len Bosack's betrayal having founded Cisco Systems.
I just took my idea list and erased everything that needed VC money.
All ideas need some money to launch, and sadly some of the best ideas need a ton of money to launch.
Ask yourself - do I have a simpler idea I can build first to make enough money to launch the thing I really want to do?
“The family’s wealth, power and political connections date to the 1890s, when Christian Rasmus Holmes, a Danish immigrant and physician, married Bettie Fleischmann, heiress to the namesake yeast fortune and a Cincinnati socialite with a fondness for Chinese bronzes.” - from NYT article: https://archive.vn/aMCpe
The interesting thing is that the future fortune depended on a “yeast fortune”, i.e. while you might not be born into wealth and power, perhaps your grandchildren or descendants can be.
Their companies are more successful as a result (when the vision aligns with the market — things can go to shit just as quickly if the vision is off). And we see this story of parental financial resources reflected in nearly every case. The fact that these were technically “loans” is largely an artifact of tax law.
Or let's say you don't have much money and you want to avoid early VC due to loss of control and hefty dilution. In the US market, move to a college town (often quite safe), take a part-time $15 / hr retail job (CVS and Walgreens are both moving to that minimum in 2022; both are better than fast food and easier than Walmart type jobs), get a modest cost apartment ($650-$750), walk/bus/bike to work (no car expenses), keep your bills under $1k-$1.2k per month, build your start-up on Hetzner (new Virginia datacenter). Self-fund, build your thing, don't take early venture capital, maximize your leverage later on. Maybe occasionally do some side contracting work if necessary to fill up the personal treasury (10 hr per month or less).
The counter argument to that is primarily the speed angle, get bigger faster or get crushed by the VC funded crowd, and similar arguments. It likely varies by the case as to whether a given approach makes more sense or less (eg depending on what you're building, time to market may not be so much of the essence, or it may be critical).
I guess that just going there part time as part of a bigger plan will be a lot lower-stress than trying to make a living off it, but that still sounds like a bad idea
You might be better off working as an engineer for a year and then saving 3-4 years' worth of minimum wage money instead
I had a friend who really regretted using his savings to try and bootstrap businesses though, since he was still working at Amazon in his 60s
And it only works well for younger people without a family, as it'll involve 70-80 hours of work per week (at least in the beginning).
It's a poor(er) person's scenario. It's what I might do if I were 19-21 years old again. Back then, circa 1999-2001, I did a lot of web development contracting to fund building things I wanted to build with the rest of my time. It was a quite unreliable path though, as some months were flush and others were bleak. Poor people in that scenario usually don't have degrees from nice universities, they often can't easily get good engineering jobs early on. And if they have an aversion to working for other people/companies, as I always have, then that complicates the context further (CVS & Co are mostly drone jobs; POS, scan bar codes, greet customers, bag items, stock shelves, repeat; and it might help reduce development burnout, as it gets you away from code and out of the house). If you're young'ish, poor'ish and without a ton of experience, it provides a highly workable avenue to go after building a thing you want to build, self-funded, while cutting out the need for early outside capital (the need to give up a piece of your soul to the sharks).
Note that all night is important in the above, not gas station. Anyplace that will let you work not normal business hours so you can work your business during business hours is what you need.
I've also seen some late stage cos raise a mix of equity and debt at favorable terms; is that becoming more common as part of the same phenomenon?
Your Board doesn't fire you when you're the best guide to a pile of money. Your Board will fire you if they think you're slowing their progress toward a pile of money.
If you think your skills as a guide to piles of money are imperfect, don't put your life in the hands of people who need you to rapidly increase their pile of money.
Note that there should be quite many advantages for the current CEO to do the job well compared to some external guy. Typically it might take 2 years from a new CEO to learn the business, etc.
Boards don't fire on a whim, they genuinely have to believe that a replacement will do clearly better job - they don't want to go through all the hassle of finding a replacement just for fun.
Or the “nobody gets fired for buying IBM” theory where it is better to put in a known respected CEO (John Sculley), because fault can be blamed on the founder and LPs will believe the future VC spin.
Usually the startup is one of the failing investments to consider changing CEOs, and I suspect that there are a lot of other human motivations that come into it.
However what affects the situation is that VC's want a lot of risk, and the risk preferences of the CEO could be considerably lower - eg. the CEO would be fine with moderately profitable company, while the VC wants all or nothing.
I don't think it is common to change CEO's for truly successful companies which actually show good numbers. No one wants to change the CEO, they do it because they think that it clearly increases their possible returns so they basically have to do it because otherwise they would look incompetent as board members.
The more interesting point here is: word gets around. You can see it in another part of this conversation (top comment right now). VCs are worried about their portfolio, it’s true, but they’re MORE worried about their next fund. The success of this portfolio is simply a good way to advertise to LPs that they should participate in the next fund. They are also worried about deal flow — they can’t get into the hot deals if they have a reputation for turning on founders. If the situation is noisily public (Uber was a good example of this) VCs will think very carefully about what to do. If you’re a small company that is struggling to stay afloat, they will ask themselves one question: is the founder the reason the company isn’t successful? If their answer is yes, then good luck. If not, they will simply chalk it up to it being one of the many investments they make that didn’t work out like they hoped.
If you're the best person to achieve more money, now you stay. But if you cease to be the best person to achieve more money, now, you are susceptible to replacement.
Of course, there are transaction costs that might make a particular pivot too expensive. McDonalds isn't going to pivot to Elon Musk, even if Elon Musk is objectively the world's best CEO. In that case, the current CEO may still the "best" guide to more money, now, all things considered.
But no CEO can adopt a long term position inconsistent with their Board's two goals (more, now) without risking replacement.
The company imploded amidst a massive falling out something like a year later...
Then put the agreement in the safe. Two outcomes:
* everything goes swimmingly: you've wasted a bit of time and paper
* everything does not go well: hard decisions are already made
* you find out beforehand your ideas about what's fair don't overlap enough to even start.
To make it clear, if you found a company you MUST be a management type person. You can maybe program 25% of the time, but the rest of your time is sales and management duties. You can hire out the sales but that means more management. Soon you are best off hiring out the programming as well and being all management.
But, if you want the big bucks it typicalle makes sense to hire and grow. If you want to stay small and do stuff yourself, it means less money.
I was young (25) and naive, with no experience in business within the family. But what was really crucial back then was that I lacked a mentor who’d make me aware of the risks before letting the sharks in.
It took me three years to bounce back and start something new. On the positive side, I learned a lot.
What happened with the first company? I wonder if you made any money from it in the end, if maybe they sold it and you hadn't been diluted to much
> I also got „asked to leave“
Could they force you, by having more votes? Or were they just very persuasive and convincing
This is, honestly, how one should aim for pretty much any -formal- meeting to run - as a high trust means to make a pre-existing consensus common knowledge to all the participants.
(things like design brainstorms are a completely different category, hence the 'formal' qualifier to try and make that clear)
> The fact that early-stage founders continue to take their money has to be some sort of delusional grandiosity, in my humble opinion. “Well yes, they fire half the CEOs they back, but surely not me.”
Having started companies, delusional grandiosity is almost a requirement, especially if you're going to take venture capital. I mean, just look at the odds. So it makes perfect sense to me that the VCs happily take advantage of it.
On one hand, you have a 50% chance of being fired.
On the other hand, you’re raising from Sequoia.
Is raising from Sequoia going to change the direction of your company so much (in a positive) direction that it’s worth taking on the 50% chance you’ll be fired?
This is basically what Bloomberg has done. Despite selling financial terminals to bank traders, the company still hasn't gone public after all these years.
I think it is no-brainer that founders would prefer to have full control and ownership. If you manage to bootstrap a profitable company with zero outside funding, great for you, but that's not the typical case. Most of us need some money to make money.
Good ideas are easy. Unique good ideas are so rare as to be non-existent. Nearly all good ideas are obvious to anyone who knows the field and what can be done.
You can have other companies eat your lunch. All you need is to get into a default alive state. I.e. have 5-10K MRR. The rest is nice to have. It should be possible in any billion dollar market.
Was it just because Facebook's growth was so unprecedented they had no need to replace him? Or did he have a very good mentor or early investors that believed in him or helped guide him without taking advantage of the situation? Or was he actually just extremely shrewd at navigating board politics?
All these stories where the CEOs were fired are from companies that weren't profitable, needed constant funding rounds etc. In the situation where the company is just sucking money from investors the CEO gets changed easily.
Wrangling that sort of power maneuver is the responsibility of the founder; that is if they wish to retain their control.
This was made popular by Larry and Sergey in 2012: https://www.sec.gov/Archives/edgar/data/1288776/000119312512...
It’s really only possible if the company/investment is so compelling that investors will invest with virtually no control.
How common is it? Like, NN%?
When the founders have control, they're the leaders and directors have to follow. When the directors have control, they lead and the founders have to follow.
Generally, founders are more successful leaders of their own companies.
Is that just because bad companies remove their founders in a last ditch effort to survive? Is that because bad founders can screw the company before they are removed?
Generally, VCs are equity portfolio managers and not qualified to lead a company. Even when they are successful founders themselves, they're almost never the right people to lead another founder's startup.