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I disagree with one of your posters on one point -- I think outcomes to entrepreneur are as good as VC - it's a preference thing -- allows you to focus like crazy but also allows you a really great set of outcomes especially if you think through your capitalization strategies carefully. That is, don't create a binary outcome for yourself. I know I know sometimes it happens, but the key is to be super careful with cash raised and leave yourself some options.
And thus a new commenting system was installed.
PS. Disqus sucks!
Well said. And the trains must run on time.
Did you know your photo has an uncanny resemblance to Tom Anderson "Tom" from MySpace? Could it be, you are in fact the real Tom in disguise? He's from LA you know.
I've put his photo up in my picture to show you what Tom looks like; if you know MySpace, you'll know who Tom is.
Pity I can't upload images into the Disqus comments.
David
Jokes aside- have you ever read "Stealing MySpace" by Julia Angwin?- a must read for start-up founders involved in SN.
What would your response be given that we dont want to wait 3 years for liquidity? Also, during our conversations with VCs how do we feel out whether they are open to giving some liquidity to founders.
That said, 500k to 1.5mm would never create swing for the fences outcomes. I do think it creates alingment on not selling as cheaply, but $1mm is really not near FU money after taxes now.
Look reality is VC Senior people get to diversify collect healthy compensation and in a world with lots of liquidity can become very wealthy. Career entrepreneurs are playing an enormously high risk game, but investment banking and management consulting are not what they used to be.
It's tough to be an entrepreneur, but I think it's brutal to be in a large corporation with golden handcuffs.
Aaron
CEO
AnyClip
Re being younger...had I done this a decade or two ago I would have worried a lot less, wasted much more time randomly making mistakes, and not had nearly the firepower and connections to make my business succeed. I am a far better investment now than back then. But I just can't make those darned kiddos (and their grocery bills) go away! :)
Did that venture really hit $2M-$3M in revenue?
The Salesforce 10Q seems to indicate that the $5.3M acquisition was for developed technology only and not accretive to their balance sheet.
Would you let a founder take money off the table for only hitting technology development milestones?
My previous company, BuildOnline, had achieved $14 million in SaaS revenue with significant backlog and recurring revenue. After 6 years I believe too many people became managers rather than owners. People left to start their next big ideas rather than trying to take the company to the next level. But even here we never took money off the table from investors.
It is my experience at BuildOnline plus the 100's of other entrepreneurs that I knew through this time period that led me to believe that some founder liquidity would be useful in aligning incentives. One VC firm that I saw take the lead was Kennet Capital (the VC that was originally Broadview) and it gave me the idea.
Going back to Julespieri's comment below- especially important for more experienced business operators who generally would have larger family and financial commitments.
The opportunity and real cost for a 25 yo to take a low paying founder's pay is lower than that of a 40yo experienced operator. The young entrepreneur's pay would not have been high in a regular job - they are not giving up much, they are gaining valuable experience which can be parlayed into many more "at bats", and there is no cost to the family because there isn't a family most often.
Net net, if the start up is worth funding, VCs should drive alignment of incentives with founders to give the business some high octane propulsion.
Good to hear, because the majority of my 20 something year old friends who I would recommend for this line of work can or would have infants on the way.
Stage-in-life is something you come to with a community of people. What's the board's position in bringing the founders' to the point where liquidity can be executed? Beyond that it should be. What should the board be doing to brind the founders to that moment of mental preparedness.
i'm sorry, i just can't deal with the crap pay and the waiting; maybe that makes me a bad person, but i want my (future) family to never have to so much as think about finances, and this is the only way i see how to do this with the most certainty. if you ask me, value creation in silicon valley is great for people who are rich, and don't need to worry about family, finances, etc. if i were rich, i'd work @ startups all day long (although i do really like finance, so i'm definitely happy with my decision to go back)
Getting the founder's family strained and against the startup is bad for everyone including founders, VCs, families and Startup.
In my particular case, I funded our startup and haven't taken salary for almost 3 years (until very recently). I can attest to the fact that the economic reality of mounting debt and massive opportunity cost become a distraction at some point. We haven't taken outside investment, and are close to profitability. If and when we do take investment, simply taking my seed capital off the table would suffice for me at this point.
It would seem that the larger the financing, and the more equity/control founders give up, the higher the desire to take some real money off the table.
A topic near to my heart, this is what I do for a living. I agree that releasing the pressure valve a bit does align incentives and in many cases will increase the return for the VC. There are a few ways to do this other than asking the VC to cash out the founder. The first is to participate in an exchange fund for private stock. Founders, if invited, can swap a small % of their stock with other founders, this raises the probability of an exit even though they don't cash out today. I say this selfishly as I run EB Exchange Funds (www.ebexchangefunds.com). Our funds have about 25-30 companies in each fund so plenty of diversification. The other alternative is to sell to a secondary investor. This alternative also validates that you've created value but usually you need a very late stage company or a very hot company to sell for cash.
And Mark maybe we have a similar view because we have plenty in common - we are the same age, I got my MBA at Chicago, I did a few venture backed startups and I have a couple of young kids.
Larry
In my opinion (in regards to the spouse topic), it is just very unwise to keep a door open for a spouse to have the opportunity to take your money if things go wrong.
Yes you hook up together in a period that you trust each other, but when people separate the fight can be very very nasty. In that case you just want to make sure you have your assets covered, in this case meaning that you want to avoid that your spouse can try and claim a big cut of your money or your company.