Almost all VCs I know care primarily about the success of their companies and not about extracting every last point of equity.
You would be surprised, I have seen some things in my career that are insane and done for the simplest reasons, like ego, megalomania and most of all money.
I once was with a start up in which the CFO and the COO got into a fist fight in front of the entire company, over equity.
Another time I saw a VP who was running one division give everyone the day off, called in three of his trusted developers, and they all said that the development team was on strike and would not return unless the board appointed him the CEO. He then proceeded to run the company in the ground, while paying himself and his three developers handsomely.
And I have seen investors use all manners of leverage against the operations team to dilute their ownership. The stories about being diluted out of ownership are common because it happens all the time. I personally, was diluted out of my ownership in a start up. A 90 million dollar exit and I walked out with less than $100k as the CTO, a tough lesson in finance for me, but it happens all the time.
I have come to believe that for people that act like this, it is a game, and the game is not won if they cannot get every penny. It probably bothered them that I walked away from the table with less than 100k, because some how they did not play the game hard enough to get that from me. Somehow they are less of a person, if they don't win and they judge their self-worth based on it.
I am not saying that this is all, or even most, VC's, but they are out there, and you only need to cross one of them for it to make an indelible mark.
It probably bothered them that I walked away from the table with less than 100k, because some how they did not play the game hard enough to get that from me.
And if they read this, they'd be surprised that you're not grateful, since they let you get away with that $100k instead of squeezing everything out. They probably feel they were generous. People, eh.
Yes, I am sure that they viewed the salary that I drew as compensation for my efforts, never mind the fact that I rarely put in less than 80 hours a week and was under-compensated for even the first 40 of it.
Ah well, You live you, learn if it did not happen, I would not have awesome stories to tell my kids and their buddies when we are hanging out on the porch of our shack in the FL keys. You have to have tales, to be what we call an old salty dog, down there. Half of them are crazy and the other half of them are telling the truth. At least it gives me a good story to tell.
Don't VCs see how incredibly destructive this is to the startup ecosystem? I would _never_ put in 80 hour workweeks if I suspected I could be cheated out of the big winnings (which would be very unlikely in the first place). This is just another story that hammers this point in, only a week after the Zynga debacle.
And there have got to be more developers like me out there, who simply are too cauctious and value their own time too highly to risk being conned like this. If you want to be reasonably safe from stuff like this, your only options are to (1) bootstrap, (2) take VC but be so good that you can set your own terms or (3) work for a company that will guarantee you a good salary, benefits and bonuses.
Don't VCs see how incredibly destructive this is to the startup ecosystem?
I think the answer is somewhere between no and they don't care. The fact is many people including myself, dust themselves off and go for another round so the negative effect of destroying the market is offset by the fact that it can be almost an addiction to be in the market.
What they can do though is ruin their name to the point that they become a second rate player. Which is exactly where you run into most of these guys.
I got really emotionally involved in the Zynga story because of my history, which is unusual for me. But to me that issue was far more concerning to the industry than the bad VC's because that was most likely the VC's and the operations team working together to deprive other latter entrances for capitalizing on their risk.
In this case the very people that generally are on the receiving end of VC dilution, are perpetuating the same victimization. That has the ability to kill the industry, an entrepreneur will, take another swing but a developer who was never going to get as rich as the entrepreneur, getting screwed, is going to leave the industry and become a high paid developer. Then because options are looked at as a bait that can be yanked, developers are going to demand full market rate, plus the options just for passing over more stable gigs with established organizations. It's only going to take one more Zynga for that to happen.
If others follow Zynga's example, developers will demand that the industry pay the full price of the developers risk up front, that is going to limit the ideas that get funded, and it will be bad for everyone. But we deserve it if that happens, greed over humanity deserves destruction.
Not sure we can say that we "deserve it", but I see your point...there are always bound to be some greedy assholes who don't see the bigger picture. It's really fascinating (in a morbid way) how much less innocent the startup scene is today than just five years ago when YC was in its infancy and PG's startup essays were considered controversial.
There are just _so many sleazebags_ involved in startups right now. Of course this reflects the rest of the world, but it really pains me every time I see a naïve or just unlucky nerd get shafted by some unscrupulous authority figure. Maybe a crash would actually be a good thing, because it would scare off everyone who isn't in tech for legitimate reasons.
There are just _so many sleazebags_ involved in startups right now
There was a lot in the .com boom, maybe a little more now but history has a way of remembering the noble and valiant while only the super villains get their place cemented in history.
To me it seems about the same, the A players are for the most part respectable, the B players have some sleaze, and with the C players, well you better cover your ass faster than the new guy on D block.
> I have come to believe that for people that act like this, it is a game, and the game is not won if they cannot get every penny. It probably bothered them that I walked away from the table with less than 100k, because some how they did not play the game hard enough to get that from me.
So very true. The thoughts this remark triggers spawn off into 2 separate forks:
0. Robert Ringer wrote a series of books about winning even though the other guys are trying to intimidate the heck out of you. He categorized all business people into 3 types.
1. And the other fork is the series of books by Suzette Haden Elgin that have "gentler art of verbal self defense" in the title. In one of her earlier books, she was trying to articulate the difference in communication between men and women; for most women, "sports/game" was a separate category in parallel with other categories. To translate her argument about male communication patterns into a programming one we're familiar with, she said basically that for men, "sports/game" was the base class for all categories. I'm slightly trivializing her argument, but that she was trying to make the point that competitiveness is something you overlook at your peril.
Interesting links. I'd never heard of Mr. Ringer, or his theory before this.
My simplistic understanding of his 3 types theory is this: "In summation, I realized that no matter how a guy came on, he would, in the final analysis, attempt to grab all of my chips (again with the one exception that I pointed out)." (The exception being the classic "win-win", where the other party benefits from my success, thus aligning incentives.)
My reaction to reading that was to think about myself. If the theory is correct, then regardless of my own intentions, I'm going to try to "grab all [his] chips". That actually makes his "Type Number One" guy the most honest and ethical.
I don't think I can quite reconcile my own ethics with that analysis, but I'm willing to consider it. It paints a somewhat bleak picture of business ethics.
How do you read his theory, if you put yourself in the shoes of the other party in the transaction, rather than his first person?
My take on what he wrote was that people (in sales) will do for themselves first, their friends second (if anything is left over or what they can't personally grab), and everyone else last.
Thinking this way helps me keep my confidence when another party tries to sell me on a plan to "help" me when I can't understand how they will personally profit by their plan. So I can refuse their "help" with confidence knowing I can't possibly be missing out on anything.
That is a very succinct summary, thank you for that.
I was actually asking about this from the opposite person's perspective. I didn't catch the "in sales" part -- did I just miss that, or am I missing a larger context of his theory? Having missed that piece of info, I was wondering what this theory says about my own motivations (I would categorize myself in the 3rd category, where I try to help my friends. But shouldn't I question my own motivations, given this outlook?)
I suppose it's reasonable to question one's own motivations pretty regularly, anyhow.
Thanks. I just assumed if value is being transferred, as money/assets rather than experience or knowledge or something else intangible, then the transfer involves "selling". That is just my default assumption in business.
The author did preface it with "i know" which does condition it as their experience. But yes they may have a experience that is the minority to the odds of running across a bad VC and generally once you are in a VC group you tend to use those connections in the future. For example I just had a really good idea the other day, called a good VC that I know and we are working out the details now to start working on it. If I had met her as one of my first contacts, I probably would have not went through the learning process that I did.
I initially thought this was referring to personal finances, and thought that 18 months seems a little extreme. I have heard people suggest to keep anywhere from 3 to 6 months of living expenses in the bank.
18 months does not seem extreme for people paid as well as software developers, although "easily accessible" might be better than sitting in a savings account.
That's true. The general rule I go by is carry between 3-5 months worth of expenses (debt service + living expenses) in cash and the rest goes into various investments to make more money. The cash is my emergency fund and the investments are my savings.
If you leave 18 months worth of cash in a savings account, you're losing value to inflation.
Under normal circumstances I would agree with you. Locally, if it takes a software developer 3 months to find a job it means that they took a 2 to 2 and a half month vacation. On the other hand, almost all the software jobs locally are defense related and with all the pending budget uncertainty(combined with volatility in stock and bond markets) I am currently carrying in excess of 1 year expenses, for my definition of expenses.
It's simple: Savings are the money you have left over after your expenses. It's easier to save money when you're making enough to live comfortably and then some. (And I know people will talk about how you can live below your means with any level of pay, and that's mostly true, but the "Rice and beans again tonight" simplicity you need to save money on a shoestring budget is way harder for most people than the "Resist the urge to buy a yacht" simplicity you need to save money when you're making six figures.)
Because after a certain point it's your own fault for not saving a bit. People who make less money have fewer options because you can only cut back so much on food and rent.
A person making $20k a year doesn't have much flexibility. They'll have problems just getting by, much less saving 18 months of expenses.
On the other hand, a person making $100k a year can always pretend they only make the $20k and save the rest. Or they can live more comfortably and still save some money. Or they can spend with reckless abandon and save nothing.
30 weeks for $100k and 25 weeks for $40-$75k... but also 30 weeks if you're over 55 years old, and 21 weeks if you're not. And I'm guessing that industry and education level would have even bigger effects.
as far as personal finances go, there isn't one rule of thumb that works for most. how much you should keep in the bank is very sensitive to things like the job market for your skills, whether you can move back in with your parents (or if they can give you money), what kinds of obligations you have (kids? mortgage?), and probably a lot of others.
Even what counts as a "month" depends on a lot of things. You could go by months' worth of current expenses, but I think what really matters is how many months you could actually live on the money, which depends on how variable your living expenses are (which is a mix of "real" constraints and psychological constraints on how frugal you could get if you needed to).
Exactly, my current monthly expenses are higher because I have a job. If I suddenly became jobless then my variable cost budget would change accordingly.
It does help though to take the general rule of thumb of 3-6 months or the other one I've heard is 1 month expenses for every 10k in salary you expect to make and put that away. If something bad ever does happen it's good to know you can tighten up and stretch that out even more.
1) as a rule of thumb it takes 3 months to raise money
If you're already connected with multiple VCs that might be true. If you're starting out cold, I wouldn't count on getting funded in 90 days even if you have the greatest thing going on planet Earth.
I would think having the ability to raise 18mo of funds to deposit in a bank already puts one in a small (and quite fortunate) group. True, this ability can come from diligence and careful financial planning, but there will always be external factors that could preclude this ability to save up in the first place.
Besides that, the more reckless half of myself is reminded of this Oscar Wilde quip: "Anyone who lives within their means suffers from a lack of imagination."
That's 18 months worth of expected expenses or 18 months worth of reasonably expected losses? I am confused.
If a company has any dependable revenue, I would expect that to count against the money you have to have in the bank. What do others say?
I am a big fan of cutting expenses to a min, and funding from operations to the extent one can but have noticed that VC types don't like this (relatively low-risk) strategy. Not entirely sure why.
I'm wondering if Chris is talking about Series A+ with this.
If you raise anything less than $500k angel it's going to be very tight to make that last 18 months by the time you've hired a few developers, covered expenses, etc - esp in SF/SV
If you plan to build a profitable startup, meanings, you are willing to sell the service (for $$) as early as possible, then perhaps, "18 months" is a period of time which within you get to the break-even point.
If you are planning to build a cool-and-free-iPhone/android-app and all you care is to get as many users as possible, then perhaps, this is a great advice for you.
In the first case, however, it means, you only need raise enough for about 12-18 months.
I would LOVE to have 18 months in the bank. In fact, I would love to have 30 days in the bank. And I think I have a really terrific idea and I know for a fact that I can make it a reality, since I have implemented aspects of this before, and have about 27 years of programming experience (started when I was 7). The thing is, it seems quite far-fetched to think that someone would give me 18 months worth of cash to make my vision a reality. Anyway, here is the idea: http://cure.willsave.me/vision . Basically the goal is to replace WordPress with a platform that has a number of advantages, starting with a CoffeeScript codebase running on Node.js.
"The Cure Platform is a component- and plugin- based content and data management framework.
The main goal for this platform is increased developer and user productivity. To achieve that the platform will have these features:
* WYSIWYG drag-and-drop designer. No source code templates (no mixed markup/source) and limited CSS.
* Component (GUI control) -based architecture to enable easier code reuse and faster configuration and integration of modules.
* Comprehensive data framework enabling drag-and-drop form creation with corresponding updates to hierarchical models. Transparent data handling. "
So my plan is, while I am finishing up my current project, to work on this new platform. I have already started with some of the implementation. I would very much like to avoid getting another "regular job" or gig when my main project is complete, and so I was hoping against hope that somehow I could crank out a simplified version of this new platform and miraculously turn that into my day job immediately. Or perhaps get a few thousand dollars from kickstarter.com or some such.. but most likely not try to raise much money at all, and probably not do any fundifying until I had a prototype of some sort.
Anyway, supposing I can live on just $3,000 per month, and I need exactly 1 person to help me who also only needs $3,000 per month. Suppose that includes all of our expenses for servers etc. and we are working out of our homes. 3000 * 18 = 54000 * 2 = $108,000.
I'm sure people will tell me I am wrongheaded, doing something wrong, or misinterpreting, but I think that this article is quite clearly saying I should try to get $108,000. This seems completely unrealistic to start going around trying to get $108,000. And actually, once I have a prototype, I still doubt I will even want that much money -- I will probably be happy to try to sell the system for 2 or 3 months, so maybe 3 months would be nice, but after that, I can't see going 5 or 6 months spending someone else's money without significant money coming in, so the $108,000 doesn't even seem prudent.
Anyway, if someone reading this wants to give me $108,000, I am sure I can build the system I described.. just not sure if people would be smart enough to adopt it. You can PayPal the money to node@willsave.me
(lol)
Wow -- minus 2 points? Don't understand why this is downvoted so hard? I think I asked a good question by relating the article to my specific situation.
My guess for the downvoting is some mixture of these reasons or others:
* This posting isn't the place for your comment--try an "Ask HN: evaluate my idea" or something.
* Your point "I need $100k for my idea, I can't see why this is necessary nor why anyone would give it to me nor what I'd do with it all anyway" took too long to get to and you probably would have gotten some responses if that was all you had.
* Perceived money-grubbing. "Are you a sociopath?"
* Perceived reasons why your idea Won't Work
* Complaining about being downvoted
* Your comment is structurally similar to some spam comments I've seen--greetings, link(s), bullet points, ALL CAPS at places, already downvoted. Instinctive downvoting.
You would be surprised, I have seen some things in my career that are insane and done for the simplest reasons, like ego, megalomania and most of all money.
I once was with a start up in which the CFO and the COO got into a fist fight in front of the entire company, over equity.
Another time I saw a VP who was running one division give everyone the day off, called in three of his trusted developers, and they all said that the development team was on strike and would not return unless the board appointed him the CEO. He then proceeded to run the company in the ground, while paying himself and his three developers handsomely.
And I have seen investors use all manners of leverage against the operations team to dilute their ownership. The stories about being diluted out of ownership are common because it happens all the time. I personally, was diluted out of my ownership in a start up. A 90 million dollar exit and I walked out with less than $100k as the CTO, a tough lesson in finance for me, but it happens all the time.
I have come to believe that for people that act like this, it is a game, and the game is not won if they cannot get every penny. It probably bothered them that I walked away from the table with less than 100k, because some how they did not play the game hard enough to get that from me. Somehow they are less of a person, if they don't win and they judge their self-worth based on it.
I am not saying that this is all, or even most, VC's, but they are out there, and you only need to cross one of them for it to make an indelible mark.