[HN Gopher] I sold Baremetrics
___________________________________________________________________
I sold Baremetrics
Author : anttiai
Score : 640 points
Date : 2020-11-10 12:43 UTC (10 hours ago)
(HTM) web link (baremetrics.com)
(TXT) w3m dump (baremetrics.com)
| NelsonMinar wrote:
| Did his 10 team members get zero? Is he proud of that?
| Aeolun wrote:
| Good for you! I'm happy reading a sort of reasonable-ish success
| story.
|
| 4M is a lot, but an amount I can wrap my head around.
| ineedasername wrote:
| The numbers work out to 7.5% equity owned by 10 employees. Would
| that be a typical equity share for a company like this?
| TechBro8615 wrote:
| It sounds a little low, but not unheard of. Standard option
| pools are generally between 10-20%.
| khalilravanna wrote:
| I think someone said there were 7 employees. I saw some of the
| jobs listed for YC startups and on AngelList showing 1% equity
| for first engineer roles. So yeah that seems about right by my
| estimation.
| ffdjjjffjj wrote:
| Wait, so your investors lose money, your employees (probably just
| a few) got at most $80k, and you get to retire? I mean, congrats
| on the hustle, but I wouldn't waste your time trying to make it
| look good for everyone else.
| gadders wrote:
| The founder usually carries the majority of the risk as well.
| remote_phone wrote:
| It sounds like he put in no money of his own.
|
| He would not have made $3.7M without the hard work of his
| employees. And yet when it came down to it, he took almost
| all the money for himself.
| cloverich wrote:
| If he worked for free, he _did_ put in money of his own. So
| it depends on what his salary cut was, and for how long.
| I've been thinking of starting a company for ages, but
| there's no escaping this fact -- I have to give up a
| substantial amount of money, and the most likely scenario
| is my company won't take off (much less make a profit, and
| even less an exit). I agree employees should be compensated
| but ultimately, if they get a salary on day one, it is a
| very different calculation. I've worked as an early stage
| employee, and the salary cut I took was ~30% for ~1 year. I
| may get a payout from that, perhaps 1-5x and to me that
| seems a pretty reasonable balance. -\\_(tsu)_/-
| [deleted]
| cam0 wrote:
| Those jobs that the employees chose to take would not have
| existed without Josh actually starting the business. He
| created something. He took the initiative to be a builder
| and took the risk and responsibility that comes along with
| that. The investors wrote a check that amounts to peanuts
| for them. The employees put in their 8hr days and collected
| a regular paycheck. The founder is the person who deserves
| the payout here.
| nxmnxm99 wrote:
| You people really don't understand the concept of risk do you
| stronglikedan wrote:
| From what I've seen here in the past, this is true. The weak,
| oft-repeated argument is that employees also assume risk and
| yada, yada, yada, while completely ignoring the fact that the
| risk assumed by employees statistically insignificant when
| compared to the risk assumed by founders.
| tehwebguy wrote:
| The employees got paid the wage they agreed on, too. How much
| more of the sale do you think they should have been given?
| [deleted]
| dang wrote:
| Please review the site guidelines and stick to the rules when
| posting to HN. Note this one:
|
| _Have curious conversation; don 't cross-examine._
|
| We detached this subthread from
| https://news.ycombinator.com/item?id=25045906.
| VectorLock wrote:
| It seems very strange to me that their investors went "you know
| what.. its only money.. we'll take a loss so you can retire."
| Was there some caveat that prevented them from taking their
| share?
|
| A VC leaving money on the table out of the goodness of their
| hearts just seems inexplicable.
|
| If it don't make dollars it don't make sense.
| relaunched wrote:
| 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."
| part1of2 wrote:
| I read the post but didn't understand why they had to walk. Why
| did they not get their $800k back?
| davidwparker wrote:
| 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.
| rjyoungling wrote:
| Yeah, same here. That was such a class act. I really hope that
| they get some serendipity like deal flow from that good will.
| treis wrote:
| 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.
| relaunched wrote:
| 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.
| treis wrote:
| >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.
| ska wrote:
| > 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.
| realmod wrote:
| 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.
| tacon wrote:
| >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.
| rjyoungling wrote:
| 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
| kjksf wrote:
| 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.
| treis wrote:
| >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.
| jbverschoor wrote:
| If they had a 20% stake, it would be 200x. Not 1000
| mv4 wrote:
| I applaud the author's transparency. Congrats on the deal!
| moonbug wrote:
| Wow, that's some brazen humble brag from someone who cheerfully
| announced how his envestors got screwed.
| mssundaram wrote:
| And employees
| moonbug wrote:
| indeed, yes.
| adewinter wrote:
| If you think a startup can "screw" a VC/investor when it's
| selling for only a 2.6x multiple... You are incorrect.
| ineedasername wrote:
| _the same people who are good at starting companies aren't always
| the same people who are good at growing or managing them_
|
| This is an excellent insight
| andygcook wrote:
| @shpigford - Are you able to exempt your exit from capital gains
| under the QSBS tax laws?
|
| For those curious, more here:
| https://www.brownadvisory.com/us/qsbs-tax-exemption-valuable...
| andygcook wrote:
| Update: QSBS was applied here:
| https://twitter.com/Shpigford/status/1326163478529314817
| czbond wrote:
| Founders can, his situation varies. Either QSBS or ideally
| through 83(b) (where one pays all taxes on company stock at
| founding in first 30'ish days).
| eli wrote:
| You misunderstand 83b, that's just about paying the income
| tax on restricted stock grants up front instead of as it
| vests. You still would owe gains on the appreciation of the
| stock. QSBS allows some or all of the gains to be tax free.
| heipei wrote:
| I'm assuming he held his shares through his own holding
| company.
| dimva wrote:
| $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.
| Shpigford wrote:
| So true. I could have also hated my life for those 7 years. I
| make a terrible employee. :)
| [deleted]
| mattmanser wrote:
| That assumes he took no salary or dividends for 7 years, which
| seems highly unlikely given their ARR.
| Shpigford wrote:
| Right. I've been paying myself $100-150k a year for most of
| that.
| mattmanser wrote:
| 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.
| dimva wrote:
| 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).
| mgkimsal wrote:
| > 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?
| toasted_flakes wrote:
| 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.
| chourobin wrote:
| might not be a fair comparison if you consider taxes on
| salary+rsu vs. being taxed on capital gains.
| ccmcarey wrote:
| 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.
| petercooper wrote:
| 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).
| draw_down wrote:
| Yeah, I was gonna say something like that. Nothing to sneeze at
| but I've made slightly more (not even considering my salary) by
| just working a software engineer job over the last 4 years.
| Nothing fancy, lots of afternoon naps. Not a staff engineer,
| not a VP, just a regular old mid-level engineer. A hump, you
| may say.
|
| To each their own. But you won't see a blog post about mine
| because it would be a very boring read.
|
| I see posts here refusing to believe this could possibly be
| true. You must be a VP! Normal coders don't make that kind of
| money! You don't have to believe it- but you're not hurting
| anyone besides yourself if you don't.
| pc86 wrote:
| 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.
| barry-cotter wrote:
| 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.
| danr4 wrote:
| 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.
| scarmig wrote:
| 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.
| elric wrote:
| 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.
| MauranKilom wrote:
| 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.
|
| https://stackoverflow.blog/2019/10/16/coding-salaries-
| in-201...
| vbsteven wrote:
| 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.
| ineedasername wrote:
| 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.
| topoftheforts wrote:
| 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?
| abyssin wrote:
| Did you have to specialize in some kind of technology or
| sector? Or is it simply because self-employment means
| paying less taxes?
| layoutIfNeeded wrote:
| >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.
| jvvlimme wrote:
| Become a contractor, you'll be in the 100 to 200k/year. (ok
| yes, that's before taxes)
| tngranados wrote:
| 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.
| Tade0 wrote:
| 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.
| LandR wrote:
| 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 PS100k a year.
|
| BUt it's very rare IMO, I'm not even on 50% of that.
| swe_guy wrote:
| 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.
| secondcoming wrote:
| In London?
| swe_guy wrote:
| Yep.
| faang_employee wrote:
| London salaries:
|
| L5 (senior engineer) Facebook [1] Google [2]
|
| Facebook L6 (lead engineer) [3]
|
| [1] https://www.levels.fyi/company/Facebook/salaries/Soft
| ware-En...
|
| [2]
| https://www.levels.fyi/company/Google/salaries/Software-
| Engi...
|
| [3] https://www.levels.fyi/company/Facebook/salaries/Soft
| ware-En...
| Silhouette wrote:
| 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.
| faang_employee wrote:
| 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).
| [deleted]
| mrtksn wrote:
| 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.
| Silhouette wrote:
| _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".
| mrtksn wrote:
| 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/
| Silhouette wrote:
| 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.
| twox2 wrote:
| 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.
| pc86 wrote:
| So even more pessimistic than my already prone-to-pessimism
| self thought!
| creddit wrote:
| This is untrue. A Level 6 Engineer or Manager and higher
| makes $500k+
|
| VPs likely make millions.
| twox2 wrote:
| Not sure how accurate glassdoor is, but:
|
| https://www.glassdoor.com/Salary/Facebook-Vice-President-
| Sal...
| objclxt wrote:
| 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.
| twox2 wrote:
| Fair enough, I'm talking about the non software
| engineering side of ad tech.
| yojo wrote:
| 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.
| dvnguyen wrote:
| $500k is staff/principal level compensation at FAANG companies.
| No way mid-level engineers make as much.
| connectsnk wrote:
| Can someone please explain why the investors were not able to
| recoup their initial investment of 800K$ when the company sold
| for 4 million? Thanks in advance.
| nemothekid wrote:
| It's not that they weren't able to. It's that the 800k isn't
| worth the legal fees and the possible PR damage (Bessemer
| doesn't want to be known as non-founder friendly because they
| made a fuss over 800k).
|
| It's been repeated a couple times in this thread, but VC make
| money by 10x-100x their original investment. They invested 800k
| expecting to make back 8M-80M. Anything less than that isn't
| worth the additional time, especially for a seed stage
| investment where they might have 50-60 of these per year.
|
| I think, for anyone trying to start a company and take VC
| funding to understand how the VC business model works. A VC
| incentives are much different than a founder's much of the
| time. In this case, the best case for the VC is for the founder
| to continue working on the company.
| jariel wrote:
| It is absolutely not 'non founder friendly' for a VC to go
| after their 'participating' value especially when there is
| actually money on the table.
|
| There would be zero negative PR fallout from that.
|
| This founder basically ripped off his investors, it's
| completely unethical - and he'll never get a dime of VC money
| again.
|
| If VC firms didn't care about getting their 1x money out then
| the terms wouldn't be there in the first place.
|
| It's normal to do that, and a $500M firm returning 10% a year
| takes 20% of that, so 2% which is not really a huge amount of
| money for a team of people.
| nrmitchi wrote:
| It kind of sounds like Josh had a number in mind, which would
| allow him "financial independence", and that number was 3.7M.
|
| If the investors insisted on recouping that 800k, leaving Josh
| with ~3M, it sounds like it wouldn't have hit his number, he
| wouldn't have sold, and.... the investors would be in the exact
| same place. Effectively, it sounds like they just chose to not
| block the sale for something that, in the end, would have made
| no difference to them (but would have prevented the founder
| from leaving).
|
| Josh ended up better, the employees ended up better, and the
| investors _really_ didn't end up in a worse place (in
| actuality, they probably now get to write this off as a loss
| and not worry about it anymore, so maybe a bit of a pro?).
| pavlov wrote:
| The founder had the guts to tell the investors that there's a
| deal on the table, but he's not going to do it unless the VCs
| walk away from the investment.
|
| It wasn't a growth story, so from that point of view it was
| dead money for the VCs anyway. But why would they agree to the
| founder's payout at their expense?
|
| Either the VCs are very impressed with this founder and plan to
| participate in his next company, or they're fed up and just
| wanted to be rid of him.
| suhail wrote:
| Congrats Josh :)
| lubos wrote:
| > 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.
| tiffanyh wrote:
| > "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).
|
| https://signalvnoise.com/archives2/bezos_expeditions_invests...
| fairity wrote:
| 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.
| orasis wrote:
| 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.
| ignoramous wrote:
| Thankfully lifestyle-business focused "VCs" are a thing:
| https://tinyseed.com, https://earnestcapital.com,
| https://indie.vc
| alooPotato wrote:
| 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.
| GoRudy wrote:
| Pass through entities wouldn't be subjected to the double
| taxation.
| alooPotato wrote:
| 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.
| [deleted]
| rexreed wrote:
| 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.
| boltzmann_ wrote:
| kudos for the transparency, a really interesting post
| pc86 wrote:
| I know there's a trope about the naive founder getting screwed by
| shifty-eyed VC sharks, but it really sounds like Josh screwed his
| investors and employees here.
|
| > _I wanted them to at least get their money back, but
| ultimately, for the $4m purchase price to work, we'd need to ask
| them to walk on their [$800,000] investment._
|
| He clearly didn't want it very badly, then. Nearly $3 million
| wasn't enough? That's about $420k per year for the time he put
| in, not counting anything he already took out. Keeping the extra
| money only increases that to about $530k/yr.
|
| And it sounds like the early employees get nothing, other than
| not getting fired immediately.
|
| I like the Baremetrics product but man this really leaves a bad
| taste in my mouth about Josh personally.
| marcinzm wrote:
| Based on the numbers employees got 7.5% of the payout. There
| seems to be 5 current employees on LinkedIn and possibly some
| earlier employees who bought out their equity. That seems
| roughly a standard equity split for employees which just goes
| to show you how depressingly low the standard equity grants are
| for employees. As people say, don't join a startup to get rich
| unless you're the founder.
| czbond wrote:
| Which is true, but so is my phrase of "If you want to go
| broke, found a startup". It cuts very deep on the south side
| often for founders - whereas employees do get a paycheck.
| Founders will go YEARS often with little to no income.
| marcinzm wrote:
| I don't disagree however the paycheck for engineering
| employees is often a lot less than one could get from
| established companies. Every startup I've talked to sold
| equity as a large part of the total compensation and argued
| it makes up for the cash difference.
|
| So you're being asked to give up $100-200k/year worth of
| salary by joining a startup which isn't trivial. For a tiny
| fraction of equity with multiple restrictions (10 year
| expiration, 90 day window to exercise on leaving, can't
| sell it, etc.).
| czbond wrote:
| Wholly agree in most cases the trade is not worth the
| equity
| Topgamer7 wrote:
| I'm not the most financially savvy person. And I am not an
| attentive follower of Baremetrics. But wouldn't the investors
| have been getting dividend returns quarterly all along since
| their investment was made?
| [deleted]
| nxmnxm99 wrote:
| The fact that people on hacker news are angry about this cracks
| me up. The vast majority of folks here really are the crotchety
| programmers.
|
| Yes, a founder gets compensated significantly more than early
| employees. Massive shocker. If those early employees were
| talented enough, they'd be founders getting compensated.
|
| I don't know when this dramatic shift happened to Americans to
| believe building a successful company is mostly luck, but it's
| depressing.
|
| Shame on you, HN.
| marcinzm wrote:
| >I don't know when this dramatic shift happened to Americans
| to believe building a successful company is mostly luck, but
| it's depressing.
|
| Because it's true? Studies (Gompers, et. al. (2009)) indicate
| that a second time entrepreneur has a 30% chance of success
| versus a 20% for a first time one. So there's some skill in
| it but it mostly comes down to luck.
|
| edit: And if you're arguing skill then clearly the skill of
| the early employees matter tremendously and not just the
| skill of the founder. So why do you think it's wrong for
| those employees to get more stake?
| dasil003 wrote:
| Anyone who believes startup outcomes are mostly luck
| doesn't have what it takes to be a successful founder--you
| need to have the belief that you can shape the outcome. The
| idea that we reduce outcomes to two buckets, success and
| failure and then flip a coin is reductive and belies the
| decisions and effort that lead every human endeavor to its
| own unique outcome. Keep in mind corporate projects fail
| all the time too, we just don't talk in these terms because
| people's salaries and jobs aren't on the line. Of course
| luck matters tremendously in terms of riding a series of
| waves to make a billion dollar company, but it was paved
| with hard and deliberate work every step of the way. The
| founders could have reacted and changed direction
| completely at any stage along the way, therefore these
| fixed percentage figures are meaningless. How hard did each
| of those founders work? How many pivots? What type of
| businesses? What skill sets did they bring?
|
| And to your last point, who is saying it's wrong for
| employees to get more stake? Of course it's not wrong, but
| as an employee you have to negotiate that. People can't
| just magically get what they feel they deserve because it
| would add up to way over 100%. Remember, the company exists
| because of the founder, doesn't matter how much you think
| you contribute, because at the end of the day the company
| does not exist without them. If you can convince them to
| give you more then you should, and if you can't you are
| free to start your own company. I do not see what is so
| unfair about this situation and I say that as instrumental
| #1 employee who got less than 1% for a 9-year effort
| building a moderately successful company. You don't get
| what you deserve in life, you get what you negotiate.
| marcinzm wrote:
| > You don't get what you deserve in life, you get what
| you negotiate.
|
| And negotiation require knowledge. This thread is about
| being told to not discuss that knowledge publicly and to
| not acknowledge the real life implications of certain
| equity splits.
|
| As I said in another comment, this is like saying
| employees should have negotiated better salaries and then
| firing them for discussing salaries.
| M2Ys4U wrote:
| >Anyone who believes startup outcomes are mostly luck
| doesn't have what it takes to be a successful founder--
| you need to have the belief that you can shape the
| outcome.
|
| The two aren't mutually exclusive.
|
| Startup outcomes _are_ mostly luck, led by people who
| (have to?) believe that they aren 't.
| kjksf wrote:
| Per your data they do 50% better the second time.
|
| That clearly shows a vast improvement in skill. A luck
| doesn't improve over time. If it was "mostly" luck they
| would get roughly the same outcomes the second time.
| nxmnxm99 wrote:
| The fact that that's your conclusion based on that "study"
| is exactly why success is easy for some of us
| hn_throwaway_99 wrote:
| I respectfully very much disagree. Even Sam Altman has been
| arguing that founders should give more equity to startups,
| mainly because employees who are usually sold on "equity
| dreams" are all coming to realize those equity dreams are
| peanuts.
| nxmnxm99 wrote:
| "Even Sam Altman" really, the patron saint of getting
| credit for other people's work and risk agrees with that
| waffley sentiment? Shocker
| franciscomello wrote:
| Curious to know why you think this of Sam Altman...
| Veen wrote:
| Isn't getting credit and cash for other people's work
| exactly what you're advocating.
| nxmnxm99 wrote:
| Not at all, it only seems that way to you because you
| have zero sense of what risk/reward actually means.
| Employees were paid for their value determined by the
| market. Josh is just now being compensated for the
| immense amount of risk and deferred cash he gave up to
| build this company in the early days.
|
| There's a reason the market doesn't compensate every
| early employee at a meh SaaS company with millions.
| hn_throwaway_99 wrote:
| > There's a reason the market doesn't compensate every
| early employee at a meh SaaS company with millions.
|
| And I think the primary reason is that many early
| engineers don't realize what a shitty deal they're
| getting. The purpose of this thread is to let them know
| that, so eventually startups won't be able to hire
| employees with such shitty terms.
| Veen wrote:
| That rests on the perverse assumption that founders are the
| most talented and deserving individuals in the universe, and
| everyone one else should be happy to uncomplainingly serve
| the interests of these fabulous ubermensch.
|
| To say that's a naive and inaccurate view of the world would
| be an understatement.
| tehwebguy wrote:
| No, it doesn't. It simply means if nobody founds it there
| is no company in the first place.
|
| Whoever wants to do the first 3-6 months (or 3-6 years)
| without a paycheck while figuring out the problem, solution
| and funding gets to be the founder.
|
| If employees were lowballed underpaid, screwed out of
| vested shares etc that's different but _of course_ the
| person that decides to make the company owns most of it and
| gets the biggest payout when it sells.
| goatherders wrote:
| No, it says that those that take the biggest risks get the
| biggest outcomes. Being an early employee of a startup
| doesn't give you the "right" to a big payout any more than
| being an founder of a startup gives you a right to
| inexpensive labor.
| nxmnxm99 wrote:
| No, it rests on the realistic assumption that there are a
| million engineers you can hire to be "early employees", and
| only a handful of Josh Porters with the talent to build
| something great and the risk tolerance to execute on it.
|
| The market doesn't care about your fragile ego or low self-
| esteem.
| nxmnxm99 wrote:
| Or, you know, negotiate higher equity and stop bitching and
| moralizing when your payout isn't high enough.
| hn_throwaway_99 wrote:
| > Or, you know, negotiate higher equity and stop bitching
| and moralizing when your payout isn't high enough.
|
| Seriously, what is your point here, besides acting like a
| jerk? I mean, I totally agree with you, but that's why I
| think this thread is important. It should be a lesson to
| potential startup employees about how extremely lopsided
| the risk/return considerations are, that most equity
| deals are complete shit at startups, and that you should
| usually demand more equity if you have any negotiating
| power.
|
| Indeed, the purpose of threads like this should be to
| convince startup employees _as a whole_ that they 're
| getting screwed on equity so they should demand more.
| nxmnxm99 wrote:
| This thread has nothing to do with a level headed
| discussion on the "fairness" of equity (which doesn't
| even make sense). I was responding to a comment calling
| Josh a dick for finally getting paid for a company he
| built that adds value to thousands of customer's lives,
| instead of giving it to highly replaceable early
| engineers.
|
| Average software engineer gets compensated with 6 figure
| income for 7 years leading to a $70k cash payout. What a
| jerk that Josh is.
|
| Rise, proletariat, rise.
| goatherders wrote:
| I didn't think it was a jerk comment at all.
|
| Your point is 100% right though. Early startup employees
| rarely understand the risk/reward. Surely none of the 10
| employees at a 7 year old software company doing 1.6M a
| year thought they were on a rocketship.
| marcinzm wrote:
| So one is supposed to negotiate for higher equity but at
| the same time those who have gone through it aren't
| supposed to discuss their experience and payout?
|
| I suspect you're also one of those people who says
| employees should just have negotiated better salaries but
| also fires them for discussing salaries.
| Shpigford wrote:
| You're making a veritable crap-ton of assumptions here. Happy
| to talk about specific concerns, but not if you're going in to
| this with guns blazing looking for a witch to burn.
| ccmcarey wrote:
| I'm curious how it works from a technical standpoint. If they
| invest, do they not own shares of the company, and then
| during the sale the shares are sold, did they just gift the
| shares back to you personally? Does that have tax
| implications?
| Shpigford wrote:
| Investment vehicle was a SAFE. They basically cancelled the
| SAFE as part of the deal. We've had carryover losses for
| years, so from a tax perspective, there was no hit on
| either side.
| ccmcarey wrote:
| Makes sense, thanks!
| TechBro8615 wrote:
| Wouldn't this count as a liquidation event and thus give
| them the right to purchase shares at the price that the
| buyer is purchasing them at?
| kirubakaran wrote:
| Depends on whether it was a stock sale or an asset sale.
| high_derivative wrote:
| So what did employees get?
| ceejayoz wrote:
| Salaries? https://baremetrics.com/blog/why-we-spent-250000
|
| > We aren't spending Silicon Valley-amounts on salaries,
| but we're certainly not on the low end. From the
| perspective wanting my team to love where they work and not
| have to worry about money, I'm very happy with the salaries
| everyone gets.
| Shpigford wrote:
| Depends on the employees and when they joined and if they
| exercised stock options or not. Big range from a few
| thousand to over $80,000.
| falcolas wrote:
| $80k for how many years of work? Unless it's one, I'm
| with the parent. I'm sure it's all legal and 'equitable'
| according to the terms, but that's peanuts of a return
| for somewhere between 4 and 7 years of work (based off a
| typical vesting schedule).
| twox2 wrote:
| It's peanuts, but it's also REALITY. Few people get big
| windfalls working for startups as employees or even
| founders, but maybe you get a little bonus on top of your
| salary if there's an exit.
| falcolas wrote:
| Few employees may get a windfall in reality, but it
| doesn't make it easier to see (nor does it justify the
| founder's choices).
|
| Those employees are just as responsible for the company's
| success as the founder is; it sucks to see them get
| shafted while the founder walks away with "fuck you"
| money.
| ericd wrote:
| The founder walked away with the ability to buy one nice
| house or two crummy ones in Silicon Valley outright. The
| outrage!
| twox2 wrote:
| Agreed, which is why it's good that this stuff is being
| shared. It's a datapoint to consider for those of us as
| we make career choices. But let's face it, if we are not
| founders, then we are just "the help".
| falcolas wrote:
| And without "the help", most founders (OP included) won't
| make it to the sale. You can't scale without "the help".
| You can't grow your market without "the help".
|
| To badly paraphrase someone: "The idea isn't what's
| valuable, the implementation is." That implementation is
| probably >90% thanks to "the help".
| koolherc wrote:
| It's all good until founders understand that "we are just
| the help". They are the ones with the most risk, and they
| cannot simply walk away to a new job if they don't like
| how things are going. But a lot of founders put too much
| weight on early employees, require working as much as the
| founder, or require to take responsibility in things that
| far outreach what they were accepting to when signing a
| contract.
| falcolas wrote:
| > They are the ones with the most risk, and they cannot
| simply walk away to a new job if they don't like how
| things are going
|
| If a founder is spending VC money and paying themselves a
| SV grade salary, I would have trouble calling that a
| significant amount of risk.
| intev wrote:
| There's a sense of entitlement here that's not sitting
| well with me. Don't get me wrong, I think employees of a
| "startup" deserve to get some sort of payout during a
| liquidation event, but I think that payout should be
| directly proportional to how much risk was assumed.
|
| Did they take a full standard salary? (Doesn't have to be
| SV 100k+ salaries, but standard for whatever is paid in
| their area). Did they do more than just code? etc etc
|
| By your logic, the butcher who worked for market wages in
| a meat processing company should get a big pay day
| because Nestle decided to buy them.
| falcolas wrote:
| There's a vast difference between a butcher in a meat
| processing facility and a trained professional software
| developer who is responsible for creating/supporting/etc
| your software.
|
| As for entitlement, what entitles a founder to get ~50x
| the payout of their employees? Especially when they're
| _also_ taking a SV level salary (not living in SV) and
| spending VC money.
| anonfornoreason wrote:
| If you don't like it, become a founder yourself. For
| better or worse, the reality is that maybe 5% of
| developers out there have the stamina, the ingenuity, and
| the risk tolerance to build a business. Speaking
| anonymously, as a person who started a business ~12 years
| ago that employs 17 people. The stuff you have to deal
| with non stop as a founder who is developing product,
| working on HR, working on code, working on
| infrastructure, working on the career growth of your
| employees, all the while also engineering a business that
| can in theory run itself without continuous micro-
| management, is insane. Not a single one of our employees,
| even our high producing hustlers, do half what my founder
| and I do on a weekly basis. You have to be a master of
| everything, because the moment you aren't the lead expert
| in the room, someone gets you off the rails. Running a
| small software based business producing a customer facing
| product is insane.
|
| Add to it the last four years of "culture" growth leading
| all west coast tech workers to demand you add 10%
| overhead to your business to advance diversity, equity,
| and inclusivity, which in reality is just advocation for
| the right kind of politics to be brought into company
| culture, and you get a crazy stressful soup for any
| founder.
| intev wrote:
| I actually very specifically chose the butcher example,
| and no there isn't. At the end of the day, a butcher,
| like a software developer can be _trained_ to be good.
| Initially a butcher would ruin meat and cut into profits
| by incorrectly making cuts. Over time the butcher can and
| will get better. Far fewer mistakes towards the end of
| the career. Same with software engineers. After a point
| this comparison breaks down, but at least up to here it
| 's comparable. Self taught or not, many educators have
| proven that good engineering can be taught and practiced.
| Over time everyone gets better if they care enough. Not
| everyone can be Donald Knuth, but no one's looking for
| Donald. Most start up founders just want competent
| engineers.
|
| Moving on to your second point about entitlement. Of
| course the founder is entitled to 50x the payout. You
| seem to be severely discounting risk. Did you see this
| founder's list of other failures?[1] They can pay
| themselves whatever they feel is right. They took the
| risk, failed multiple times, and finally got lucky. Of
| course they can reward themselves how they see fit. There
| are so many founders who never see the reward and end up
| with worse careers because they only kept founding
| companies rather than choosing a "stable" career. To me
| it seems like, in your view, the guy who didn't take the
| risk founding companies and got to join a "sure" job by
| joining a rapidly growing startup gets to be rewarded
| comparably to the guy who started something, working,
| spending years not sure where it was going to go. Why
| would anyone take the risk of starting a company? I'd
| rather join a fast growing startup if my reward is quite
| comparable to the founder's. Low risk, high reward.
|
| [1] https://joshpigford.com/projects
| falcolas wrote:
| If Google can reward a cook, why can't a meat processing
| plant reward a butcher? Masters at their craft _deserve
| to be rewarded_ when businessmen rely upon them to
| succeed.
| kjksf wrote:
| Google can reward employees because they make monster
| profits.
|
| If you can, you should get a job at Google and get a
| great salary (which is still a tiny sliver of Google's
| monster profits).
|
| If you can't then you have to settle for lower paying job
| at a company that doesn't have monster profits like
| Google and therefore cannot pay you outsized salary.
|
| Employees don't "deserve" anything other than the market
| salary.
|
| It goes both ways. Employers don't "deserve" Google-level
| programmers for half the salary that Google is willing to
| pay. And I'm sure they would love to get great talent at
| reduced prices just like you would love to get great
| salary regardless of your talent and contribution to the
| business.
|
| The market salary happens when both parties work to
| advance their self interest. "deserving" has nothing to
| do with it.
| aliston wrote:
| The point is not that founders don't take on more risk
| than employees. It's that that software engineers fresh
| out of college are not good at evaluating risk adjusted
| returns. If they were, they'd realize that the current
| market rate for joining a startup is a bad deal, thereby
| forcing startups to up their equity compensation. Many a
| starry eyed new grad has been lured by tales of riches
| from a startup founder / snake oil salesman.
| marcinzm wrote:
| None of his employees were there that long from what I
| can tell. The initial employees got laid off I think 4
| years ago and were probably there 1-3 years (who knows if
| any bought out their equity). Current employees were
| there 1-3 years. Only two current engineers from what I
| can tell. It also depends on how much salary they were
| paid as many people will take cash over equity.
| dbbk wrote:
| I assume they also got paid in that time? You're making
| it sound like they've made a big sacrifice to (only)
| receive $80K at the end.
| falcolas wrote:
| So was the founder. SV level salary, per their words.
|
| And, as I've said elsewhere, startup salaries are rarely
| on par with the industry average. Working at a startup is
| typically sold as "you'll be paid less, but if we sell
| you'll get a payout to make up for it".
| infinite8s wrote:
| Are you sure that Baremetrics employees were sold that?
| If not then what is your issue?
| howlgarnish wrote:
| No, it's an $80k bonus on top of the salaries they got
| for X years of work, and they're all still employed as
| well.
| falcolas wrote:
| We don't currently know what their salaries are, but it's
| pretty common for startup salaries to be 50-60% of normal
| salaries. The rest is typically LLC stock grants. It's
| done this way with the promise of "when we sell" those
| stock holders will make bank. $80k isn't 'bank'.
| Especially if Baremetrics was following the startup-
| standard salaries.
| vidarh wrote:
| Anyone taking a startup job on a 50-60% of a normal
| salary without several percent of the shares is doing
| themselves a massive disfavour.
|
| Most of my startup jobs have paid market rate. The shares
| and options have compensated for the risk, not a lower
| salary.
|
| I'm sure some accept lower salaries, and certainly the
| salaries won't be comparable with the very top end of the
| market, but most people don't work in the top end of the
| market.
|
| A startup that tried talking me into a massive cut
| without offering me basically founder-level share amounts
| would be an instant red flag.
| pwinnski wrote:
| All indications are that they were operating on a profit
| basis, not a growth basis, so I think it's a poor
| assumption that anybody was being paid a half-salary. As
| the post states, they're keeping their same compensation
| going forward, and all are choosing to stay, suggesting
| it's very satisfactory, and has been all along.
| FireBeyond wrote:
| > All indications are that they were operating on a
| profit basis, not a growth basis
|
| From the founder himself:
|
| > We've had carryover losses for years, so from a tax
| perspective, there was no hit on either side.
|
| I realize that tax losses can differ from cash losses,
| but are you so sure about that?
| pwinnski wrote:
| I mean, that's somewhat my point? They were not pursuing
| rapid growth. From the post:
|
| _We're also a company that has purposefully operated
| right around breakeven for years. So, unless you're a
| "strategic acquistion" that throws acquistion multiples
| out the window, a slow-growth software company without
| lots of profits and a product that's technically quite
| complex is ultimately just not going to get a huge
| multiple._
| ryansouza wrote:
| Did you also take a salary during these years?
| Scottymeuk wrote:
| I got an incredible place to work for over 5 years, for an
| amazing company, and an even more amazing boss. I got paid
| well for it, and I also got a nice payout when the company
| sold. Don't worry about the employees :)
| mattbee wrote:
| For a few years before I sold my small (UK) company, our
| employment contracts had a bonus clause in. It guaranteed a
| bonus payout from a pool of 5% of any future sale, based on
| a multiple of years service (up to 5) and salary at the
| time of sale.
|
| We sold for a similar sum and the bonuses were pretty small
| by SV standards - a bit more than PS20,000 for a few, down
| to a few PS00 for people who had just joined (maybe 50%
| annual salary for a few).
|
| Me & my partner had a fishy earnout clause over 12 months,
| but I got us pleasantly fired after 3. Half the staff got
| made redundant after 6, which I don't believe was a
| surprise to any of them. Nobody buys a business for its
| cosy culture, or sells one expecting it to stay.
|
| I think it's right for founders to be up-front about the
| likelihood and consequences of an exit, which is why we put
| it in our employment contract. But IMO more than 10% would
| be very generous for these ordinary private buyouts at 4-5x
| profit - no rocket ship valuations. At least that's clearer
| and more certain (and less tax efficient) than the kinds of
| games people play with options & rounds of funding.
|
| UK tech companies, salaries & employee expectations are a
| whole different world from what's discussed here. Maybe
| Baremetrics was closer to that world than SV.
|
| (In another life I wish I'd looked into what our old
| customers Torchbox did last year which is form an employee-
| owned trust and sell to that -
| https://torchbox.com/blog/not-selling-up/ )
| pc86 wrote:
| Now that you mention it, you're right, maybe some of that
| extra $300k went to the employees? I don't know because I
| wasn't in the room. I'm curious how much money employees got,
| and why $3.7 million was enough when $2.9 wasn't.
| Shpigford wrote:
| That entire $300k went to employees.
|
| As for $3.7 vs $2.9...that was basically the number that,
| to oversimplify, would roughly give the outcome I wanted
| for "retirement" when it comes to investment interest over
| the next 50 years.
|
| Basically, it's the number I felt comfortable with to not
| instantly feel like I needed to get back to work in a few
| years.
| [deleted]
| remote_phone wrote:
| The takeaway for me is that if you come across a company that
| is founded by Josh Pigford, do NOT join it. It's clear that
| even if the startup gains traction, he will leave before the
| value gets maximized and also take the lion's share of any
| payout and leave you with practically nothing. That's not what
| most people expect when they join a start up, they expect to
| share in the spoils for their hard work.
| goodGood00 wrote:
| I don't even know you and this post left a bad taste in my
| mouth personally.
|
| Good thing you left your LinkedIn.
|
| Other people aren't obligated to live up to the image you hold
| of yourself.
|
| This has been happening every day in America for decades.
|
| I have little sympathy for App Corps everywhere realizing the
| same thing other industries have dealt with the whole time;
| your society doesn't really care.
|
| Welcome to free market speculative economics full of disruptive
| behaviors.
|
| Oh what you thought the disruption was just over here? Looks
| like you got disrupted in an unconsidered way.
| hn_throwaway_99 wrote:
| Not making any other assumptions here, but I think this is a
| great example of something that's become more and more obvious
| to HNers over the past few years: from a financial perspective,
| if you have an opportunity to join a FAANG vs a startup, it
| pretty much almost always makes financial sense (usually much
| more sense) to join the FAANG. And since it usually makes a LOT
| more financial sense, it can often make a lot of the other
| points moot as well, because you could save so much more
| working at a FAANG that you could afford to take time off to do
| whatever you want, or retire early.
|
| I mean, in this example Baremetrics actually had a pretty good
| outcome, better than most, and the employee's basically got
| very, very little for their overall equity. Even the founder
| probably got less than a mid/senior level FAANG employee would
| get (and the FAANG employee had no risk).
|
| Of course, not everyone can get an offer at a FAANG, but again,
| if you _could_ get an offer, startups basically never make
| sense anymore. You almost always will get more _even if the
| startup hits_ , which is rare.
| tinyhouse wrote:
| > Even the founder probably got less than a mid/senior level
| FAANG employee would get (and the FAANG employee had no risk)
|
| Not really... he's been working on the startup for 7 years.
| Let's assume he had an average salary of 150K during those
| years. Plus he got $3.7M on the acquisition (it's not clear
| from his post if that's what he takes home or if it's pre-
| tax). That's 4.75M.
|
| Now let's assume a senior engineer in FAANG with a an average
| salary of $350K for 7 years. That's 2.45M. That's a very
| rough comparison and not taking into account taxes (the FAANG
| engineer is likely to pay more money in taxes overall).
|
| But the bigger difference is how he spent those 7 years. He
| spent it building and managing his own company with all the
| freedom in the world. Compare that to a senior engineer in
| FAANG...
|
| Update: someone in the comments mentioned he'll likely not
| need to pay any federal tax on the acquisition money. That
| makes a huge difference and the take home gap is much larger
| than my initial estimate.
| humanlion87 wrote:
| All the freedom in the world, and all the responsibility in
| the world too. The constant pressure to make the correct
| decisions for over 7 years would definitely be worth a 2x
| multiplier at least right?
| tinyhouse wrote:
| It's definitely worth the multiplier. But that's not the
| right question imo. The question is if his well being was
| affected by that responsibility. From his post I didn't
| get the impression he was under a lot of pressure (unlike
| a senior FAANG engineer...). He worked hard of course but
| that doesn't mean he suffered. He just lost interest.
|
| I'm not saying running a company is not stressful. Of
| course it is. Even is it's yours and no one can fire you.
| But it's very different when you're the one who is making
| the decisions and not depending on other people and
| politics.
| codegeek wrote:
| not everyone works at a startup or small company to cash out
| someday. Lot of people just get a regular job at these
| companies just like they would at a large company. There is
| no expectation of any additional payout because they are
| employees who get decent salary, benefits and are happy to go
| home with a work life balance. If you want founder benefits,
| you have to be willing to work like a founder and most people
| don't want to do that contrary to what HN crowd may think or
| believe.
| brightball wrote:
| I did the math one time, many years ago when I was working
| for a London based startup. They offered me a small portion
| of equity with vesting to offset the lower salary.
|
| If the company sold for $10 million, I would have ended up
| with about one years worth of the lower end salary...which
| was about 1/2 of what I could make from an average offer in
| rural parts of the US.
|
| Ten years later, the company finally sold.
| picodguyo wrote:
| Very much disagree just because, FAANG or not, working for a
| large corporation is not for everyone. That said, I would
| never work under a solo founder for the reasons exemplified
| by this outcome.
|
| I don't even like VCs and I feel like what was pulled here
| was pretty galling. How does someone rationalize calling up
| an early investor and telling them to eat their investment
| because...more money for me?
| Swizec wrote:
| I think there's a sweet spot in well-funded Series A
| companies. You get the benefit of a small team and large
| impact inside the org which feels nice to a certain kind of
| person. The company is big and mature enough that you get
| decent impact on the world as well. Also great for many
| people
|
| And most importantly, the company can afford to pay well. Not
| quite FAANG level, but plenty for you to reasonably plan to
| retire (in a FIRE way) at 50 instead of 65.
|
| And heck if it does hit, you're early enough for a nice cushy
| bonus.
|
| edit: yes the difference in comp is easily 100k+, but making
| 180k+ cash to not be a small cog in a gigantic machine, to
| me, doesn't sound that bad
| ffdjjjffjj wrote:
| Not even close to FAANG level compensation in my
| experience. I'm just a moderately experienced backend/infra
| person and VC backed startups would straight up tell me
| they can't compete when I told them what FAANGs had
| offered. We're talking well over 100k difference in TC, and
| a significant difference in cash, and that's not even
| accounting for liquidity.
| ghaff wrote:
| It's not just startups. The reality is that (as a
| developer or certain other types of positions) if you can
| get a job at one of these companies and are OK with
| working for them, especially in SV, no one else outside
| of _maybe_ finance for certain skills is going to
| seriously salary match. Some people are less concerned
| about the money but many are indeed focused on maximizing
| their comp.
| marcinzm wrote:
| The cash difference (RSUs are cash) between startups and
| FAANG is something like $200k+/year if you're moderately
| senior. That goes up if you're lucky or good enough to get
| promoted further within FAANG. Startups tend to cap
| compensation for ICs pretty heavily. That's a lot of money
| to give up.
| bob33212 wrote:
| A startup makes sense if you are looking to do something
| different or to expand you skillset. Working at a major
| corporation can feel stifling over time. The important thing
| to understand that there is almost 0% chance that your "1-4%"
| ownership will ever be more than 6 figures.
| TuringNYC wrote:
| And that is if you even have 1-4%. It is common to get
| 5,000 or 10,000 or some other amount of options/shares
| _while having now access to the cap table_ -- you know the
| numerator but not the denominator and no details on
| preference.
|
| The only realistic value to assign is zero.
| pc86 wrote:
| Almost a 0% chance it will be worth anything more than $0
| and, maybe, a good story.
| ericd wrote:
| This is a commonly repeated trope, I guess it's to
| inoculate people from being "suckered in", but it hasn't
| been true from what I've seen, having lots of friends
| involved startups. Even "failing" startups frequently get
| acquihired for non-trivial amounts per person, and since
| the point of that is to get the people, those amounts
| typically go to retaining the people. And many of the
| people I've known have done really well by employee
| equity, a couple with multiple 7 figure payoffs, some
| with instant retirement amounts, a couple with serious
| maybe-I-buy-a-jet megawealth.
|
| It's not guaranteed like a FAANG salary (which actually
| isn't completely, the past few years have seen great
| stock appreciation), usually it takes a few rolls of the
| dice, but it's just not accurate to describe it as a
| definite 0. Startup selection ability pays a serious role
| here, I've seen people whose picks I shake my head at
| consistently, and some people who can home in on
| successful ones like heatseeking missiles. If you're the
| type to take the story of a business person about lofty
| valuations and prospects at face value, though, you're
| probably going to have a bad time and end up bitter and
| talking about how bad a deal startups are on the
| internet.
| TuringNYC wrote:
| Selecting at random, i'd disagree with you. Selecting
| with loaded dice sounds intriguing. Can you please share
| some high level selection criteria to evaluate potential
| startup employers? The only one i follow is repeat-
| founder-previous-exit.
| ericd wrote:
| Like investing in companies, its not a list of hard and
| fast criteria. You have to ask yourself if you could
| reasonably see this company being huge ($10B+) - do they
| have a great product? Does this have an aha! feel like
| Stripe and Dropbox did at their public launches? Do the
| founders really understand their market well? What are
| the risks - is this a hardware startup in a totally new
| market? Is the market saturated? How do people feel about
| the existing products? And do the founders respect you
| enough to share cap table/preference overhang, the
| percentage your equity stake represents, and growth
| metrics? Also, value your equity stake at the current
| valuation, not a future one - the current valuation
| already has the expected future growth priced in. What is
| that equity grant worth per year that it vests? Do you
| need a larger grant to make it worth the salary disparity
| vs your other offers?
|
| But basically, you really need to do your homework and
| treat it like you're making an investment.
| TuringNYC wrote:
| Thanks for the detail.
|
| For everyone else, the last point is _CRUCIAL_
|
| > treat it like you're making an investment
|
| Remember, if you are giving up a market total-comp
| package (e.g., 200 or 300k+) for a below-market startup
| package -- you are literally investing the difference.
| Treat the difference as an investment.
|
| Also keep in mind, unlike public stock or real estate
| investments this major, you also often have no visibility
| into financials -- discount for that.
|
| You also cant sell when you may need to -- discount for
| that also.
|
| Unlike a property or stocks, you dont get interim
| dividends/yield -- discount for that also.
|
| You may also be forced to invest heavily or forgo stock
| if you leave the company -- discount for that.
| bob33212 wrote:
| You may have different goals than the investors or owners
| of the company. Maybe you are happy to sell if that means
| you get 5M, but the investors are looking to add a
| "Unicorn" to their resume. They are willing to risk your
| 5M for that, and you don't get a say.
| hn_throwaway_99 wrote:
| Agreed, but that's why my argument is that if you have the
| chance to work at a FAANG, work there _first_ , then you
| can easily afford to take time off and do whatever you want
| after a few years.
| mooreds wrote:
| > Of course, not everyone can get an offer at a FAANG
|
| Note that this is true for many reasons, not all of which are
| related to technical ability. Not everyone should try to get
| a FAANG job, either.
|
| Factors candidates may consider:
|
| * how much time they want to spend interviewing/prepping
|
| * what their previous experience has been
|
| * where they went to school
|
| * where they are willing to live
|
| * what type of work they like to do
|
| * what type of organizations they enjoy being part of
| (largeco, smallco)
|
| * how much control they want over their work
|
| * what kind of impact they want to have
|
| * how much they want to learn (and what type of knowledge--
| general vs specific)
|
| In addition to salary, all of these play a role in
| determining whether a startup, small biz, other software
| company or FAANG make sense for an individual.
| Aperocky wrote:
| I think it really depends on where in FAANG, or even in the
| same company.
|
| My experience in the one of them has been the opposite of
| what some of the bullet points implies, or at least in a
| 'positive' direction.
| hn_throwaway_99 wrote:
| But I'm making the argument that most of the bullet points
| in your list make no sense to consider because the
| remuneration at FAANGs is usually _so_ much more, and that
| money would then give you the freedom to do what you want.
|
| I mean "how much time they want to spend
| interviewing/prepping"?? If a FAANG will average 2-3x
| payout, it would be insane not to be willing to prep for
| literally months if that made the difference between
| getting a job and not.
| vidarh wrote:
| Money isn't everything. I've turned down interview
| opportunities at both Facebook and Google because the
| roles on offer were not roles I was interested in doing.
| In the past I've broken off Google's interview process
| because the glacial pace they were moving at just was not
| worth it to me.
|
| I earn well, so granted I'm not turning down as much as
| some would, but to drag out a tired old saying, I work to
| live, I don't live to work. I have plenty of things I
| want to do - some of them I can do in the right job, many
| I can't.
|
| Of course one of the luxuries of already earning well is
| that the multiple of my current salary it'd take to
| convince me to take a job I don't actively love the sound
| of is far higher that it otherwise would be.
| freewilly1040 wrote:
| I think the parent was mostly aimed at "how much time
| they want to spend interviewing", which is an outlier on
| that list. It's trivial relative to the others.
| t0astbread wrote:
| I think it always makes sense to consider everything,
| even if you're not gonna weigh your considerations
| equally because you might discover something that renders
| the offer unacceptable to you. If you're really _just_
| after high payouts and nothing else, was going into IT
| even the best choice to begin with?
| TomVDB wrote:
| > If you're really just after high payouts and nothing
| else, was going into IT even the best choice to begin
| with?
|
| I don't know many other professions where high salaries
| are pretty much a given, without cutthroat competition
| among your peers?
|
| You can get high payouts building a company, becoming a
| top lawyer or medical professional, but the investment in
| time, effort, and money is much higher, and the chances
| of success are lower.
| mooreds wrote:
| Is someone making 450k in SV (renting a home, commuting
| hours each way, having to fly to see family) really
| living a better life than someone making 150k in, say
| Birmingham? Where they could work from home, live close
| to family, have a bike commute?
|
| It's not for me (or you) to decide for others, however :)
| . I just think there are many more dimensions than raw
| salary to consider. You could work like a dog for 5 years
| at a FAANG, make a ton of money, and die just after you
| retire. It's all weighing the risks and rewards and there
| isn't a formula for that.
|
| BTW yes, 2-3 months of free time to prep may not be worth
| it given:
|
| * one will miss/sacrifice other aspects of life
|
| * one may not get the job. Nothing's guaranteed, after
| all
|
| * the job may not be right even if they get it
| TuringNYC wrote:
| >> Is someone making 450k in SV (renting a home,
| commuting hours each way, having to fly to see family)
| really living a better life than someone making 150k in,
| say Birmingham? Where they could work from home, live
| close to family, have a bike commute?
|
| You are presenting a theoretical ideal that is probably
| close to unattainable.
|
| - how many tech startups are in Birmingham?
|
| - how many VCs would be OK funding a startup in
| Birmingham? I know we're in COVID era now, but how long
| before VCs again start telling you to move to SF/SV (or
| perhaps NY)
|
| - how many 150k salaried tech startup jobs are in
| Birmingham? I'd estimate in the single digits, probably
| zero.
| realbarack wrote:
| I won't weigh in on your "is it better" question, but if
| you make 450k a year in the Bay Area you definitely do
| not need to commute hours each way and you can probably
| afford to buy a home if you want.
| mooreds wrote:
| Fair point! I've never seriously considered living in the
| bay area so I don't know the full cost of living.
| Appreciate the context.
| sologoub wrote:
| That REALLY depends on the details of the hypothetical
| persons situation.
|
| EDIT: looks like copy/paste deleted some of the post,
| adding back:
|
| $450k is likely $200k base, $40k bonus and $210k RSU
| (source levels.FYI). Most lenders won't touch RSUs unless
| you had 2+ years at the same income level and even then
| they don't like it. So taking 45% DTI (debt to income)
| ratio of base + bonus nets $9000 payment (principle +
| interest + taxes + insurance) and translates into $2mil
| purchase price assuming the hypothetical person also has
| $400k downpayment and reserves. That price point gets
| something like this:
|
| https://www.redfin.com/CA/Mountain-View/2507-Alvin-
| St-94043/...? (3/1.5 1500 sqft 5800 sqft lot)
|
| Let's say RSUs take care of savings/extras.
|
| Schools don't look great for this house. This is where
| commute comes into play - you can trade long commute for
| more house and better schools.
|
| Unfortunately, the geographical reality of Bay Area mean
| that there isn't a lot of middle ground between short
| commute/lots of cost/other trade-offs or very long
| commute, but better everything else.
| rhizome wrote:
| FWIW, if you scroll down you'll see the median price in
| that neighborhood is $1.5MM, which'll bring it down to
| about a $6K house payment. Easily doable at your salary
| estimates unless the buyer has a crippling candle
| addiction, and there's lots of wiggle room for location
| between $1.5-2MM if the buyer wants schools or anything
| more than proximity to work.
| sologoub wrote:
| That median includes condos, which won't be doable for
| families.
|
| If you want a house, median is above $2M:
| https://sanjoserealestatelosgatoshomes.com/mountain-view-
| ca-...
|
| Another thing to consider is that housing stock in
| Mountain View is very old on average, so the $2M price
| point doesn't get you a mansion, but rather a very modest
| house (especially when considering that we are talking
| about TWO MILLION DOLLARS after all)
| TomVDB wrote:
| Somebody who makes $450k can easily buy a home in the Bay
| Area that's close to any FAANG campus, and bike to work,
| and in many cases, not work like a dog.
|
| (A $1.5M mortgage is around $6k per month today.)
|
| And at the end of the year, even if what's left over in
| terms of percentage of income is the same (and it's
| usually not, because many COL expenses don't scale
| linearly with the cost of housing), you end up with more
| in the bank to send your kid to college or to retire.
| marcinzm wrote:
| >commuting hours each way
|
| At that salary you're looking at probably a 15 minute
| commute. By bike even if your office isn't in SF itself
| or you don't mind the hills. It's the startup employees
| in the bay area that don't have the money to live closer
| or have their own places.
|
| >You could work like a dog for 5 years at a FAANG
|
| From what I've found, startups and non-tech companies
| work you a lot more than FAANG especially if you're not
| looking for fast promotion in FAANG.
| sequoia wrote:
| you probably aren't making 150k in Birmingham, at least
| most people are not (even skilled programmers)
| 0xffff2 wrote:
| Most people aren't making 450k in SV either.
| fred_is_fred wrote:
| "where they are willing to live" is key. 400-500k a year
| still isn't enough for me to want to raise a family in SF.
| ineedasername wrote:
| _where they went to school_
|
| I know for a while the rumors were basically that if you
| hadn't gone to a place like Stanford, you weren't getting a
| job, at least at Google (Maybe Facebook too?)
|
| Is this still the case? (Was it ever the case, or were
| things a more flexible?)
| arc0 wrote:
| It's absolutely not true, these companies have tens of
| thousands of developers, there aren't enough graduates
| from top universities for that to be the bar. That was
| maybe the case 15 years ago.
| kleinsch wrote:
| If you're a new college grad, it's definitely easier
| coming from those schools. It's also almost impossible to
| get a FTE job after college without interning, and they
| recruit heavily from the top schools.
|
| If you have experience already, where you went to school
| gets dramatically less important the more experience you
| have. I went to a decent (but definitely not top tier)
| state school and have 15 years experience, had no trouble
| getting interviews at FAANG companies and passed
| interviews at a few.
| unishark wrote:
| Are you counting the FAANG stock performance of the last few
| years as part of that "no risk" alternative? Because that's
| hindsight. Stock is always a risk (apart from same-day sales,
| which only net a small percentage and may be blacked out).
|
| And you're kinda simultaneously arguing it's a good outcome
| and a bad one, in both cases the reason is the founder owned
| most of it. The net is that it's a mediocre outcome, just
| that in this case one guy did ok. If you can get nine other
| people to contribute towards building up your side project to
| sell for an average market price of the technology and
| business, you can get more, sure. But it's not "successful
| startup" more.
| gumby wrote:
| > Of course, not everyone can get an offer at a FAANG, but
| again, if you could get an offer, startups basically never
| make sense anymore. You almost always will get more even if
| the startup hits, which is rare.
|
| Of course plenty of people _prefer_ to work at startups
| because the environment is more fun and you have direct
| influence on what ships and often direct contact with
| customers.
|
| Remember when Google suddenly gave an across-the-board 10%
| raise to every employee to try to stave off defections to
| startups? Sure, there are certain jobs that are fun
| (depending on your interests) and of course it's easy to find
| "phone it in" positions at FB and Google, but most of my
| friends avoid FAANG or are glad they left.
|
| Once your comp hits $X there's more to life than money.
| kmonsen wrote:
| It was a 25% raise across the board. Some of that was
| converting potential bonus into salary, but still that was
| a good day.
| caffeine wrote:
| Why are you making moral judgements on a business decision? The
| investors didn't HAVE to take a write down, they chose to. The
| early employees didn't HAVE to join this company, they chose
| to.
|
| Why do you deem it immoral for a founder to do what is best for
| himself within the bounds of the agreements he has made?
|
| This kind of calling-out is common in HN and quite distasteful.
| Comments like this all amount to saying "X is immoral because
| they refused to give a charitable donation to Y". Charity is
| not a moral requirement and arguably it's not even a moral
| good.
| matthewmacleod wrote:
| We all make moral judgements like this all the time, and it's
| totally normal to do so. Morality isn't defined by what is
| legally permissible; it's possible to be simultaneously
| entirely compliant with your legal obligations, and an
| absolute raging arsehole who has acted in an immoral manner.
| imgabe wrote:
| It's not that it's _legally_ permissible, it 's that it's
| within bounds of what all parties agreed to.
|
| If I agree to sell you my car for $5,000 then you show up
| with the money and give it to me and take the car, I don't
| get to change my mind later and get mad that you didn't
| give me more and call you immoral.
| Jochim wrote:
| For startup employees it's more like they agree to help
| fix a car you intend to sell in return for payment and a
| take in the profits of the sale.
|
| A lot of startup exits seem to take the form of you then
| selling the car to someone for a break even amount, who
| just happens to also pay you individually an extra $5,000
| on the side.
|
| Is it a good deal for you? Yes. Is it a scummy move? Yes.
| coward8675309 wrote:
| The reality is that many startup employees may have
| stacked Stanford STEM degrees yadda yadda yadda, but they
| can't do basic math, don't have a good intuitive grasp of
| probability, have outlandish expectations, and/or don't
| ask clarifying questions about the cap table.
|
| One of my startups sold for about $25-40MM depending on
| whether you count pre- or post-earnout. The typical
| engineer got maybe a quarter of a percent of options on
| common stock. You'd think that would net out to $62.5K
| but we had a messy cap table. Various investments'
| preferred status ate deeply into what remained for common
| stockholders.
|
| Even if there were no cap table issues, the engineers
| wouldn't have been happy, because they hung their hopes
| and dreams on a multi-hundred-million dollar exit. We
| experienced 90%+ engineer turnover over the next six
| months. (We got by just fine.)
|
| Rule of thumb: do not join a startup for the money.
| ericd wrote:
| And startups should really be upfront about those cap
| table details with those employees, especially if there's
| >1x preference on some of the investment, or other
| unusual issues.
| Jochim wrote:
| Agreed on not joining a startup for the money. Although
| it seems like a lot of damage has been done in setting a
| cultural expectation that joining a startup early will
| see you become a multi-millionaire, to the benefit of
| startups everywhere I suppose.
|
| Correct me if I'm wrong here, but isn't another major
| issue faced by early employees that the math might look
| good when they join the company, but further rounds
| dilute their stake so much that it becomes meaningless?
| coward8675309 wrote:
| Yes, though the expression "an up round is an up round"
| has a lot of truth to it. Dilution is important if you
| care about control, but as long as the stock is worth
| more on a per-share basis, you're doing better.
|
| The problem is when people anchor their calculations
| about their future lottery winnings to the current float.
|
| I try to tamp down expectations when I'm hiring by trying
| to sketch out a wide range of plausible scenarios
| (basically the Drake Equation for startups) but I'm going
| to go out on a limb and guess that a lot of hiring
| managers and HR departments set new hires up for
| disappointment by not throwing cold water on their very
| optimistic math.
| dasudasu wrote:
| Savvy investors include non-dilutive clauses when they
| know money needs to be raised, but good luck trying to
| negotiate this as an employee. It's also not too bad if
| the dilution occurs at increasingly higher share
| valuations and help compound growth (see TSLA).
| matthewmacleod wrote:
| _I don 't get to change my mind later and get mad that
| you didn't give me more and call you immoral._
|
| But on the other hand, if you'd agreed to sell me your
| car at a price under what you might be able to get
| elsewhere--maybe because I was financially struggling and
| you were doing me a friendly favour--you'd probably be
| pretty miffed if I won the lottery and still demanded you
| stick to your offer...
| imgabe wrote:
| If I were miffed, I could rescind the offer or ask for
| more. Just like the investors could have demanded their
| money back if they wanted too.
|
| They chose not to, which would seem to indicate they
| weren't miffed. Nobody forced them to do anything. It's
| not immoral to ask someone for an accommodation and
| accept it.
|
| The investors didn't give him the money as a friendly
| favor to help him it out. It was an investment.
| Presumably they make a lot of them and understand the
| risks involved in doing so. If you're going to get hurt
| feelings whenever one of your investments doesn't pay
| off, you're not cut out to be an investor.
| [deleted]
| maxniederhofer wrote:
| Arguably charity is the primary moral requirement.
| remote_phone wrote:
| The founder couldn't have done anything without his
| employees. And yet he takes $3.7M, leaving almost nothing for
| his employees. It certainly sounds like the employees got
| royally fucked and he got the lion's share of the payout.
| samtp wrote:
| > Why are you making moral judgements on a business decision?
|
| On what planet are "business decisions" not bound to moral
| judgements? That's one of the craziest things I've ever
| heard.
| t0astbread wrote:
| Can you elaborate how charity is not a moral good?
| caffeine wrote:
| In this case, charity would distort incentives by softening
| the outcome of bad decision-making.
|
| Each of those employees signed up for a salary and equity.
|
| That equity turned out to be of very little value to them
| in the end, probably less than they were hoping for.
|
| If they all got paid out anyway, they would not have
| learned that small equity stakes can turn out meaningless,
| and that exits are way less profitable for employees then
| founders.
|
| Some of these employees might now go on to be founders
| because they learned the dangers of working hard on
| something in which there is no equity. In the end they
| might create something of massive value, which the world
| never would have had if they simply benefited from charity.
|
| I think the lesson of this exit is also more valuable for
| all HN readers than it would've been if he had just paid
| out the employees, for the same reasons.
| t0astbread wrote:
| This comment should be seen as unrelated to the
| Baremetrics case (because I don't know the employees'
| POV).
|
| I think I understand your reasoning but I don't agree
| with it. It implies that workers don't already know
| they're in a much worse position compared to
| founders/business owners when it comes to acquisitions.
| Generally it suggests that workers "learn" through pain
| until they become founders. Which might apply to some
| people but certainly isn't the case for everyone, let
| alone a good reason to treat your workers badly. I much
| more agree with the sibling comment by Jochim.
| Jochim wrote:
| A counterexample I'd offer is that upon being treated
| charitably those employees could then be incentivised to
| use that windfall to pursue their own ideas, seeing the
| success of their founder benefactor and being empowered
| with a financial cushion they would not have otherwise
| had.
|
| They might then go on to create something of massive
| value which the world never would have had if they simply
| did not have the financial means to do so.
|
| Remembering the "charity" they received in helping build
| the business that enabled them to succeed as founders
| they then pass that same "charity" on to their own
| employees upon a successful exit, kickstarting a cycle of
| innovation that spreads much farther.
|
| There's an argument that "that's not the way the world
| is" but the world is as compassionate or dispassionate as
| we make it. Personally I'd like to see it move towards a
| point where taking everything just because you can isn't
| viewed as acceptable.
| fairity wrote:
| > Personally I'd like to see it move towards a point
| where taking everything just because you can isn't viewed
| as acceptable.
|
| It's not clear to me what you're actually suggesting.
|
| You think that when someone takes more than they need,
| they deserve to be shamed? How do you determine how much
| one can take?
|
| We all want the world to be more loving and
| compassionate, but rules and financial incentives drive
| productivity in our economy. If the financial incentive
| to start a company is reduced, there will necessarily be
| a cost to innovation.
|
| Imo, the goal should be creating a system where the rules
| are fair and clearly outlined. The rules and incentives
| for employment were very clearly outlined in the
| employment contract these people signed. And, the founder
| does not seem to be the type of person who over-promises.
| So, I see nothing wrong here.
| Jochim wrote:
| > "This kind of calling-out is common in HN and quite
| distasteful."
|
| Frankly there's nothing distateful about recognising that in
| a hierarchical system such as a corporation those higher up
| the tree have a duty of responsibility to protect the
| interests of those below them.
|
| Quite how modern capitalists have managed to convince people
| that this shouldn't be the case I'm not quite sure, but the
| results are hostile to a functioning society.
| rocqua wrote:
| Did the early employees expect a big payout? Not everyone takes
| equity when they start a company. If they do not have equity,
| then they did not get screwed.
| polote wrote:
| > And it sounds like the early employees get nothing, other
| than not getting fired immediately.
|
| Why early employees should get anything from an acquisition ?
| If they don't have stocks, they shouldn't, that's how it works,
| a company belongs to its shareholders, not its employees.
| kgog wrote:
| > As part of the structure of the deal, Xenon guaranteed I'd take
| home $3.7m, regardless of what came up during due diligence.
|
| I have never seen this before. Guaranteed outcome regardless of
| DD. Is this an outlier company?
| ponker wrote:
| Extremely gross that he pocketed $3.7m but asked his investors to
| walk away from their $800K, because he needed to meet his
| financial "goals."
|
| This is the flipside of all of the VC deals that completely fuck
| over the founders.
| sequoia wrote:
| Do you imagine the VCs had to sell all their clothes and are
| now walking around wearing barrels held up by leather straps,
| before they retire for the evening to a cardboard box over a
| steam vent? You really think they had to cut back their Dom
| Perignon budget over this loss? Do you think they were
| "strongarmed" by this investor?
|
| There is what is _for them_ a teeny tiny pie, and rather than
| demanding their small slice back they said "you know what? Go
| ahead without us. Bon Appetit :)"
| ponker wrote:
| If I stole your TV you likely wouldn't be moving into a
| cardboard box either. Does that make it ok?
| sequoia wrote:
| If you borrowed my TV and later I said "you can keep it"
| that would make it OK, yes.
| pm90 wrote:
| > also realized that the same people who are good at starting
| companies aren't always the same people who are good at growing
| or managing them. The company itself has so much more potential
| than I have the ability or interest in offering and on top of
| that, I just wasn't enjoying myself anymore.
|
| I thought this was a key insight, and I'm happy the author is
| frank about it. Some people enjoy building things from scratch,
| others enjoy taking a good idea and scaling it. IMO, both are
| hard problems and its good that he bailed before trying to go
| down that route.
| xyst wrote:
| Interesting "journey", but as I was reading I can't get over how
| similar this site looks to Stripe's old UI. From the color scheme
| to the icons for each product in the menu bar, it's almost a 1:1
| copy.
| mikeg8 wrote:
| Originally (we used Barmetrics in 2014-15), it was marketed as
| more of an analytics tool for Stripe. I think designing to
| mirror strip was intentional early on, and worked well enough
| to not change over the years.
| rjyoungling wrote:
| Losing so much respect for people, reading some of the
| comments...
| [deleted]
| simonebrunozzi wrote:
| 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.
| brettcvz wrote:
| 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.
| andymboyle wrote:
| 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.
| a_band wrote:
| I've had a similar experience with Jonathan. He's one of the
| most founder-friendly people in the VC industry.
| itsderek23 wrote:
| +1. Jonathan is great to work with if you are in a similar
| position as Baremetrics.
| maxekman wrote:
| Really cool to see the details of the sale presented in the first
| paragraph. I wish more companies would be similarly transparent,
| even for running metrics about ARR etc.
| tinyhouse wrote:
| 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?
| bingdig wrote:
| 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.
|
| https://www.investopedia.com/terms/q/qsbs-qualified-small-bu...
| tinyhouse wrote:
| Thanks for the info. That's pretty amazing.
| vmg1 wrote:
| thanks Josh for sharing this info
| mrisoli wrote:
| 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.
| skrebbel wrote:
| 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.
| codegeek wrote:
| 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.
| yibg wrote:
| 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.
| RedditKon wrote:
| 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.
| georgeecollins wrote:
| 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.
| tptacek wrote:
| 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).
| nrmitchi wrote:
| 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.
| smnscu wrote:
| 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.
| ayewo wrote:
| VC runs on relationships, at least this is true for top-
| drawer firms like Sequoia. In fact, early this year Sequoia
| gifted its original $21m investment in Finix Payments after
| it discovered new information that Finix could be a
| potential competitor to an existing portfolio company
| (Stripe).
|
| https://techcrunch.com/2020/03/09/sequoia-is-giving-
| away-21-...
| downandout wrote:
| 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.
| RedditKon wrote:
| 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.
| jariel wrote:
| "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.
| tptacek wrote:
| 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'.
| kjksf wrote:
| 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.
| jariel wrote:
| 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.
| tehlike wrote:
| 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.
| RedditKon wrote:
| 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.
| cbozeman wrote:
| 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.
| jariel wrote:
| "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.
| gabereiser wrote:
| 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.
| loceng wrote:
| 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.
| feral wrote:
| 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?
| dasudasu wrote:
| 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.
| ticmasta wrote:
| 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.
| andygcook wrote:
| 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.
| RedditKon wrote:
| 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.
| aaisola wrote:
| 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.
| CosmicShadow wrote:
| 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!
| RedditKon wrote:
| 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".
| hedgehog wrote:
| 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.
| adamzapasnik wrote:
| 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?
| TwoNineFive wrote:
| 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.
| arvidkahl wrote:
| 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.
| fairity wrote:
| 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!
| spatx wrote:
| 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.
| karimf wrote:
| Relevant tweet from the author:
|
| https://twitter.com/shpigford/status/1326162432989990912
| Sodman wrote:
| 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?
| Jochim wrote:
| 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.
| fairity wrote:
| > 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. You're welcome to
| criticize his actions, and he doesn't care nor does he
| care to engage. His goal is to promote transparency, and
| that's it.
|
| There's nothing inconsistent here. You can't expect every
| person to engage with your criticism. That takes a lot of
| time and effort, and he's under no obligation to do so.
| Jochim wrote:
| > 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.
| temp667 wrote:
| 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.
| ticmasta wrote:
| 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.
| coward8675309 wrote:
| 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.
| paganel wrote:
| > 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)
| xenocyon wrote:
| Right, the comment you are responding to appears to be
| conflating anarchism with cynicism (which is, ironically,
| a rather cynical take on anarchism).
| coward8675309 wrote:
| 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.
| postsantum wrote:
| Toxic has become a synonym of "I don't like that"
| draw_down wrote:
| What exactly are you taking issue with? Come on.
| randall wrote:
| 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.)
| TwoNineFive wrote:
| 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.
| zaroth wrote:
| 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.
| jcims wrote:
| 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.
| user5994461 wrote:
| 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.
| jcims wrote:
| 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.
| Jochim wrote:
| 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.
| vidarh wrote:
| 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.
| caffeine wrote:
| 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)
| gumby wrote:
| 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.
| caffeine wrote:
| 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.
| ticmasta wrote:
| 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.
| 1-more wrote:
| > Much like a gardener or builder who doesn't get paid out
| when the house gets sold
|
| We may also interrogate this arrangement.
| abuehrle wrote:
| Congrats! Sounds like a good outcome. From what I've read (my
| understanding may be wrong), using a revenue multiple at all for
| valuation is surprising for companies A) under $5M total
| valuation and B) with lower growth rates (looks like Baremetrics
| grew ~11% in the last 12 months). Can someone who knows better
| than I weigh in on the valuation math here (in general -- no one
| knows the exact details of this transaction, obviously). I'm not
| questioning it, but I am curious to get perspectives on this real
| world example.
| philjr wrote:
| The revenue multiple is probably not the metric they used to
| arrive at the valuation, but it's certainly a normalizer that
| people use to compare outcomes.
|
| Multiples of trailing 12 months net profit would be more common
| for a smaller entity.
| CPLX wrote:
| The part about the investors getting nothing while the founder
| gets millions is really interesting. How does something like that
| even happen?
| andygcook wrote:
| 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.
| robhunter wrote:
| 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.
| zackkatz wrote:
| 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?
| ceejayoz wrote:
| "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.
| lixtra wrote:
| It might make them more attractive to the next generation
| of founders, especially if it is widely communicated as
| here.
|
| Advertising money well spent?
| bluntfang wrote:
| tax loss harvesting
| dimmke wrote:
| 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.
| kenrose wrote:
| 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).
| [deleted]
| mooreds wrote:
| > 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.
| ceejayoz wrote:
| I really appreciate the lack of "our incredible journey"
| platitudes in here.
| asdasdad12313 wrote:
| It was a wild ride, but all journeys come to an end. Our
| customers and employees are our most valuable asset.
| a13n wrote:
| Why? Building a company is a journey.
| ceejayoz wrote:
| I'm referring to the trite overused cliches that often fill
| these sorts of blog posts.
|
| https://www.gyford.com/phil/writing/2013/02/27/our-
| incredibl...
|
| 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.
| fairity wrote:
| 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.
| GoRudy wrote:
| yep and good chance these two VCs are the first check in his
| next business in 24 months.
| taphangum wrote:
| Long term thinking.
|
| I can't think of a better advertisement for these VC's.
| Calculated or not, it is a great move
| sonofaragorn wrote:
| If letting go the $800k was purely PR, then that's some
| expensive PR. Who reads these blogs, a couple thousand people
| maybe?
| fairity wrote:
| Think about it this way.
|
| If they do this 10 times, they will establish a well-known
| reputation for being founder friendly. This costs $8M.
|
| They are investing $1B over all their funds.
|
| Will having a founder-friendly reputation increase the
| likelihood they invest in a unicorn by 0.8%?
| exolymph wrote:
| 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.
| victop wrote:
| > This (No time-based or performance-based earnout) was the
| greatest limiting factor on acquistion price.
|
| For those who have gone through an acquisition, how much more
| Josh could have netted if he accepted to stay 2-4 years?
| gkoberger wrote:
| Depends on a lot of factors, but probably not much more.
|
| The company could have potentially netted more overall, but I'd
| say Josh's take would remain about the same. If nothing else,
| he'd take on a lot of risk... the potential package could seem
| higher, but a lot can go wrong over 2-4 years (both personally
| and with the acquiring company).
| pier25 wrote:
| > _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?
| user5994461 wrote:
| 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.
| IshKebab wrote:
| 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.
| cercatrova wrote:
| 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.
| Aperocky wrote:
| $800K is not worth the effort of collection, welcome to the
| world of venture capitalism.
| cj wrote:
| > 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...
| part1of2 wrote:
| This is what I came here to find. Thanks!
| exolymph wrote:
| > 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.
| matthewowen wrote:
| 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.
| fred_is_fred wrote:
| Oh I didn't connect the dots that this is the "job hopper twitter
| guy". As someone who's last 4 companies have been acquired - I
| found him to be extremely frustrating to follow.
| ianhawes wrote:
| >What I walk away with: $3,700,000 in cash
|
| >practically speaking, never need to work again
|
| Yikes, does someone want to tell him?
| mtlynch wrote:
| A $3.7M windfall is enough for most Americans to never work
| again.
|
| Assuming he keeps ~$3M after taxes and can earn a conservative
| return of 4%/yr in investments, that's $120k/yr just from his
| investments. Many Americans live on far less. Also, he lives in
| Alabama, where cost of living is quite low.
| andygcook wrote:
| It's highly likely he gets to keep all or most of the $3.7M
| under the Qualified Small Business Stock (QSBS) tax
| exemption.
| simonebrunozzi wrote:
| Exactly. He will only pay state tax in Alabama on the
| capital gain. I think it's in the range of 3% to 4%, but I
| might be mistaken.
|
| For reference, in California it is ~10%.
| steve-benjamins wrote:
| You seem pretty sure of yourself-- you must know his existing
| savings and cost of living?
| Lionga wrote:
| In most places of the world 20% of that are enough never
| needing to work again.
| [deleted]
| ec_developer wrote:
| Invest in stocks that pay dividends. Get a 3-4% annual return.
| Move to Spain/Greece/Portugal. Enjoy life.
| [deleted]
| KMnO4 wrote:
| Let's say you work for a respectable $80k/year (more than
| enough to live comfortably in most of the world). If you get
| the job at 25 and retire at 65, that's $3.2m.
|
| So yes, he can retire for life.
| bluedevil2k wrote:
| I'm with OP - $3.7M seems like a lot, but it really isn't
| enough to retire on. I assume he'll need to pay taxes on that,
| a 20% long-term capital gains tax. Brings it down to about $3M.
| Being generous and giving him 3.5% return (real return) a year
| in fixed income, that's only $105,000 a year in income, which
| he'll need to pay taxes on as well. He'll net out around $85k a
| year.
| LandR wrote:
| $85k a year is surely enough to live off without working?
|
| I'm in the UK, if I could earn a guaranteed PS40k a year
| without working I'd be set for life and would have a pretty
| great life! That's would give me close to twice the national
| average salary.
|
| PS80k a year would put you into the tiny percent of top
| earners.
| bluedevil2k wrote:
| Don't forget in America he needs to spend $12k a year on
| health care. And that's like a minimum, last time I checked
| Obamacare, those kind of plans had $8-10k max out of pocket
| too.
| M2Ys4U wrote:
| So even with health insurance deducted, that still works
| out, with current exchange rates, at PS63k, which is
| quite a high income - 95th percentile in the UK income
| distribution _after_ tax.
| boyband6666 wrote:
| I agree it is plenty but remembering it is a household
| income I suspect, so yes is a very nice life, without being
| silly.
| cambalache wrote:
| I dont know how to tell you this, but 99% of the world
| population (and I am pretty sure at least 85-90% of
| Americans) WONT retire with anything even close to $3.7 MM.
| bluedevil2k wrote:
| He's NOT 85% of Americans, he's a tech entrepreneur who is
| capable of building and selling businesses with 7 figure
| exits. Personally I wouldn't want to retire on only $85k if
| I had that kind of potential. At that income you still need
| to budget for food and travel - I'd prefer a life where I
| can eat out when I want, hop a plane with my wife and go
| somewhere whenever I want. Retirement is about freedom!
| fortydegrees wrote:
| Even if he didn't earn any interest and never earned another
| penny, at an $85k/yr burn, that $3M will last 35 years. Seems
| alright?
| bluedevil2k wrote:
| What happens when he lives 36 years?
| ceejayoz wrote:
| > Even if he didn't earn any interest
|
| Hopefully he puts some of it in interest-earning stuff
| prior to that point.
| bluedevil2k wrote:
| That was more a rhetorical question. The real issue is
| you can't predict how long you'll live so it's not
| correct to say "draw it all down evenly over X years"
| ceejayoz wrote:
| It's probably a mistake to assume he'll never earn another
| penny in income outside this payment.
| bluedevil2k wrote:
| That's what retirement means and it's what he indicated in
| the story.
| ceejayoz wrote:
| That's not necessarily what retirement means, and it's
| not what he indicated in the story.
|
| > I don't have any specific plans for what I'll be doing
| next, other than not doing any kind of software _for a
| while_. I'm itching to create more tangible things,
| especially art and music, so I'll likely put a lot of
| effort in to exploring those things more.
|
| Nothing in there says the art/music can't make any money,
| nor does he rule out software again in the future. As he
| notes, "I absolutely love starting things..."
|
| Retirement frequently means something different for a
| 30-something CEO who just exited ("I don't _have_ to work
| ") versus a 70-something year old ("I'm done working").
| rpsw wrote:
| $85k budget a year without touching the $3m principal. I'd
| say he'd have a great chance of never needing to work again
| if he wishes, especially if he already has some retirement
| savings and/or assets such as housing.
| joshmanders wrote:
| > Yikes, does someone want to tell him?
|
| Someone should tell you that $85k/yr NET is top earnings in
| some parts of the country.
|
| Average household income in my state is $50k/yr.
| isseu wrote:
| He lives in Alabama
| simonswords82 wrote:
| Tell him what?
| maxlamb wrote:
| what, that's it's not enough? Sure if you plan on living in the
| Bay Area for the rest of your life but in most other places
| it's definitely true.
| dmje wrote:
| I have no knowledge about how to consider the acquisition
| details, but MAN the energy of this guy. It's formidable.
| ccmcarey wrote:
| 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.
| alextheparrot wrote:
| 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.
| JackFr wrote:
| > 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.
| Aperocky wrote:
| 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.
| swyx wrote:
| if you read between the lines he is definitely going to
| start something again. some people cannot just sit on
| their hands.
| ianmobbs wrote:
| If you read the actual lines, he said he's moving away
| from software and into the arts
| lollmao wrote:
| Read again, it says "for a while". Also, he doesn't want
| to have to do it out of financial necessity.
| fourseventy wrote:
| A 4 million dollar exit is a failure for investors. They don't
| care about returns of a few hundred thousand dollars.
| franciscomello wrote:
| 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.
| treis wrote:
| 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.
| mikepurvis wrote:
| And they probably have "write it off" as a very well
| lubricated standard procedure costing them as little as
| possible.
| gumby wrote:
| > 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.
| mbesto wrote:
| 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.
| dman7 wrote:
| 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.
| eli wrote:
| 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.
| nebulous1 wrote:
| 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.
| pedalpete wrote:
| 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.
| theorg wrote:
| 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).
| mxpxrocks10 wrote:
| hey Josh - just want to throw it out there that we love
| baremetrics.
| 02thoeva wrote:
| Congratulations on the sale and thanks for sharing. Very
| interesting for someone who's probably a few years behind you.
| alex_c wrote:
| 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...
| cj wrote:
| 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).
|
| Edit:
|
| > 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
| csomar wrote:
| 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.
| alex_c wrote:
| Ahh good find, and according to CrunchBase that Stripe fund
| was $10M total.
|
| That makes a bit more sense now.
| PeterisP wrote:
| 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.
| deckard1 wrote:
| Maybe I'm hopelessly naive here, but $4M cash @ 2.65 ARR, so
| ~$1.5M ARR. Isn't that a bit low for SaaS at 7 years? Then there
| is the mention of running at breakeven most of that time. There
| are solo founder SaaS businesses making more than that with 80%+
| margins. As others have mentioned, you'd be better off working at
| a FAANG.
|
| So, did something go wrong here? What is it about this analytics
| business that makes it so expensive to operate? Were all the
| employees necessary? Was the pricing or marketing wrong? Or is
| this just the reality of most SaaS?
|
| I gotta say, this really puts a damper on what I always thought
| was a fairly lucrative business model, if you could make it past
| the early bootstrap/product-market-fit period.
| jaredhansen wrote:
| >~$1.5M ARR. Isn't that a bit low for SaaS at 7 years?
|
| The median and modal ARR for SaaS businesses 7 years after
| founding is zero.
| deckard1 wrote:
| Of course. The vast majority of all businesses fail. That's
| not what I'm asking. No one gets into business to just
| breakeven after 7 years. Most people are looking at this as a
| success story when it just seems like Xenon and their other
| investor that took a loss were doing them a favor.
| jariel wrote:
| The bit about $3.7M seems really odd - how is that even legal?
|
| Conrad Black literally went to jail for selling newspapers and
| taking a personal commission on the side. [1]
|
| When you're selling company value, but taking the money yourself
| in the form of some kind of arbitrary comp, that's defrauding
| investors, it's a form of embezzlement.
|
| That the investors 'didn't care' is fine, but I don't see how it
| could have been arranged in the first place - the acquirer does
| not get to decide how much the 'founder' is going to get.
|
| Also - the $800K write off seems odd. A million dollars is not
| nothing, and there would definitely not have been $800K in
| lawyers fees, far from it.
|
| Something here doesn't seem quite right.
|
| Also - folks - if he is negotiating comp outside of share value,
| that's not only hosing the investors - but any employee equity as
| well.
|
| A small team where some other guy has 5% of the company, that's
| $150, not a lot, but not nothing. If the package was dealt
| outside of equity, those equity holders were screwed, if in fact
| there were other shareholders/equity holders.
|
| [1] http://news.bbc.co.uk/2/hi/business/6897991.stm
| borvo wrote:
| Congratulations on reaching an exit and good luck with the next
| venture!
| tiffanyh wrote:
| 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.
| adamzapasnik wrote:
| He said it in an another comment; to employees.
| [deleted]
| [deleted]
| simook wrote:
| Amazing
| g3houdini wrote:
| I support Josh and his healthy approach to showing others what is
| possible when you share and contribute to the internet.
| hiimtroymclure wrote:
| All I can is congrats and im jealous. This is the exit ive
| dreamed about
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