[HN Gopher] Boards are dangerous to founder/CEOs ___________________________________________________________________ Boards are dangerous to founder/CEOs Author : tosh Score : 423 points Date : 2021-11-23 16:50 UTC (6 hours ago) (HTM) web link (reactionwheel.net) (TXT) w3m dump (reactionwheel.net) | thrower123 wrote: | After all these years I still don't understand the rules about | replacing the real titles of articles with an editorialized | version | 4monthsaway wrote: | I like this article, nice to see this type of advice without all | the usual fluff | w0mbat wrote: | Surely the author meant, "Your Board of Directors Will Probably | Fire You', or some other statement that makes sense in English. | | I know the horrible grammar comes from the original article. | staunch wrote: | Selling equity is one thing. Selling control is another. | | When the founders have control, they're the leaders and directors | have to follow. When the directors have control, they lead and | the founders have to follow. | | Generally, founders are more successful leaders of their own | companies. | bluGill wrote: | > Generally, founders are more successful leaders of their own | companies. | | Is that just because bad companies remove their founders in a | last ditch effort to survive? Is that because bad founders can | screw the company before they are removed? | staunch wrote: | Founders are the ones with the experience, skills, and | knowledge to lead the companies they create. | | Generally, VCs are equity portfolio managers and not | qualified to lead a company. Even when they are successful | founders themselves, they're almost never the right people to | lead another founder's startup. | flenserboy wrote: | 1. Avoid going public if at all possible. 2. Avoid outside | investors if at all possible. 3. Avoid having a board if at all | possible. 4. Control the shares or the shares will control you. | szundi wrote: | Step one on this road: and you suddenly found a pendrive with | 100kpcs of BTC. | nowherebeen wrote: | > 1. Avoid going public if at all possible. | | This is basically what Bloomberg has done. Despite selling | financial terminals to bank traders, the company still hasn't | gone public after all these years. | novok wrote: | 5. Manipulate your employee's equity awards so that %99 of them | return them to you, eventually, because you're never going | public and thus your company equity is functionally worth $0. | bluGill wrote: | That isn't always good advice. Often the money from going | public is required to make it. You either go public, or someone | else will take your idea, go public and use the money from it | to eat your lunch and then you get nothing. | | Good ideas are easy. Unique good ideas are so rare as to be | non-existent. Nearly all good ideas are obvious to anyone who | knows the field and what can be done. | streetcat1 wrote: | The market today is so big that many competitors can live | side by side . At least in B2B. I mean there are hundreds of | CRM companies. | | You can have other companies eat your lunch. All you need is | to get into a default alive state. I.e. have 5-10K MRR. The | rest is nice to have. It should be possible in any billion | dollar market. | ChuckMcM wrote: | This is something you should really understand if you're starting | a company. The board isn't your "friend" while individual board | members may be, as an entity it probably isn't. The understanding | that individuals can be "good" and the composite can be "bad" is | usually encountered by most people when some government is doing | something "bad" but the people who live where that government is | in power are known to be "good." We see a lot of companies that | have "good" employees but act in a "bad" way as a company. | | So with that in mind, you have to understand that none of your | "friends" would fire you, but the "board of directors" (even if | composed of people you consider friends) could easily decide to | do that. | | Tom Lyon used to joke that it was only on your third startup that | you funded yourself that you are really in control. The wisdom of | that took a while to sink in for me. | anthropodie wrote: | "A group experience takes place on a lower level of | consciousness than the experience of an individual. This is due | to the fact that, when many people gather together to share one | common emotion, the total psyche emerging from the group is | below the level of the individual psyche. If it is a very large | group, the collective psyche will be more like the psyche of an | animal, which is the reason why the ethical attitude of large | organizations is always doubtful. The psychology of a large | crowd inevitably sinks to the level of mob psychology. If, | therefore, I have a so-called collective experience as a member | of a group, it takes place on a lower level of consciousness | than if I had the experience by myself alone." - Carl Jung | interroboink wrote: | While I do think there's something of value in the idea here, | boy do I find that quote unconvincing (: | | The second sentence essentially says "This is due to the fact | that that's how it is." I'm sure Jung has a larger context | and basis for these claims, but this quote just struck me as | super hand-wavy. | WastingMyTime89 wrote: | > I'm sure Jung has a larger context and basis for these | claims, but this quote just struck me as super hand-wavy. | | No, no, don't worry. Jung was already dismissed as | completely unscientific and not to be taken seriously while | alive. Sadly, psychology as a field mostly remains in a | dire state and still has to shed part of its let's | generously say less than rigorous past. | WastingMyTime89 wrote: | Of course, I invite readers to treat Carl Jung quotations as | having a credibility proportional to the amount of efforts he | made during his life to properly prove and establish the | facts he was enunciating: not much. | omginternets wrote: | Just because it isn't science doesn't mean it isn't true or | interesting. | polishdude20 wrote: | I wonder if this is a consequence of the shared qualities a | large group has. In a large group, there are lots of people | with different ideas. The only thing that is the most similar | between all of the people are their base animal instincts | because we are human. Thus, the base instincts are | accentuated in the group. | munificent wrote: | I intensely dislike the cynicism of this and other similar | statements. | | It's a truism of American culture that any group of people is | somehow stupider, meaner, and more hurtful than any of its | individual members. Yet our lived daily experience is that | often our most rewarding, beneficial, and joyful experiences | come when being a member of a group. | | I mean, we are a group _right here and right now in this | thread_ and I assume everyone participating still feels it is | a net positive for them to do so. The idea that _all_ groups | become bureaucracies, mobs, or totalitarian regimes is this | weird extreme perversion of American values. Call it toxic | individuality. | | I think a value-free and more accurate observation is that | emergent properties exist: a group can have observed | properties that are counter to the intentions of any of its | individual members. The aggregation process itself can be | dynamic, iterative, and complex in ways that break a simple | coupling between invidual intent and total outcome. | | This can be bad, when otherwise sane reasonable people get | riled up in a mob. Or it can be good, when a choir's tone | sounds more in key than any of its individual singers. It's | highly dependent on both the individual members and the | communication structure of the group. | mattkevan wrote: | "The intelligence of the creature known as a crowd, is the | square root of the number of people in it." | | - Terry Pratchett | lostcolony wrote: | Also Pratchett, and mathematically probably more accurate | (decreasing rather than increasing with the more people | added) - "the IQ of a mob is the IQ of its most stupid | member divided by the number of mobsters" | toxik wrote: | Jung's statement is much stronger, more akin to 1/sqrt(N). | ricksunny wrote: | So I think there's a lot to this composite phenomenon and I | wish it were studied explicitly. (Although I wouldn't | necessarily know), I'm not aware of social science / | organizational behavior research that dissects the difference | between an individual's behavior and a group's behavior that | they are a member of. Yes we know about peer pressure and | power dynamics (the Milgram experiment), but what are | situations when an org will do something that all its | constituent individuals would not but for fulfilling their | respective unique responsibilities in the organization? | [deleted] | WalterBright wrote: | Now, think about the wisdom of a democracy :-) | lifeisstillgood wrote: | we don't ask the mob as the mob. we get the mob to go into | a room one at a time and then ask | dcow wrote: | This is also why it's very very important for early employees | to have _their own_ lawyer review employment agreements. The | CEO may be your best buddy and may promise to never fuck your | over, but at a certain point they will report to the board and | no longer be in full control. You should be weary of promises | that simply cannot be kept. Your only option is to make the | employment agreement 100% explicit even if it costs the company | an extra round trip with legal. (Similar if a company offers to | have _their_ lawyers go over the employment agreement with you | to save you some $$... there 's an intense conflict of interest | here that I'm surprised is even allowed.) | szundi wrote: | As a CEO of a company, I think this is one of the most | important thoughts here. I was the owner too, hired a lady as | CEO, later I fired her. It was very tiresome for me to keep | wtf kind of promises she made just to maintain the | credibility of the company and not to alienate people. Of | course it payed out and I loved all the people, but boy... it | would have been much easier to just tell the people that | these are new times and those promises were against the | company or whatever - pretty sure lots of people would choose | the easier and cheaper way in "hard times". | | I told to directors in multinationals several times that we | have to sign this because it is not evident for their | eventual successors that it is in their best interest etc. | | Trust, but always be careful and assertive. | nabla9 wrote: | Good board needs to be able to act independently from the CEO. | One reason for bad corporate governance in America is boards | made from the friends of the CEO. | boringg wrote: | That's a high minded goal not really connected to the | minutiae of the situation. Also relates to larger companies | as opposed to early stage VC companies. | | Think about it from a founder perspective with a bit of | reality: who in their right minds would you hire an | antagonistic board for the high-minded goal of making | corporate governance in America better when you don't even | know if your company is going to make another year? | | People work for companies for three reasons: mission, people | or money. If you enjoy working with the people at your | company at least you have that covered. Most corporate | companies don't have a real mission people can get behind and | money is in the long run for founders. | lmeyerov wrote: | I'm mixed: Hard to have it both ways | | Tech grows big & fast, and a lot of today's problems can be | traced to VC-backed boards noping out of ethical | responsibilities. | | Startup board members are generally (rightfully) worried | about growth or survival, until that's on rails and by then | it's too late to fix the monster they've grown. | | Today's trends of founder friendliness, wide participation, | and big checks makes these trade-offs even more extreme. | Startups are so messy that the industry hasn't figured out | how to juggle it all yet, or even if the relevant | stakeholders even want it to. | rsweeney21 wrote: | I always thought stuff like this happened to OTHER founders, but | would never happen to me. But my board fired me six months after | closing our series A. | | The advice in this article is 100% spot on. I didn't know any of | this. I was totally focused on building my company. But if you | raise money you can't do that anymore. 50% of your time will | always be occupied with working on your next round of funding or | managing your board of directors. | | I noticed super early that VCs were not "helpful" at all like | they had claimed during the fundraising process. | | So I got fired, and I thought, "well, at least I still have my | founders stock!" | | Then a year after I got fired the series A investor led the next | round of funding and decided to value the company at $0, so I got | diluted by 99.99%. Sounds illegal, right? Well, it probably was, | but what am I going to do about it? They have billions of dollars | and I had no money. | | I just let it go and started something new - bootstrapping of | course. On the bright side, the new CEO ran the company into the | ground. Meanwhile my new company is doing well and I love my job. | | Anyway, do what this guy says to manage your board and just plan | on being fired at some point if you raise VC money. | mritchie712 wrote: | I've been doing a lot of research on debt as an alternative to | VC. A ton of options out there. Keeping notes here for anyone | interested https://www.trypaper.io/ | bluGill wrote: | It isn't unheard of for banks to get someone on your board as | part of the debt agreement. Though probably only in deals far | larger than anything in the VC range. | mritchie712 wrote: | Many of the debt players are realizing their advantage over | VC is lack of control over your company. For example, check | out https://timiacapital.com/. A lot of their marketing is | around "Retaining control" and "No warrants and no harsh | covenants". | martinald wrote: | It seems quite crazy that this hasn't happened earlier. | It seems to me most VC rounds are usually used to mostly | finance sales and marketing growth, which if they have a | positive RoI should really be debt, as that's the whole | point of it! | | Equity funding to me should be used less for that and | more for R&D and product development where the RoI is | harder to calculate, or may not exist at all. | engineeringwoke wrote: | What kind of competent investor does a debt deal that | doesn't place them higher in the cap structure? | cambel wrote: | Just be aware with debt there are other forcing functions at | play | mritchie712 wrote: | Absolutely. Just another option that's not talked about as | much, so I've been trying to shed some light on it. If want | capital without the "help" from VCs, there are options | there, but as you said, with different downsides (mainly | being on the hook for repayment). | option_greek wrote: | That's so sad but also super impressive. I'm not sure if you | are ready to but may we know your current and previous | startups. | soperj wrote: | Current start up is in their profile. | cambel wrote: | https://www.linkedin.com/in/rsweeney21/ | mindvirus wrote: | Super curious about this - aren't there laws about fiduciary | duty in most countries? | somerando7 wrote: | Question from someone uneducated on this topic: is it | impossible to get VC levels of investment without giving away | board seats? | | Is a board even required for private companies? | PragmaticPulp wrote: | The board seat is a part of the negotiation in larger rounds. | Depending on how much leverage the company has in the | negotiation, they can argue for a mutually agreeable 3rd | party board seat. In many cases this ends up being someone | favorable to the CEO, or at least less directly aligned with | the investors. | | Some companies have grown quite large with small boards. The | company will need a certain number of people to make up the | board, though, so it helps to start identifying such people | early. | kelnos wrote: | > _is it impossible to get VC levels of investment without | giving away board seats?_ | | Not impossible, but extremely difficult. You need to already | be successful to a degree that investors are fighting each | other to give you money, to the point where they will still | give you that money without asking for any amount of control | of or oversight over the company. Google[0] and Facebook | founders managed to do this (though not through board | composition, but through stock classification and voting | rights), but 99.9% of other founders will not have that kind | of clout. | | > _Is a board even required for private companies?_ | | I believe some state laws around incorporation require them, | but otherwise it's just a standard way of doing things that a | company will lay out in its charter/by-laws. You're going to | have a really hard time convincing a VC to give you money if | you tell them that you're not going to have a board of | directors. Even if you present an alternative structure that | gives the VC some form of oversight, they will be (rightly) | skeptical, since this is unproven ground and they will be | (rightly) afraid that their lack of understanding of your | unique structure will come back to bite them later. | | [9] I do think Page and Brin retaining control of Google was | especially impressive, considering that their early funding | rounds happened during, and in the aftermath of, the original | dot-com bust, when investors were probably pretty leery of | funding tech companies. | deckard1 wrote: | > is it impossible to get VC levels of investment without | giving away board seats? | | Microsoft, interestingly, was after the opposite. They took a | rather nominal $1M VC funding to _get_ someone knowledgeable | on their board. Probably helped when it came time to IPO. | They definitely didn 't need the funding. VCs would love for | the world to believe that their funding is necessary. But | often that sort of rocket fuel is detrimental to the growth | of a company. It puts immense sudden pressure on a company, | relationships are strained, and really weird things start to | happen as your headcount shoots past 20-30 people. | GDC7 wrote: | > Microsoft, interestingly, was after the opposite | | Microsoft is like Marylin Monroe, or Michael Jackson or | that person who lived to 123 years old. | | You'll never see a company like that ever again in your | lifetime. | | They did what Standard Oil did, in perhaps an even cleaner | and uncontroversial manner. | | Tons of talent and luck aligned in the exact right way for | it to be the phenomenon it became. | tptacek wrote: | I'm not the most informed person on HN who can respond to | this but as a general rule it's within the bounds of | normality to raise single-digit millions in unpriced rounds | ("seeds") that don't generally have board seats attached, but | your first significant priced round (your "A" round) will | essentially always give up board seats. | | Formal boards are not required for private companies. | somerando7 wrote: | There's nothing legally requiring me to give any seats for | investment though right? | | Reading through this and my gutt feeling is that if I had a | company doing really well I would do my absolute best to | not give up any control over it - but idk how many | investors would be willing to invest in that case (if we | were doing really well though, I assume at least _some_ | would?) | tptacek wrote: | In practical, ordinary terms, there's nothing legally | requiring you to give board seats to any investor. | lmeyerov wrote: | Yeah somewhere around Series A and esp Series B chances | are, unless the founders really lucked out (eg, equity | funding that could have been a debt round due to insane | profits), they'll have lost control | tptacek wrote: | I don't think losing control after an A round is totally | normal. | hobbyjogger wrote: | Delaware (and all or at least most other states) requires | at least one member on the board of directors for any | corporation, whether it's private or public. | nostrademons wrote: | The incorporator, board member, investor, CEO | (President), Treasurer, Secretary, and sole employee can | all be the same person. | tptacek wrote: | For bootstrapped (for lack of a better term) companies | these "boards" are pure formalities; it's a running joke | among bootstrappers that they flip a coin to figure out | who the listed corporate officers are going to be. | breischl wrote: | Had this happen on a much smaller scale as an employee. I | (foolishly) bought out some of my options when I left the | company. Years later they sold it, but structured the deal such | that the major investors got paid out all the proceeds, leaving | zero for the common shares. Yes, I realize preferred shares and | payout preferences and so forth. The really galling part is | that the exec team (who had themselves acquired, not built, the | company) paid themselves massive bonuses. The employees mostly | got a token amount and a kick out the door. Common shares got | zero. Thanks guys. | | tl;dr, shares in a non-public company are a lottery ticket at | best. Just like options, but more expensive. | jiveturkey wrote: | What you're describing, though, is normal. The vast majority | of deals happen this way. (We only hear about the tiny | fraction where rank and file do make a dime or two, like we | hear about the 10 heart conditions / COVID complication and | suddenly the sky is falling.) | | Whereas, while the situation described by the GP is not | unheard of, it's uncommon. | | Anyway, your situation is why the common mantra, value your | stock options at $0. | | I think that's a wrong statement though. Stock options should | have a binary value. $0 or IPO/exit value. If the company | doesn't go all the way to IPO, you won't get a partial | payout. So then guesstimate the IPO valuation of your options | and factor the risk. | javajosh wrote: | All the horror stories around VC money and shennanigans like | this make bootstrapping look not just appealing, but | required. It's an iterated game that they play a lot, and you | play once, and they have no incentive to play fair. I'm glad | some of them were named and shamed in this thread, though. | Like, why would anyone take money from someone who has acted | in bad faith many times in the past? | | It reeks of unaccountable power and information asymmetry, | two of my least favorite things. | achillesheels wrote: | This is what my father informed me of after seeing the | reality of a founder CEO being diluted to nothing in the | 90's. All that risk-taking and life which can't be | recovered just to pay for someone else's Tahoe ski-trips :( | repomies69 wrote: | Though in the business world it is always like that, | whatever you do. Whatever kind of deal you are doing you | have to be careful and attentive. | | Bootstrapping is great, but it also has challenged to | overcome. Many fail to do it. | [deleted] | tomp wrote: | You probably could make a good point but this makes no | sense: | | _> It 's an iterated game that they play a lot, and you | play once, and they have no incentive to play fair._ | | The player who plays multiple times ("iterated game") has | _more_ of an incentive to play fair. That 's basic game | theory. If you only play once, noone can "punish" you in | the next game if you cheat. | javajosh wrote: | I didn't mean iterated game in the game theory sense, | because that implies both counter-parties play against | each other repeatedly. | | It's like when you get a mortgage - it's a once-in-a- | lifetime for you, and a Tuesday for them. They know | exactly how to (and have mechanisms in place) enforce | every part of a contract they've been using and improving | for decades; you barely understand the contract because | its the first time you've ever seen anything like it, and | you have no machinery in place to understand or enforce | your side of it. They have one contract they enforce | against 1M counter-parties; meanwhile you have 100 | _different_ contracts you 're supposed to enforce ...at | the same level of care and capability? That's never going | to happen, and so all you're left with is heuristics like | "surely they'll treat me fairly!" | | It honestly seems extremely foolish to take VC money | under these circumstances. | tomp wrote: | Yeah, the correct terms for these would probably be | "diversification" and "information asymmetry". | | I think the main reason for these onerous terms _is_ the | fact that without them, the founders _would_ cheat (not | people like you or me, but rather, they _would_ attract | cheaters if they didn 't work so hard to prevent them for | succeeding) | buryat wrote: | what about your cofounder? | hinkley wrote: | They don't have to value the company at $0 to fuck you over | once you're gone. The current board can depreciate all of the | shares by 50% and then issue themselves twice their original | shares so they break even. Then do the same thing a couple of | rounds later. | | I haven't seen $0 but I knew a few people who got diluted to a | joke. It doesn't take but a factor of 2-4 dilution of your | outlook to drastically change your opinion of how you spent | that time. | anandrew wrote: | Could you explain more? Because this sounds like it should be | very illegal. My understand is that shares represent partial | ownership of the company. So what gives one set of | shareholders the right to reduce others' ownership share? | | In fact, why don't the boards of _all_ companies do this? | Devalue everyone else 's shares so they become the sole | owners? | antoniuschan99 wrote: | How does one go about learning about these things. HN crowd | definitely leans towards the technical side myself including. | | Btw. The blog is very informative and have subscribed. | low_common wrote: | How does share dilution work? Does that mean issuing more | shares? How does depreciating shares happen? | Cymen wrote: | I experienced dilution as a former employee of a startup. | Teespring did a 13:1 down round a year or so after I left | (2015?). If you weren't an accredited investor that could | afford to invest in the round, you had 1/13 of your original | shares after the round finished. I experienced both being | pushed into AMT when exercising the options (they didn't | offer early exercise) along with having 1/13 of my shares | later on. No idea if I'll ever see any money out of the deal | so I've chalked it up being a lesson learned -- many say to | value stock options as $0 but they can have negative value. | jiveturkey wrote: | well to be fair, you should never exercise if it isn't | early exercise. the odds are _very_ much against you. I | mean, by the odds you shouldn 't early exercise either but | at least you don't get hit by the AMT bullet. | jasode wrote: | _> They don't have to value the company at $0 to fuck you | over once you're gone. The current board can depreciate all | of the shares by 50% and then issue themselves twice their | original shares so they break even. _ | | Mark Zuckerberg tried a variation of that game to cut out | Eduardo Saverin's shares when they changed the company from a | Florida LLC to a Delaware Inc. Well, Saverin sued and | Facebook lost that lawsuit; they settled. Saverin got ~4% | ownership worth $5+ billion at the time. | | https://www.businessinsider.com/exclusive-heres-the-email- | zu... | Kranar wrote: | Facebook did not lose any lawsuit. A settlement is a far | cry from a loss and judging from the outcome, it looks like | Saverin got screwed over. | | So basically, the board will try to screw you over; if | you're not in a strong enough position to do something | about it then you're out of luck, if you are strong enough | to do something about it, then you might be able to recoup | some of what you're entitled to. | throwaway894345 wrote: | Does anyone have a good idea about the laws for valuation | tricks and the ways companies skirt them? A company for which I | had stock options recently was sold to a larger company, but | the deal _seems_ to have been coordinated such that the | investors with privileged shares (or whatever they 're called) | got their money, but the peasant shares (again, I forget the | terms) were worthless--all of the "key employees" got generous | bonuses and the employees still with the company were to be | rewarded by the buyer with (presumably) valuable stock. | | I wasn't really _banking_ on these options as part of my | financial plan, but _surely_ this sort of thing is illegal, | right? | drno123 wrote: | Who was your investor? So other startups know who to avoid. | buryat wrote: | 2017-10-04 Series A - Numetric $13M | | Insight Partners -- lead investor | | Hack VC | | EPIC Ventures | | Draper Associates | | Aaron Skonnard | | https://www.crunchbase.com/funding_round/numetric- | series-a--... | CityOfThrowaway wrote: | Yeah this checks out, these people have a reputation for | this behavior. | javajosh wrote: | If firing the CEO is a (the?) major degree of freedom for | investors/boards, why are these events not recorded on | crunchbase? That would seem to be a natural addition. I'd | also like to see events related to dilution using valuation | and any other major DoF that a board might have. | gp wrote: | Don't want to dox, but you should be able to find it on | crunchbase. I'm not surprised about the story given who's in | that round. | scrollaway wrote: | > _I 'm not surprised about the story given who's in that | round._ | | Care to elaborate? | wellthisisgreat wrote: | I am also very interested | adtac wrote: | >Then a year after I got fired the series A investor led the | next round of funding and decided to value the company at $0, | so I got diluted by 99.99% | | Was it made impossible for you to be an investor in that round? | Could you have prevented 99.99% dilution that way? | kelnos wrote: | It's hard to participate in a funding round when you don't | have much money, as the parent says. | hn_throwaway_99 wrote: | So the existing stock the CEO had, made through his blood | sweat and tears, was worth nothing, but you'd expect him to | want to _pay_ for the ability to buy more stock in the | company he was just kicked out of? | adtac wrote: | No, I'm just curious if it was possible technically. | Obviously it's super unethical to do this to your CEO. | hobbyjogger wrote: | At a $0 valuation (assuming that's accurate) you'd be | paying almost nothing to participate in the round (assuming | you had a contractual right or were given the opportunity | to participate). | fossuser wrote: | Can't you structure things like Zuckerberg or Palantir and just | have the founder retain unilateral company control? | pfarrell wrote: | Sure... If your company is so attractive that the investors | will go along with it. IMHO, Facebook's history is an | outlier. Most startups aren't positioned with the leverage | they had when raising money. I don't know enough about | Palantir's history to comment. | hinkley wrote: | When the orders of magnitude change, so does the correct | solution. In other words: | | Stop comparing your startup to FAANG. | | You are not FAANG. If you were, everyone else would know | it. Since you aren't, their strategies don't work for you. | fossuser wrote: | I think Founder's Fund and Thiel are desirable because of | how they treat founders. | | I wrote that first comment before finishing the article | (which is a good article people should read it). | | His first advice is basically to try to do what I asked if | you can. | m12k wrote: | You can - but then your startup needs to be that much more | attractive to get investors in the first place. | doktorhladnjak wrote: | In theory, yes. But even that is no guarantee. Travis | Kalanick had control through supervoting shares at Uber, but | the investors forced him to resign and passed governance | changes that made all shares equal in voting power. Even with | founders having voting power, it's possible for the board or | investors to exert other leverage. | vimy wrote: | How did they force him if he had control? | nostrademons wrote: | He was forced out days after his mother died and his | father was in the hospital. There are some life events | where you just don't have a whole lot of fight left in | you to deal with a hostile board of directors. | miohtama wrote: | Here is the story | | > Indeed, Kalanick had some tepid support inside the | company. But his vote counting rankled even his | defenders. He was also calling executives daily, asking | for detailed information about the business. Even worse, | he ordered the security team to dig through an employee's | email to see if that person was leaking a potentially | damaging story. It all proved too much for the 16-person | executive team, which signed a letter to Uber's board-- | but clearly directed at Kalanick--asking them to refrain | from reaching out to employees or meddling in the | company's daily affairs. Kalanick's own handpicked | executives turned against him. | | > Somehow, amid the dysfunction, Uber hired Khosrowshahi, | who impressed the board with a thoughtful PowerPoint | presentation that included a slide that read, "There can | be only one CEO at a time." Khosrowshahi was all that | Kalanick wasn't or couldn't be: humble, a good listener, | and a diplomat. In a pointed reversal of Kalanick's | mantra, he would say: "We don't have a PR problem; we | have an 'us' problem--we have behaved poorly." And when | the city of London revoked Uber's operating license in | September, Khosrowshahi visited, met with taxi | regulators, and published an open letter. "On behalf of | everyone at Uber globally, I apologize," he wrote. "We | will appeal this decision on behalf of millions of | Londoners, but we do so with the knowledge that we must | also change." | | https://www.bloomberg.com/news/features/2018-01-18/the- | fall-... | wpietri wrote: | If you still need investors to put in more money, you're | never really in control. | jasode wrote: | _> Can't you structure things like Zuckerberg or Palantir and | just have the founder retain unilateral company control?_ | | Fyi... Zuckerberg didn't "retain" unilateral control. He lost | his 65% majority ownership control because it was reduced | (diluted) to 40% when Peter Thiel invested in 2004.[1] | | What eventually happened was that Zuckerberg _later | consolidated voting power from other shareholders_ like Sean | Parker and Accel Partners.[2] Why would they give voting | power to Zuckerberg?!? Because Zuckerberg was doing a good | job running the company. | | Yes, Facebook also later set up class B shares with 10x | voting power for Zuckerberg. But investors won't accommodate | founders with that structure unless the company is a big | success. | | So in short, MZ lost 65% control, and then eventually got | majority voting power back after some business events. Even | though he now only owns ~14% of Facebook, an article said his | _voting share_ was still at majority of ~58%.[3] | | [1] Facebook ownership was divided between Zuckerberg, with | 65%, Saverin, with 30%, and Moskovitz, with 5%. After the | transaction, the new company was divided between Zuckerberg, | with 40%, Saverin, with 24%, Moskovitz, with 16%, and Thiel | with 9%. The rest, about 20%, went to an options pool for | future employees. -- from : | https://www.businessinsider.com/how-mark-zuckerberg- | booted-h... | | [2] https://venturebeat.com/2012/02/01/zuck-power-play/ | | [3] https://www.bloomberg.com/news/articles/2021-05-26/facebo | ok-... | repomies69 wrote: | If the company makes bucketlots of money, the board isn't | going to change the CEO, even if he would be a total arse | in board meetings. I think it has to be repeated that | investors want returns for their investments. Also, if the | company happens to make money despite of lousy CEO, the | board will highly probably keep the lousy CEO. | | All these founder-centric stories makes it looks like board | will fire the CEO just for fun, or just because they happen | to get the idea out of the blue. Actually it is a lot of | pain and work for the board to try to find a new (better) | CEO and they probably realize that they will fail | (statistically speaking). So, the board will fire the CEO | only in a situation where they genuinely believe that | average replacement from the market will do a better job | running the company. They don't fire on a whim. | magicalhippo wrote: | > On the bright side, the new CEO ran the company into the | ground. | | I've seen this up close several times, and countless times | afar. Successful company gets bought by bigger company, new | owners replace the successful management, new management runs | company into ground in short order. Remains possibly sold for | scraps to former competitors. | | Like... is there something they're getting out of this I don't | fathom? Or are they just repeating the mistakes of others again | and again and again? | GoatOfAplomb wrote: | The meeting management tactics in this post are highly applicable | in other situations as well, whenever you are presenting to a | group of approvers/overseers. For me, that's launch reviews or | program reviews. It takes a lot of time, but a smooth review pays | it back many times over. | gumby wrote: | > founder often gets to write a press release about how they | replaced themselves with someone better suited to take the | company to the next level or something like that. | | This is so common that when I have replaced myself I've had | friends "comfort" me thinking I really was fired. | | In my life I've been fired once, though I should not have been. I | have also _not_ been fired in two cases where I should have been | (early in my career). | Digory wrote: | Never stand between people and a pile of money. | | Your Board doesn't fire you when you're the best guide to a pile | of money. Your Board will fire you if they think you're slowing | their progress toward a pile of money. | | If you think your skills as a guide to piles of money are | imperfect, don't put your life in the hands of people who need | you to rapidly increase their pile of money. | repomies69 wrote: | Actually, the board has to believe that the replacement CEO | they find from the market, will generate better returns than | the current CEO. So, it is not that the CEO has to be "the | best", it has to be good enough so that if he is fired, the | likelihood of the new one succeeding should be lower than with | him. | | Note that there should be quite many advantages for the current | CEO to do the job well compared to some external guy. Typically | it might take 2 years from a new CEO to learn the business, | etc. | | Boards don't fire on a whim, they genuinely have to believe | that a replacement will do clearly better job - they don't want | to go through all the hassle of finding a replacement just for | fun. | robocat wrote: | The VC cares about their portfolio, so if removing the CEO | gives gains elsewhere in their portfolio, then their | financial incentive can be against the startup. | | Or the "nobody gets fired for buying IBM" theory where it is | better to put in a known respected CEO (John Sculley), | because fault can be blamed on the founder and LPs will | believe the future VC spin. | | Usually the startup is one of the failing investments to | consider changing CEOs, and I suspect that there are a lot of | other human motivations that come into it. | repomies69 wrote: | That is true, but I don't see how firing the CEO typically | would give gains somewhere else in the portfolio. For | example VC's very rarely invest in competing companies. | | However what affects the situation is that VC's want a lot | of risk, and the risk preferences of the CEO could be | considerably lower - eg. the CEO would be fine with | moderately profitable company, while the VC wants all or | nothing. | | I don't think it is common to change CEO's for truly | successful companies which actually show good numbers. No | one wants to change the CEO, they do it because they think | that it clearly increases their possible returns so they | basically have to do it because otherwise they would look | incompetent as board members. | Waterluvian wrote: | " They will each feel like your special confidant. They will also | see the other board members reacting calmly to the news and start | to think that perhaps you actually have it under control. This | will calm them down in the future." | | This seems like obviously good advice. But also begins bordering | on what feels like manipulation. And that makes me uncomfortable. | | In fact, this whole thing feels like manipulation. If nothing | happens in a board meeting because it's scripted, why do they | exist? It seems like the solution to not getting fired as CEO is | to control the whole thing and manipulate everyone. | gilbetron wrote: | From the article: | | "All this may sound cynical or manipulative. It probably also | sounds like a lot of work. It is all of these." | | It's literally the point of the article. | jyscao wrote: | >If nothing happens in a board meeting because it's scripted, | why do they exist? | | He actually answers that later on. | | >Of course, you have already told them all this on the phone, | one by one, so you know how they will react. They will want to | talk anyway, because part of the meeting is them performing for | each other, but, again, no surprises. | | Except instead of only "part of the meeting", perhaps it might | even be more fitting to say "most of the meeting". | | Edit: and also this "Board members show up at meetings to | monitor their investment and decide if they still want you to | be CEO." | loudthing wrote: | Reading this title gave me a headache. | Kaizeras wrote: | This brings memories. I also got ,,asked to leave" after raising | our first round. | | I was young (25) and naive, with no experience in business within | the family. But what was really crucial back then was that I | lacked a mentor who'd make me aware of the risks before letting | the sharks in. | | It took me three years to bounce back and start something new. On | the positive side, I learned a lot. | Davidbrcz wrote: | It felt like reading a tutorial for handling vassals in crusader | kings. | qaq wrote: | So with crowdfunding cap now at 5 mil. in US sounds like a good | way to avoid this whole thing? | ryanSrich wrote: | If you can crowdfund to $5m then yes. I'm guessing that's | orders of magnitude harder for something like a B2B SaaS | business than raising traditional VC though. | qaq wrote: | Thats actually a good question given the paper overhead non- | accredited investors prob. don't get access to any decent | opportunities. | itronitron wrote: | I worked for a startup for several years, as the fifth hired | software developer and got to see our CEO fired within the first | eighteen months. They were not the founder, but they had hired | the VP of Sales and the entire sales team who were also all let | go on the same day. Luckily the core product wasn't impacted and | our primary clients probably didn't care. | | The company hired two more CEOs over the next three years, each | of which lasted less than six months. I'm not convinced that the | new CEOs ever actually did anything, although that is possibly | due to the board running interference. | | My two takeaways from this experience are that if you are a | founder you don't want to be CEO, and CEOs are basically useless. | sombremesa wrote: | Maybe the reason these CEOs were all let go was because they | were useless? | kristoff_it wrote: | Similar advice applies also to Open Source non-profit | foundations, in my opinion :^) | goldenkey wrote: | Relevant: [I refuse to let Amazon define Rust]: | https://news.ycombinator.com/item?id=28513130 | 0des wrote: | The article itself is titled "Your Board of Directors is Probably | Going to Fire You", why has the title of the post just now | changed? | 0des wrote: | It may be gauche to express this opinion on HN of all places and | I hope it doesn't come off as tonedeaf disrespect, but does | anybody notice VC is falling out of favor unless absolutely | necessary? | | I am noticing a lot of bootstrappers that are emerging with the | ethos that VC isn't what it used to be for some markets, and | often a poor choice of the right VC can be a detriment to a | project's longevity, with some teams choosing to avoid it at all | costs. | wayoutthere wrote: | If you look at the most valuable tech companies today, most | made it a significant way along the path without outside | investment due to the financial position the founders were born | into. While there are a few notable exceptions, nearly every | one of them relied on early loans from parents to build their | fortunes rather than early stage VC. | robocat wrote: | Privileged access to powerful people probably matters more | than the $. I recall Bill Gates got trusted access to IBM | decision makers. A recent example is Elizabeth Holmes, where | the $ amounts were probably low hundreds of thousands: | | https://arstechnica.com/tech-policy/2021/11/holmes- | parents-s... | | "The family's wealth, power and political connections date to | the 1890s, when Christian Rasmus Holmes, a Danish immigrant | and physician, married Bettie Fleischmann, heiress to the | namesake yeast fortune and a Cincinnati socialite with a | fondness for Chinese bronzes." - from NYT article: | https://archive.vn/aMCpe | | The interesting thing is that the future fortune depended on | a "yeast fortune", i.e. while you might not be born into | wealth and power, perhaps your grandchildren or descendants | can be. | dredmorbius wrote: | As with much other knowledge and fashion (clothing, software, | management, ...), it's cyclical. | | Old-timers will remember Jerry Kaplan's _Start Up_ , about the | failure/betrayal of Go Corporation. | https://www.worldcat.org/title/startup-a-silicon-valley-adve... | | Or Sandy Lerner and Len Bosack's betrayal having founded Cisco | Systems. | | https://www.npr.org/2021/05/07/994789248/cisco-systems-urban... | cle wrote: | The signal-to-noise ratio is getting lower and the risk is | getting higher of choosing the wrong investors, and having the | wrong investors pushing your company in undesirable directions | to meet LP expectations can be really frustrating, at the | least. | adventured wrote: | I agree that is happening more often in the initial stages. And | with a bit of experience/reputation you can command very | favorable terms in the early stages of a start-up, at least in | the present climate where seed type funding is relatively very | easy to come by. | | Or let's say you don't have much money and you want to avoid | early VC due to loss of control and hefty dilution. In the US | market, move to a college town (often quite safe), take a part- | time $15 / hr retail job (CVS and Walgreens are both moving to | that minimum in 2022; both are better than fast food and easier | than Walmart type jobs), get a modest cost apartment | ($650-$750), walk/bus/bike to work (no car expenses), keep your | bills under $1k-$1.2k per month, build your start-up on Hetzner | (new Virginia datacenter). Self-fund, build your thing, don't | take early venture capital, maximize your leverage later on. | Maybe occasionally do some side contracting work if necessary | to fill up the personal treasury (10 hr per month or less). | | The counter argument to that is primarily the speed angle, get | bigger faster or get crushed by the VC funded crowd, and | similar arguments. It likely varies by the case as to whether a | given approach makes more sense or less (eg depending on what | you're building, time to market may not be so much of the | essence, or it may be critical). | bluGill wrote: | A lot of small business owners hand out paychecks on Friday | Afternoon and then go to the all night gas station to earn | the only paycheck they will get. Once the company is | successful they can make earn a lot of money, but in the | early years a company will often have more bills than income | and the founder loses. | | Note that all night is important in the above, not gas | station. Anyplace that will let you work not normal business | hours so you can work your business during business hours is | what you need. | VRay wrote: | Man, I hear a lot of horror stories about working at | Walgreens and the like on Reddit, even among pharmacists | | I guess that just going there part time as part of a bigger | plan will be a lot lower-stress than trying to make a living | off it, but that still sounds like a bad idea | | You might be better off working as an engineer for a year and | then saving 3-4 years' worth of minimum wage money instead | | I had a friend who really regretted using his savings to try | and bootstrap businesses though, since he was still working | at Amazon in his 60s | adventured wrote: | If a person has enough experience at contracting to lean on | that reliably, or enough skill to earn ~$80k-$100k per year | (to build enough savings quickly for a good runway), then | it's definitely not the ideal route to pull a part-time | $15/hr type job (it'd be a waste of time). | | And it only works well for younger people without a family, | as it'll involve 70-80 hours of work per week (at least in | the beginning). | | It's a poor(er) person's scenario. It's what I might do if | I were 19-21 years old again. Back then, circa 1999-2001, I | did a lot of web development contracting to fund building | things I wanted to build with the rest of my time. It was a | quite unreliable path though, as some months were flush and | others were bleak. Poor people in that scenario usually | don't have degrees from nice universities, they often can't | easily get good engineering jobs early on. And if they have | an aversion to working for other people/companies, as I | always have, then that complicates the context further (CVS | & Co are mostly drone jobs; POS, scan bar codes, greet | customers, bag items, stock shelves, repeat; and it might | help reduce development burnout, as it gets you away from | code and out of the house). If you're young'ish, poor'ish | and without a ton of experience, it provides a highly | workable avenue to go after building a thing you want to | build, self-funded, while cutting out the need for early | outside capital (the need to give up a piece of your soul | to the sharks). | claytonjy wrote: | I've noticed the same though I don't know what the split is; | still lots of VC companies, and more companies of all flavors | being started right now. | | I've also seen some late stage cos raise a mix of equity and | debt at favorable terms; is that becoming more common as part | of the same phenomenon? | lumost wrote: | Rates are low, its preferable to raise debt than a dilutive | round for existing investors. Companies that are locked into | a prisoners dilemma for spending/market share need to get | creative with how they finance their spending. | dangrossman wrote: | I don't think that's a new sentiment around here. Anything | published by 37Signals and its founders used to be mandatory | reading on HN, and they were all about small teams eschewing | outside investors. Their Getting Real book was published in | 2006. | StriverGuy wrote: | Interesting you avoided calling them basecamp given the | recent media fallout. Not saying you did it intentionally, | but just rare anyone refers to them as 37Signals much | anymore. | dangrossman wrote: | I forgot they had changed their name. They were 37Signals | when they were HN's darling. This is the company everyone | was in love with: https://37signals.com/manifesto | ericd wrote: | Eh it's still how I think of them, fwiw. I haven't seen as | much from them since their name change. | 0des wrote: | It was my impression Basecamp is more associated with the | product of the same name, rather than the group (37signals) | associated with it. Correct me if I'm wrong, others may | have a different opinion and I'm not the foremost expert on | that. | atestu wrote: | They formerly renamed the company to Basecamp a few years | ago and shut down / spun off other products (campfire and | highrise). | kingcharles wrote: | I gave up on VCs because I hate the entire experience of | raising money and being beholden to someone. It's exhausting, | for a start, and takes away so much time from building a | product. | | I just took my idea list and erased everything that needed VC | money. | | All ideas need some money to launch, and sadly some of the best | ideas need a ton of money to launch. | | Ask yourself - do I have a simpler idea I can build first to | make enough money to launch the thing I really want to do? | wpietri wrote: | Ooh, this is spot on. | | > The fact that early-stage founders continue to take their money | has to be some sort of delusional grandiosity, in my humble | opinion. "Well yes, they fire half the CEOs they back, but surely | not me." | | Having started companies, delusional grandiosity is almost a | requirement, especially if you're going to take venture capital. | I mean, just look at the odds. So it makes perfect sense to me | that the VCs happily take advantage of it. | ryanSrich wrote: | I think you have to weigh the options though. | | On one hand, you have a 50% chance of being fired. | | On the other hand, you're raising from Sequoia. | | Is raising from Sequoia going to change the direction of your | company so much (in a positive) direction that it's worth | taking on the 50% chance you'll be fired? | Invictus0 wrote: | Great article, I really enjoyed everything about this piece. Nice | insight into the realities of the boardroom. | ksdale wrote: | Once upon a time, I helped a group of friends start a company, | and as we were going over the parts of the LLC agreement that | outlined what would happen if the company dissolved as part of a | fight, the _entire_ group treated me like I was ridiculous for | suggesting that they would get in a fight. I told them that if | they were planning on staying friends forever, they didn 't even | need the LLC agreement, they could just promise to treat each | other fairly. | | The company imploded amidst a massive falling out something like | a year later... | mooreds wrote: | Plan for the divorce during the honeymoon. | | Then put the agreement in the safe. Two outcomes: | * everything goes swimmingly: you've wasted a bit of time and | paper * everything does not go well: hard decisions are | already made | | Before I co-founded a startup, I read the Nolo books on | partnerships, especially the parts about dissolving them | fairly. The details differ slightly if you have an LLC, C corp | etc (as long as it is private) but the overarching themes are | the same and so so important to consider. | andrewstuart wrote: | That's one of the most useful, practical, open and realistic | advice pieces I've read. | stanislavb wrote: | Bootstrap or get fired... | ilamont wrote: | _Boards are necessary too_ | | Are they? I've run my own company without a board for 9 years | (bootstrapped) and several friends who were CEOs of funded | companies had board-driven horror stories ranging from getting | the boot to forcing dissolution of the company. | kelnos wrote: | They're necessary if you want to take on funding. It's hard to | imagine VCs agreeing to give you money without you agreeing to | have a board. I'm sure there are rare exceptions, but they're | just that: rare exceptions. | bluGill wrote: | In many cases the law requires it. Check with your lawyer to | see if this applies to you. | | Even if it doesn't apply, it is useful to get outside advice. | The hard part is getting good advice. Boards should do this, | but as the article points out, they rarely do. | ilamont wrote: | I've been on nonprofit boards in the past, and we really did | play important roles on advice and some tactical activities | related to committees. But the incentives were completely | different. | extr wrote: | What an article. It's rare you find something that has such | practical and straightforward advice for managing people (even if | those people are your board members). | vmception wrote: | when you get thrown off of the board you still have your shares. | | so the trade is still successful by my rubric. I consider all | things to be trades, whether I invested in a publicly traded | equity, or whether I created a bunch of $0.00 par value shares to | sell to a bunch of other people. | | the rule is the same: don't get married to a company. | | a board removing you doesn't need any fanfare. you still have the | shares. | boringg wrote: | You still have shares but they may dilute you to nothing. | onion2k wrote: | _a board removing you doesn 't need any fanfare. you still have | the shares._ | | You do, but there isn't always a secondary market to sell them | on, and if you leave under a _really_ bad cloud the board will | attempt to take the shares back, or issue a bunch more for | themselves thus diluting your shares in to oblivion (see | Eduardo Savauvin vs Facebook for details.) I don 't think you | should make light of leaving "with your shares" as if that's | the end of the story. It might not be. | umanwizard wrote: | Eduardo Saverin sued Facebook for doing that and is now worth | $20 billion. | onion2k wrote: | That's brilliant, of course, but he owned 30% before being | kicked out which would be a little over $300bn now. | PeterCorless wrote: | This is a very self-centered "I got mine" view. Think more | broadly: What did you do to the valuation and perception of | your company? What have you done to the value of everyone's | shares, including your own? | | If you keep a role at the company, how will it be working with | your team now that they see your position reduced? If you are | walked out of the company without ceremony, what balls were in | the air that aren't going to be caught? Who did you just leave | in the lurch? | | So will those shares be worth anything if you were phoning it | in rather than focusing on your CEO performance, or | successfully trying to navigate the CEO-to-other-role | transition? Will your competition smell blood in the water and | try to cast FUD in the face of your current customers and all | future prospects? | | What will your reputation be going forward? ("He was a | difficult person to work with. We had to fire him.") | | So sure, you may have your short-term gains in your stocks. But | what will it do to your career? And the careers of everyone who | had followed you to that point? | | This article was very well-meaning. I just have a feeling that | all-too-many short-term thinking people are going to follow | your advice and say, "Well, to hell with it. At least I got | mine." | notreallyserio wrote: | If I'm fired I'm not the one leaving anyone in the lurch. I | don't understand. | bgroat wrote: | Headline - I agree with you. | | Just retire, or do something else. You own the shares. | | Fine Print: There's still some screwy stuff they can do | diluting your shares in particular. | withinboredom wrote: | Can you have a single share that is always * X of the summed | voting rights of other shares, so no matter how many shares | they print, you just get more votes? | adventured wrote: | > There's still some screwy stuff they can do diluting your | shares in particular. | | And they also may run the company you founded into the ground | by selecting a mediocre replacement (who will surround | theirself with mediocre managers), making your shares | potentially worthless in the end. | elliekelly wrote: | And often it's not about a financial bruise so much as the | ego/emotional bruise. Losing control is not a comfortable | feeling for the CEO-type. | vmception wrote: | which is why my point carries weight: don't get married to | the company/project/IP anything | | go in with a precision strike and leave. don't stay for 20 | years and act surprised when the Taliban takes over the | board again in 10 days. | | leave that to the disillusioned employees and sycophants. | yourself and the external contractors extracted | generational wealth for decades. and if you didn't nobody | to blame but yourself. | icedchai wrote: | "Just retire"... that may be difficult without liquidity, | regardless of value of the shares. | icedchai wrote: | Sure, but it might not matter. Your company can be in such a | bad state that the next round, if it happens, will massively | dilute everyone, including you. You wind up owning less than | 10% of a sinking ship. I've seen it happen. (And if you don't | take that money, your company goes to zero.) | [deleted] | ChuckMcM wrote: | See also "cram-down round" :-) | throwaway55421 wrote: | If you give up your 51% share, sure. | gogopuppygogo wrote: | If you give up control. | | Weighted shares let a minority shareholder have more than | controlling vote in a company. | | It is always important to understand the fabric of your company | by reading, understanding, and following the terms of your | Operating Agreement or Corporate ByLaws. | | Manager Managed LLC vs Member Managed LLC vs C or S Corporation | are most common entity types. Use the right structure to best | protect your interests. | onion2k wrote: | 51% isn't quite right. For a start, it's really "more than | 50%", which is often 50% + 1 share, but in some structures | there are different classes of shares with different voting | rights. It's common to have a pool of voting shares that are | issued to founders and preferred investors, and then non-voting | shares that are issued to everyone else. There can also be | shares that confer more than 1 vote to the owner. You really | need > 50% of the _votes_ rather than any particular amount of | shares. | Jugurtha wrote: | > _It 's common to have a pool of voting shares that are | issued to founders and preferred investors, and then non- | voting shares that are issued to everyone else._ | | To your point about differences in classes, there may be a | class with 10 votes per share, another class with 1 vote per | share, and another class with 0 vote per share. | toomuchtodo wrote: | Common shares can also have one vote, or more than one but | less than individual founder shares, with loss or decline in | votes upon transfer. | vineyardmike wrote: | > 51% isn't quite right. For a start, it's really "more than | 50%", which is often 50% + 1 share | | Most people describe "50% + 1" as 51% even though its not | quite right, but everyone understands 51% as a shorthand for | "greater than half, not inclusive of half". Eg. a 51% attack | on a crypto network is the same way. | ganeumann wrote: | Very few things in a VC-backed startup require a shareholder | vote. Firing the CEO is not one of them (this is a board vote.) | Electing directors to the board is not one of them (this is | usually the subject of a voting agreement that ensures board | representation by the VCs.) | | Let's say the company raises money from VC1, who buys 20%, | leaving you with 80%. The contracts add VC1 and an independent | to the board, alongside you. Later the company raises money | from VC2, who buys 20%, leaving VC1 with 16% and you with 64%. | The contracts add VC2 to the board. | | Now the board is VC1, VC2, an independent, and you. If the VCs | can convince the independent director to vote with them, the | board can fire you, even though you own 64% of the company. | VRay wrote: | How does that work? Couldn't you fire the board and reinstate | yourself if you wanted to at that point? | PeterisP wrote: | It works by having you sign a shareholder's agreement (at | the point of investment) where you commit to voting in a | certain way for certain key issues, including the structure | of the board. Investment is usually not only a contract | between the investor and the company, but also a contract | between the (new) shareholders. You would be required to | support "their representative" to be on the board, no | matter how many percent of shares and votes you and they | had; and then the board has the rights to govern the | corporation according to the corporate bylaws. | Tyr42 wrote: | Ask Rogers, the board just tried to fire the CEO, the CEO | just tried to fire the board, but those elections happen at | a different time, and the CEO need the trustee of the | family shares to agree. | | It can happen | nowherebeen wrote: | How is that possible? Shouldn't it be the number of voting | shares you hold? I thought that was the entire reason for | share classes. It can't be based on the number of bored | members alone, can it? | kelnos wrote: | If, as a condition of taking money from a VC, you sign a | piece of paper that says one board seat belongs to that VC, | then you can't fire your board, regardless of your percent | ownership of the company. | | Percent ownership matters, certainly: it's what allowed you | to make that deal in the first place. At that point your | ownership becomes a little bit less about control, and | perhaps a little more about economic interest. | ganeumann wrote: | That is how it works. The board has the power to fire the | CEO in all companies that I know of. (I suppose you might | be able to write the bylaws so this isn't true but I'm not | sure; a corporate lawyer would know.) The best you can do | is to have an employment contract that regulates how the | firing happens (ie. do you get severance, accelerated | options, longer option exercise times, COBRA, etc. if you | are fired without "cause", with cause carefully defined.) | | Removing you from the board itself is a different matter. | But that's usually also explicitly covered: they don't put | the founder in the "Common seat" they put the founder in | the "CEO seat." That way, when you're fired as CEO you | automatically lose your board seat. | nowherebeen wrote: | "The shareholders elect the Board which has the | responsibility to hire and fire the CEO. The Board has | the right and the responsibility to fire the CEO if they | believe it is in the best interests of the company. If | the shareholders don't like the decision, they can call a | special meeting of the shareholders to fire the Board and | appoint new Directors. The new Board may re-hire the | recently fired CEO. So the majority shareholder CEO will | ultimately prevail." | | https://www.quora.com/Can-a-board-of-directors-fire-a- | CEO-th... | | It seems like a rock, paper, scissors kind of game if the | CEO owns the majority of voting shares. | bluGill wrote: | Not all shares have the same voting rights. The VC might | buy 20% of the company, but 50% of the voting rights. VC2 | might buy another 20%, but get a different share of the | rights. | nowherebeen wrote: | That was my point. | system16 wrote: | Reading things like this and how common it is for investors to | take over, I just wonder how it is possible that a young - and | presumably naive - Mark Zuckerberg avoided the typical VC | pitfalls and board guillotine / "CEO replaces themselves to help | transition company to the next level" path? | | Was it just because Facebook's growth was so unprecedented they | had no need to replace him? Or did he have a very good mentor or | early investors that believed in him or helped guide him without | taking advantage of the situation? Or was he actually just | extremely shrewd at navigating board politics? | repomies69 wrote: | If the company makes money, there is very little reason to fire | the CEO. In fact pretty much the opposite, there are probably | CEOs that would deserve to be fired for multiple reasons, but | because the company makes good money, the board won't care. The | board is responsible towards the owners, if they actually fire | a CEO of a performant company, they really have to show why it | was in the best interest of the owner. | | All these stories where the CEOs were fired are from companies | that weren't profitable, needed constant funding rounds etc. In | the situation where the company is just sucking money from | investors the CEO gets changed easily. | fezzez wrote: | He had leverage. Facebook's massive growth meant that he could | command the terms of the investment, and he ensured that he | would always continue to control the board even as he was being | diluted with later rounds. | thethimble wrote: | See the "dual class" structure he managed to set up early on | to preserve control. | | https://www.vox.com/technology/2018/11/19/18099011/mark- | zuck... | | This was made popular by Larry and Sergey in 2012: https://ww | w.sec.gov/Archives/edgar/data/1288776/000119312512... | | It's really only possible if the company/investment is so | compelling that investors will invest with virtually no | control. | cm2012 wrote: | What an incredible essay. Top 5 I've ever read in insight. | daenz wrote: | I'm happy and appreciative that this advice exists, but as a tech | person who just wants to build new things, it makes running a | company sound like a massive drain on the psyche. | nickff wrote: | Running a company is a massive drain, and is not the best way | to 'build new things'. Starting and running a company is one of | the best ways to 'build a new organization'. | PeterisP wrote: | Sure, it is - running a company is a whole full different and | very intense profession that has little in common with a tech | person building new things, you would have to focus on one over | the other. | dqpb wrote: | You can always choose not to take on investments that | relinquish your control. | bluGill wrote: | There is a reason I "work for the man" instead of run my own | company. I could make money, but I wouldn't be a programmer. It | took me almost 20 years of a CS degree before I was earning | more money programming than I could have earned if I had | dropped out of school and stayed at McDonald's (they offered me | a management job and the career path in the direction was | obvious - and also why most people even on that track decide to | self limit before they reach the highest I could see from | there.) | | To make it clear, if you found a company you MUST be a | management type person. You can maybe program 25% of the time, | but the rest of your time is sales and management duties. You | can hire out the sales but that means more management. Soon you | are best off hiring out the programming as well and being all | management. | repomies69 wrote: | There's tons of different companies, VC-funded high-growth | startups are just a small subset of all companies. If you | want to do programming in your own company you can set up | some boutique working on some niche. Absolutely no need to be | "a management type person" in my opinion. It certainly is | possible to run company where you do up to 80% programming | IMO. | | But, if you want the big bucks it typicalle makes sense to | hire and grow. If you want to stay small and do stuff | yourself, it means less money. ___________________________________________________________________ (page generated 2021-11-23 23:00 UTC)