[HN Gopher] Can a $310M startup avoid due diligence? ___________________________________________________________________ Can a $310M startup avoid due diligence? Author : svgossip Score : 284 points Date : 2022-02-07 17:47 UTC (5 hours ago) (HTM) web link (svgossip.substack.com) (TXT) w3m dump (svgossip.substack.com) | ForHackernews wrote: | Sure, why not? Who cares about due diligence? We're deep into the | silly-season of the market. | | Supposedly Tether has been given $75 billion and nobody's asking | any tough questions, so what's a few hundred million between | friends? | | https://www.bloomberg.com/news/features/2021-10-07/crypto-my... | htrp wrote: | > But a16z is typically known for breaking out the checkbook for | follow-on funding the instant their investments are showing signs | of success. What happened here? | | I think the problem becomes that because VC is such an insular | environment, no VC firm wants to be caught talking about how | portfolio company isn't successful. As a result, they'll politely | decline to lead follow-on rounds, but still allowing the startup | to tout the investment from top tier VC firm as social proof for | the next round. | jacquesm wrote: | Of course they can. It happens all the time, FOMO is a powerful | drug. | skeeter2020 wrote: | "Solving Human Coordination" | | 50M must buy a lot of Kool-Aid | woodruffw wrote: | Sagas like these succinctly demonstrate the moral hazard of | cryptocurrencies and other forms of organized faithless financial | activity: we're all idly speculating on the next fool's | willingness to buy into the scheme. There is no incentive for | honest action (or innovation, for that matter), and there | _cannot_ be until there is ample regulation. | | I don't have overwhelming amounts of sympathy for the accredited | investors who buy into these schemes at petty individual scales, | but I _do_ have sympathy for the honest employers and employees | trying to survive in a faithless economy. | newaccount2021 wrote: | villgax wrote: | You could say the same for Pixis/Pyxis One/AbsentiaVR or whatever | else they try to rebrand themselves as now. | | An IT-outsourcing company focusing on new tech just gets passed | around as some AI SaaS tool, without having any public docs or | advocacy. The shadiest part is how they've raised $124mn from | Softbank, General Atlantic et al & yet nobody knows any | financials. | | For a Bangalore based company they sure did spin up new origin | stories like California based etc at every round, hype like 200 | "self evolving networks" etc. Half of their marketing copies | mention existing tools & the other half says they are yet to | build said tools. | erulabs wrote: | Amazingly, my startup (KubeSail.com YCS19) has similar revenue, | has raised 500x less, and we've been told point blank that | "nobody wants to invest in a hardware company", or "yes, but | what's the path to 100B". | | Hey maybe we don't have any path to 100B (is 1B just for | chumps?), and maybe our margins aren't B2E-style 99%, but I'd | much rather be making something people want rather than... | | And then I hear my wifes voice in my head: "You can't pay | yourself that little forever...". Maybe _I 'm_ the fool. | | Strange world. | [deleted] | brendonjohn wrote: | There's clearly been a lot of thought put into KubeSail, the | platform & pibox provisioning service looks interesting. | | Have you had businesses try to make this part of an internal | provisioning process? | | It looks like you're aiming for hobbyists, but I'd take a guess | you could be integrating with businesses at a premium. | obventio56 wrote: | The VC model has to consider the expectation that most | investments will be a complete loss. To have even a hope of | ~20% return every investment has to have a path to $xxxB. | Otherwise it's not worth including. | bpodgursky wrote: | Yes, this is a huge misunderstanding of where the returns | from VC come from. It does not come from "moderate success". | That's hopeless, given the fail rate. | | If you have a safe path to 20% or even 100% returns, just get | a loan. There's absolutely not point in the VC process at | that level... or reason for them to exist. | thr0wawayf00 wrote: | I might get downvoted for saying this, but rich people aren't | necessarily smarter than anyone else. They're just richer. | | Undoubtedly, there are many successful founders with talent and | brains that were able to exit successfully, and to those | people, kudos. But a tremendous amount of immense family wealth | is controlled by people that are in no way, shape or form | smarter or more talented than the average person. Their wealth | just demands an unhealthy amount of control and influence in | whatever it is they're investing, regardless of how | knowledgeable they are. | | I saw it in multi-family real estate about 5 years ago. A | multi-family property company I was associated with was making | an absolute killing (and still are) when all of a sudden, | leadership wanted to start investing in AI because their | investors demanded them to. | | They signed a massive deal with a custom software shop to build | them an AI tool to decide which properties to buy, and the | entire project was an absolute joke. It wasn't AI of any kind, | it was just a dashboard that pulled data from various real | estate APIs for things like walkability score, etc. But they | showed their investors and called it "AI", who absolutely loved | it, not knowing at all what actually was, partially because | these execs were old school real estate guys that didn't | understand themselves what the tool really was either. They | raised millions more for their next fund, and the whole time | I'm wondering how what this company was doing wasn't | fraudulent. | | In the end, it didn't even matter, the next fund performed | incredibly well and at the following Christmas party, one of | the employees involved in the project received a $50k Escalade | as a gift to reflect the success of the "AI" project. | | I will never again assume that just because someone has a ton | of money knows anything about they're talking about. | doctor_eval wrote: | I am unable to talk about specifics - but I can 100% endorse | this comment. Would add management consultants to the list as | well. | femto wrote: | I once worked with someone who went from "not rich" to | "rich", who also ending up in a senior position at Cisco | where he had the authority to spend lots of money. | | His observation was that a "normal" person has to work hard | to find ways to make money. A person with lots of money to | spend has people queuing at their door, offering ways to make | even more money. It becomes a case of picking the best | opportunities from the menu. | hutzlibu wrote: | "I will never again assume that just because someone has a | ton of money knows anything about they're talking about." | | Well, apparently they did know, how to increase their | avaiable money. And this is what matters to most people, not | solving real problems. The problem seems, that those 2 things | are not really aligned often. | thr0wawayf00 wrote: | The thing is that it's so much easier to make money when | you have it. It's not even necessarily that rich people | just know innately how to make money, it's more like they | just have access to many more people who do know how to | invest. | | Any schmo can open a Wealthfront account with no minimum | balance that returns somewhere in the realm of retail | investment returns, but only people with obscene amounts of | money can go invest in the real estate firms like the one I | referenced, which return many times more to the investors | than anything in retail would. That firm was returning many | multiples above anything you could invest in on the retail | side. So having a million dollars to put into these kinds | of firms winds up making so much more percentage-wise than | the tens of thousands that I can put into my retirement | account. It's a self-perpetuating system that allows the | wealthy to continue out-earning everyone else. That's how | wealth inequality works in a nutshell. | | I could give you the name of the firm so you too would know | how to make that kind of money. Only, you wouldn't be able | to without being able to make the minimum required | investment. It's not that they have some secret knowledge | about making money, it's that they can buy access to the | high-return investment firms that you and I just can't. | ModernMech wrote: | > The thing is that it's so much easier to make money | when you have it. | | So true. My rich uncle once told me "The hardest million | I made was my first million". Then you look at how the | banking system works: the more money you have in the | bank, the more money the bank pays you. But if you don't | have enough money in the bank, then the bank charges you. | So it's actually more expensive to be poor than it is to | be rich, and the richer you are, the faster you become | richer. | | It's as if you're first place in Mario Kart, and all you | get are stars, while the last place car keeps getting | banana peels that they then slip on. Not a very fun game, | but that's life. | hutzlibu wrote: | "But if you don't have enough money in the bank, then the | bank charges you. So it's actually more expensive to be | poor than it is to be rich, and the richer you are, the | faster you become richer." | | Not only banking, everything is more expensive, when you | are poor. | | Miss a payment, because the money was gone before the end | of month? You still have to pay it fully, plus fees. | | Can only afford a old car? Pay more with repairs and tax. | | You need money but have low bank reputation? Pay way | higher interest rate - if you are lucky to even get the | loan. | | You get screwed over, but cannot afford a lawyer? Bad | luck. | | Etc. etc. | pmorici wrote: | Does it matter what it was if it helped them pick good real | estate investments? | varispeed wrote: | If it becomes a bad choice you can blame the AI not | yourself. That's the whole point. | MegaButts wrote: | > I might get downvoted for saying this, but rich people | aren't necessarily smarter than anyone else. They're just | richer. | | You'd have to be an idiot to think otherwise. | floodyberry- wrote: | You're literally on the "rich people are better than" site | [deleted] | [deleted] | irthomasthomas wrote: | Juicero | | Theranos | | ZERA food recycler | | Nikola electric truck | | What are your favourites? | danjac wrote: | Re: Theranos - to give Henry Kissinger and the other very | old rich guys the benefit of the doubt, perhaps Elizabeth | Holmes is just a Bene Gesserit using the Voice to get | them to hand over their money? | thr0wawayf00 wrote: | I look at how the ultra-wealthy are lionized in the US and | genuinely wonder sometimes. It's amazing what we'll let | those people get away with because we too want to join the | exclusive club of high net worth individuals. | worik wrote: | > I look at how the ultra-wealthy are lionized in the US | and... | | I look at the ultra-wealthy make a diagnosis of obsessive | compulsive disorder | missedthecue wrote: | Interestingly, when I look at the top 5 richest people on | the planet, I don't think any are optimizing for wealth. | forbiddenvoid wrote: | They are not optimizing for wealth... anymore. It's easy | to shift your priorities once you are overwhelmed with a | resource you could not possibly use all of. | missedthecue wrote: | I think I would describe Jeff Bezos and Elon Musk etc... | as optimizing for making their companies succeed in the | end, not optimizing for wealth. | brimble wrote: | I sometimes wonder how much the fact that I'd stop | _trying_ to make more money at like $25m savings--and | maybe sooner--is a factor in my not having that much | money in the first place. Like I 'm not saying that's all | or even most of the reason, but I do wonder if the | running-up-the-score attitude is itself valuable for | making any decent amount of money in the first place. | qnsi wrote: | what do u need 25mil for? Seems arbitrary. With 7.5m u | can have 300k/y income from stock invested without | lowering your net worth. Seems more than enough for | anyone | brimble wrote: | Yeah that's why I threw in "maybe sooner". $25m _is_ a | bit arbitrary but is also somewhere around the point at | which I 'd have to start _trying_ to waste money before I | 'd risk touching principal. That's "never think about | money again, even a little" territory, for me (but then I | don't want a yacht or any of that), so at the top end of | the range in which I could see myself deciding never to | work again. | | Also, $7.5m is still low enough to be threatened by | healthcare costs and end-of-life care and such (x2 for a | couple, plus if a kid gets very sick before they're out, | or even after but you don't want them to be ruined by it, | et c). Not enough to wipe it out, probably, but enough to | diminish it substantially if you get a bad roll of the | dice. I wouldn't even need _that_ much to stop having any | motivation to try to make more, if I lived somewhere with | decent universal healthcare where having your savings | eaten by the healthcare /hospice-care industry is | practically unheard of. | missedthecue wrote: | If you did intelligence tests on 1000 American centi- | millionaires and 1000 randomly selected Americans, do you | think the difference in scores would be undetectable? | thr0wawayf00 wrote: | Yes, because a tremendous amount of wealth is inherited. | The idea that the vast majority of wealthy Americans are | self-made is a myth. | missedthecue wrote: | 80% of US millionaires are first generation. | | https://www.washingtonpost.com/wp- | srv/style/longterm/books/c.... | nsv wrote: | Big difference between millionaire and centi-millionaire | or billionaire though. You can save a million dollars | just by making the median American salary and making | large contributions to your 401k over 40 years, due to | the power of compound interest. | majani wrote: | Inheritance doesn't start and stop at money. There are | other inherited traits that may influence the scores of | the people in the study. | gumby wrote: | The majority of people world wide are, by that definition, | idiots. | Cyril_HN wrote: | > I might get downvoted for saying this, but rich people | aren't necessarily smarter than anyone else. They're just | richer. | | ... ish? | | Generally speaking, rich people may not be smarter than | anyone else but they probably aren't dumber. In other words, | they are likely to be making fewer mistakes and taking more | favourable risks, even if they aren't particularly any more | likely to spot an extraordinary opportunity. | thr0wawayf00 wrote: | > Generally speaking, rich people may not be smarter than | anyone else but they probably aren't dumber. | | You're kind of proving my point here though by making the | argument that rich people probably just make better | decisions than the working class. It's not really about | making better decisions as it is about having access to | better financial opportunities that others don't have. As I | stated elsewhere, the real estate firm I described offered | massive returns that you could not dream of getting in | retail investment situation, but it required a minimum $1M | investment, which obviously excludes most people. | | I could give you the name of the firm so you too could know | how to make that crazy money, but if you don't have the | million, you're SOL. It has nothing to do with how smart | you are, it has everything to do with how much money you | have. | dougSF70 wrote: | I have a similar feeling. I must be the fool for not raising | capital while money is so cheap, especially when I see firms | raising 7 figures with no revenue nor even a product. | agentdrtran wrote: | How does this differ from competitors outside of backups being | included? | rossmohax wrote: | I went on your page, and it looks like I am your target | audience - relatively tech savvy, want to ungoogle myself, | ready to pay for convenience of doing so, yet I got confused | quickly. | | 1. What do you sell? Hardware or some kind of management | software? Looks like latter, then why there is image of PiBox | all over the page? | | 2. What is cluster? Is it a single PiBox/another Linux or | something more? Word "cluster" implies to me there are many | somethings grouped, what are these somethings? | | 3. Price plans mention proxied traffic. What it is and how does | it fit into big picture? | | 4. I signed up, clicked add cluster -> "Bring YourOwn" and | nothing changes, it still offers me to buy PiBox with shipping | date in July(!! I know it's not your fault, but damn). How do I | add my own "cluster" (whatever it is)? | | 5. Once logged in, I can't get to the homepage anymore, it is | all dashboard now. | erulabs wrote: | Hi! Thanks for your feedback! | | 1. We sell both hardware and software, although our software | works with almost any computer that runs Linux - it doesn't | require our hardware and can run on anything that can run | Kubernetes. Obviously, this is somewhat "the deep end" for | many users, so our PiBox comes plug-n-play ready. | | 2. Cluster is a Kubernetes term, which we really should stop | using, although we have a core value of educating instead of | shielding our users - so we've tried to keep the "upstream" | terminology as much as we can. It simply means "one or more | Linux servers". Most of our customers simply run one machine | as their "cluster", but a small handful have dozens of | machines in the same group. | | 3. We're trying to bundle everything that's needed to host | apps and websites at home. For most users, home internet | connections aren't very good for this - the IP address | changes often, and sometimes ISPs do not even allow port 80 | or 443 to be exposed to the internet - we solve this by | proxying traffic directly to your cluster, bypassing | firewalls and avoiding the need for port-forwarding, router | configuration, etc. This means you can plug in a PiBox, | install, say, PhotoStructure, and access | `photos.home.erulabs.k8g8.com` (for example), without needing | to know anything at all about networking or firewalls or DNS. | We also offer backups, as another example of trying to make | home-hosting "complete". | | 4. Ack! I broke this last night! Thank you for pointing that | out, fixed now! | | 5. You can click "home" in the footer, but yes, some polish | there would be nice... One day we'll hire a proper designer | ;) | | Thank you for the feedback, very much appreciated. | colechristensen wrote: | Oh that's neat, I had almost exactly that startup idea years | ago, but it never got any further than describing it to some | friends over a beer. Looks like you created something pretty | cool! | tomxor wrote: | Here's a massively oversimplified and harsh view, but maybe | useful to contrast different ends of the spectrum: | | 1. Get VC style investment, become unicorn, pay yourself | 500-1000k a year immediately, ride the roller-coaster. Ending = | derail ? feel burned, but have some dosh to show for it, | possibly swallowing feelings of contempt towards investors due | to overriding decision that forced you to watch your baby burn | : Homerun, now watch everything you worked for be monetised | into a souleless husk of it's innocent beginnings, you can't | help but feel you sold out, quit once you had enough, dosh to | show for it. | | 2. No investors, go the hard way, grow slow. If you make the | right decisions, you will be able to afford to gradually | increase your salary to something modest, and eventually | perhaps even "good", you maintain full control of your product | and peace of mind of ownership and decision making. OR, you | keep making the wrong decisions, you burn through all your | money, possibly burn through your enthusiasm too if you don't | know when to quit. | | #1 can be risky for the soul 2# can be risky for the pocket | | If you aren't very materialistic and don't want expensive toys, | #2 can be quite attractive because of the sanity you are able | to create for your everyday worklife... the other thing is that | just because it isn't a 100B business idea, doesn't mean it | isn't a good business idea, it might just have a different | scale, maybe it can't pay 10k workers and a pile of investors, | but it could pay pay 10 or 100 people with the same salary, | minus all the corporate BS... it just takes longer to get | there. VCs want relatively quick money, but that is only | applicable to certain ideas that can reach a certain scale, | even then it comes at a non monetary cost that can be hard to | stomach. | Zhenya wrote: | Tried to check out your site, 'clicked start for free' on the | homepage but got: | | "Bad request" | | Can I learn more? | [deleted] | erulabs wrote: | Heh, maybe _thats_ why we don't have a 300M valuation! I | shouldn't comment on HN _while deploys go out_. Fix going out | currently, thank you! | catlifeonmars wrote: | Or maybe commenting on HN is a good way to get free user | acceptance testing. Comment on every deployment! | [deleted] | bhelkey wrote: | I went to your homepage. So I can pay for a server to run | backups and apps? The problem is that I have heard of exactly 0 | of the apps you highlighted. | | Excluding backups, essentially the pitch is, 'Pay us money to | run a server to serve apps you have never heard of.' Are | Element, Jellyfin, NextCloud things you expect your target | customers to know about? | | My perception is that Plex is moderately well known, I suggest | you highlight that. | | Disclaimer: I work for Google, all opinions are my own. | bhelkey wrote: | > KubeSail Platform allows you to provision software when | your customers signup and pay. Spin up cloud resources on- | demand, or physically ship your customers a plug-n-play | device. | | I may have misunderstood, this appears to be B2B? | | Edit: I went on the blog. My current understanding is: | | "KubeSail" is the physical box (some sort of pi with a sata | adapter). | | "KubeSail Templates" is some standardized wrapper around | opensource cloud software. | | "KubeSail Platform" is some sort of B2B deployment platform | for the open source wrappers. | lmilcin wrote: | It is. | | Everybody just focuses on two possible outcomes that are easy | to define -- what is the probability it goes bust and what is | probability it is going to add a letter to FAANG. | | I think the answer is laziness. If you invest money you | shouldn't care much about the size of the company you are | investing. From a purely financial point of view should be | looking at return on your investment where return is defined as | an integral over all possible future payouts adjusted for their | probability and adjusted for your risk tolerance. | gitfan86 wrote: | >I think the answer is laziness. | | If an investor wasn't lazy they wouldn't be an investor and | have a real full time job, OR they would be Jason Calacanis. | | I'm not saying that they are bad people, I totally understand | the appeal of getting a cushy, but potentially profitable | job. | bachmeier wrote: | Apologies in advance for providing unsolicited feedback... | | When I go to a landing page, I expect to be given a reason to | give the company my money. (And in fact I'm _hoping_ to be | convinced of that, because it means my life is better.) I | visited your landing page and do not know what problem you are | claiming to solve. It looks like a competitor for Digital | Ocean, but DO is easier to use and just as cheap. IMO your | landing page should make me say "I want to give them my money | so I don't have to think about [problem] again." | erulabs wrote: | No need to apologize, I appreciate the feedback! I tweak our | little initial landing page pitch lines all the time, and I | feel like the current state is pretty bad. I'll see if I | can't improve it :) | henriquez wrote: | in b4 libel lawsuit | gojomo wrote: | What statement or two in this writeup could be proven false in | a libel suit? | caust1c wrote: | Is this the new valleywag? Someone needs to be the new | whistleblower with a hint of sarcasm. Hope this is it! | dheera wrote: | I mean, as long as you go to work on time, and don't slack off, | you've been duly diligent. | mrintellectual wrote: | > You can pay yourself a "market salary" of $500,000/yr+. You can | use the money as a piggy bank for flights, hotels, Uber Black, | and other travel expenses. | | This is just downright false. The founders alone do not decide | C-suite compensation - that's reserved for the board of directors | (which should be a combination of one or more founders plus other | individuals selected by the investors). Travel expenses and other | "piggy bank spending" would also have to be reported in quarterly | or yearly financial reports to the shareholders. | | If what this article says is true, the investors deserve just as | much blame as the founder. | exogeny wrote: | I'm also interested in the Quixey story -- how can a company | raise >$100mm without ever releasing a product? What happened | there? | nikanj wrote: | Ask Magic Leap. | sulam wrote: | Hey, at least the founder is fluent in "Hebew". | ddp26 wrote: | I'm curious too, as there were some early LessWrong folks | working there, IIRC. I used to walk by their office in Mountain | View. | | This article discusses what went wrong with their finances, but | doesn't discuss what happened with the product (app search, app | deep-linking): https://www.axios.com/behind-the-fall-of- | quixey-1513301224-0... | missedthecue wrote: | Lernout & Hauspie was a dotcom era fraud that attracted | investments from several major players, including a $45 million | investment from Microsoft and millions more from Intel and the | Belgian government. At one point, it was valued at $10B. | | They claimed to have solved real time speech recognition and | translation, and claimed to have over $300M in annual revenues. | None of that was true. Their speech recognition software did not | work, and they had very little revenue. Their management went to | prison and it was one of the biggest financial frauds in modern | European history at the time. | mattkrause wrote: | My impression was that Lernout & Hauspie had had decent--for | the time--technology: they bought Dragon (admittedly in a shady | deal), PowerScribe, and a few other "real" companies. It was | certainly rougher than people might have desired, but this is | the first time I've heard they didn't have any actual products. | | I thought its downfall was more related to straight-up | accounting fraud, with fake sales, hidden loans, etc. | jacquesm wrote: | Yes, they did have a product and the parties that acquired | the assets at bankruptcy firesale prices did rather well. | ar7hur wrote: | I think Nuance bought most of the assets. And 20 years | later MSFT bought Nuance. Full circle! | missedthecue wrote: | Like you mention, they acquired legitimate companies, but as | far as I can gather, their own tech was fraudulent through | and through. This is an account of someone who went on a | roadshow with the Lernout & Hauspie sales team in the 1990s. | | " _They had this room with a whole wall of computers and you | talked into a microphone and the computers would do the | speech recognition. Then they put your sample through a | translation program, and the program would convert it to | another language. They were demonstrating the Holy Grail of | speech recognition in 1999. It turned out all that was done | by a man behind the curtain, literally the Wizard of Oz. The | man behind the curtain just typed it in; everything else was | an illusion._ " | | From page 37 of this columbia.edu PDF. | | https://www8.gsb.columbia.edu/valueinvesting/sites/valueinve. | .. | james_pm wrote: | TIL my daughter is Barbicide Certified! Who knew. I'm not | kidding. I put my last name in lookup.merits.com and her record | came up. I think it's actually correct as she did take some | courses on cosmetology in high school. | rwmj wrote: | Despite the weird name, the company is somewhat well known | amongst hairdressers/beauticians - my wife's a hairdresser and | I'd heard of them. They were one of a few companies doing | online courses in hygiene, PPE, covid safety, etc. who came | along at exactly the right time for the pandemic. | igorrek wrote: | Reminds me of the famous Wolf of Wall Street scene with M. | McConaughey: | | "Keep the client on the Ferris wheel, and it goes, the park is | open 24/7, 365, every decade, every goddamn century. That's it. | Name of the game." | ModernMech wrote: | I have to admit, for a long time I thought that Barbicide is what | you call it when a barber is murdered. | lordnacho wrote: | What I don't get is how some people have found the capital | fountain but others haven't, and it seems to have nothing to do | with whether the businesses are actually working. | | A friend of mine runs a fashion business that has worked with | actual A-list celebrities, yet turns away orders because they | lack the cash to make the stuff. | | Others have had a hard time getting appointments with VCs to show | their deck, and others have had a tough time getting those that | are in touch to put any money in. | | But in the news it's story upon story about firms getting piles | of money thrown at them. What's more is several of the ones I | know about have pretty much nothing for a business, and due | diligence would reveal it. | ModernMech wrote: | The VC model is all about making a lot of huge risky bets in | the hopes that at least one of them will pay off. So you don't | need an actual business that's making real money. That doesn't | fit into the VC model. What you need is a story about how your | business will be as big as Google or Facebook. That's what VCs | are buying. | | So if you come to them with a pitch for a business with solid | fundamentals and a clear map to profit, they will not be | interested. Why? Because even if you deliver 100% on your | promise, it won't be enough for them to recoup the bets they | made on a dozen other risky ventures. If you hit it out of the | park, you better be on target to be a billion dollar unicorn. | Otherwise, what's the point? They need to make up the millions | upon millions of dollars they've been betting. | | In that sense, it's much better to have a story about a juicer | that will be sold to billions of people and replace the concept | of juice as we know it. Or to have a story about how you will | revolutionize the world of medical testing even though the | technology is science fiction. VCs don't care, they just want a | story. All this talk about due diligence is them trying to feel | better about their bets. Really if your idea was sound it | wouldn't be something VCs would find interesting in the first | place (because then it would be obvious and therefore not | valuable to the tune of billions). | x0x0 wrote: | If you look at Theranos, the major funding sources were _not_ | traditional vcs. | | Total investment: $724m, approx. Waltons: $150m, Rupert | Murdoch: $121m, Cox family: $100m, DeVos family: $100m, | Carlos Slim: $30m, etc. I count at least $559m from non-vc | sources [1]. | | And then you have hedge funds like Partner Fund Management: | $96m. Whether you consider them a traditional vc or not, per | their lawsuit, Theranos faked blood test results. I guess you | can blame them, but I'm not sure how much duedil is going to | catch wholesale fraud. | | MedVenture, a vc, did due diligence and didn't invest. GV | turned them down. | | VCs certainly didn't make Walgreens not do duedil before | partnering with Theranos. etc. | | I don't think Theranos is proof that vcs are, as a class, | incompetent and just want a story. | | [1] https://www.wsj.com/articles/theranos-cost-business-and- | gove... | lmeyerov wrote: | Different things. | | - Hard to scale a celebrity fashion business in practice and as | a story. A family friend started a successful jewelry company | popular w/ Hollywood types and it's growing great, just nothing | like Splunk, Notion, SpaceX, etc. There are outliers here - why | everyone loved D2C co's like Dollar Shave Club - but gotta fit | that growth model. | | - Much of VC is largely story driven and, at least in b2b, | rides a delegated sales/marketing motion (vs product/tech ROI | motion). Once the first big money is in (pure pitch), there's a | funny treadmill. Each round gets spent on artificially pumping | numbers (big marketing, big sales, ...) enough to hit the next | round before the money runs out. As long the #'s match what | looks good in a deck, the co is largely good. However, most | investors don't actually do truly deep diligence to identify | whether the core is hollow, just that if there's enough that in | 18mo + 36mo there's a good enough story on getting a bigger | investor in. That can easily be something like "ignoring | company quality, is there any sort of market demand here?" Each | startup has issues and VCs often have surprisingly little time | (ex: read up on Tiger), and you only hear about the Yes's and | not the Passes (startups just need 1-2 Yes's), so not | surprising to see some dumb/ok-money float in. So 7 years and | $100M+ of funding later, sales/marketing-driven customers | probably start churning out and the leads are burned, and | oops... but maybe it's ok and they've exited. Bringing back to | the founders, it's not that they're building a great company, | but that they can sell that story and delegate operations to | the 'adults' (sales/marketing/engineering) who keep the facade | alive through the hollow growth of an otherwise busted product. | There's probably a similarly unsatisfying set of common stories | for consumer co's ;-) | DethNinja wrote: | Yeah, if you got "deep" connections, you definitely can avoid due | diligence. | | Where do you think all that printed money during pandemic | actually went? Only a minuscule amount was given to plebs, rest | goes to shady startups and gets diluted. | | Such evaluations also make naive founders believe that they can | get a similar amount. If you aren't in the club, you won't ever | see a dime of this funny money. | sjtindell wrote: | That doesn't seem right. Projects now are significantly more | developed than they used to be, although scams still abound. In | the early days I bought something called Hobonickels and it | went up 5,000%. It was literally a copy/paste with a changed | name. Today the projects have roadmaps, teams, and products | that release. They do more auditing, both security and | financial. Because the market has demanded it, not some | regulatory body. | mceoin wrote: | Is there any evidence that Kagan took money off the table or paid | himself an outsized salary, or hired his friends on exaggerated | salaries, or used the startup's funds as his piggybank? | | Similarly, the article conflates A16Z leading the seed round but | not the follow on round as being some kind of smell. A16Z | certainly do lead follow-on rounds, but it isn't the norm. (It | would be interesting to know if they exercised pro-rata or not, | but even that isn't necessarily indicative of anything.) | | I don't know if there is or isn't fraud here, but the only | evidence seems to be that Kagan was good at fundraising, raise a | lot in a frothy market on little traction, and did not succeed at | building the product or a successful business. | | One of the best things about the tech ecosystem is the lack of | stigma around failure. I hope people don't lose sight of that as | round sizes and valuations spike. | qnsi wrote: | there is small proof of fraud though. I am now writing from | memory but they claim they have many clients when their own | search shows they have only few small clients. | manquer wrote: | Likely a16z exercised their pro-rata as a16z is also listed in | their Series B on Crunchbase along with the seed. | | There are any number of reasons a lead investor in your seed | doesn't lead your Series B, and there is no way to know a16z | did not want to lead in the first place. A different fund may | give a larger check/different terms/ a partner you want on | board and you may accept that instead etc. | | There are many companies with outsized valuations that do not | justify the revenue or any other metric, it is neither new to | this wave (or even the dotcom wave) nor is it all that | uncommon. On the surface it doesn't look like there is anything | out of ordinary Kagan has done yet. | | It is high risk industry after all, if investors put strong | filtering criteria then they risk loosing on deals which were | actually legitimate or became legit with funding, it is risk | VCs are quite aware of and willing to take. | | A Buyer should be beware of what he is getting into, | accreditation is a thin shield,With Increasing SPAC listings | and inflated markets even public listing won't protect them | from early stage startup shenanigans these days companies like | Nikola (anyone can invest ) do exist. | [deleted] | gumby wrote: | > Similarly, the article conflates A16Z leading the seed round | but not the follow on round as being some kind of smell. | | Typically everybody _wants_ a new investor to lead the next | round. A completely inside round is usually a sign that a | company is in trouble (though it could mean the deal is so | sweet the insiders don't want to share). | | As in investor, a newcomer is reassuring that you aren't simply | in love with the business. | | And for management, investors, and of board, someone new | setting a price guarantees that the new price wasn't determined | on some sweetheart basis. | jiveturkey wrote: | I'm kind of more interested in "SV Gossip". | | "Launched 2 hours ago". Can't look at other articles without | subscribing. | er4hn wrote: | I'm not sure if they have other articles. When I look at their | Archive I just see this one. | | Maybe this is their MVP? | pavlov wrote: | _> "While the investors listed above can take care of themselves, | unfortunately, invitations to invest were also extended to small- | time individual angel investors. Thousands of AngelList members | were invited to invest personal checks ranging from $2,000 to | $20,000+ via the mailing lists of multiple syndicates."_ | | It's worth noting that any US person investing this way is | required to be an accredited investor, which is another way of | saying they've proven they can afford to lose that $20k (or | whatever they're putting in). | | The accredited investor rules in USA seem draconian, but if it | weren't for them, we'd be absolutely drowning in fake tech | companies taking money from retail investors. (Today those fakes | are in crypto, where you can pretend your investment offering is | a utility token or maybe a donation to a revolutionary DAO that | just happens to issue tradeable crypto-tokens in return, and hide | behind pseudonyms to make it harder for SEC to find you | eventually.) | sjtindell wrote: | Where is the line of personal responsibility? Fraud should be | prosecuted. Isn't that the protection? These are laws that | ensure only the rich can get richer. Terrible. Literally a law | that says "you're too stupid, we're protecting you". | thethimble wrote: | The fact that laws prevent people from doing things that | would cause them harm is a feature, not a bug. | | The accreditation requirements are not absurdly stringent (eg | $200k annual income). I think there's a clear argument that | people who do not meet those requirements can neither | accurately judge the risk of their prospective investments | nor afford to lose their investment (high likelihood). The | current crypto markets are perfectly bearing this line of | thinking out. | | Retail investors are free to invest in public companies where | there are significantly more fraud protections in place. | thethimble wrote: | Also note that the SEC has recently (2016) relaxed rules on | equity crowdfunding to allow retail investors more access | to such deals while also mitigating some components of risk | or fraud: | | https://www.sec.gov/smallbusiness/exemptofferings/regcrowdf | u... | Turing_Machine wrote: | > Fraud should be prosecuted. Isn't that the protection? | | While throwing a (likely bankrupt) fraudster in jail might be | emotionally satisfying, it doesn't get your money back. | | These laws are aimed at protecting 87-year-old Aunt Minnie, | who has some money in the bank that her late husband left | her. | agency wrote: | As an alternative there's always Matt Levine's "Certificate of | Dumb Investment" proposal: | https://www.bloomberg.com/opinion/articles/2018-09-24/earnin... | | 1. Anyone can invest all they want in a diversified portfolio | of approved investments (non-penny-stock public companies, | mutual funds and exchange-traded funds with modest fees, | insured bank accounts, etc.). | | 2. Anyone can also invest in any other dumb investment; you | just have to go to the local office of the SEC and get a | Certificate of Dumb Investment. (Anyone who sells dumb non- | approved investments without requiring this certificate from | buyers goes to prison.) | | 3. To get that certificate, you sign a form. The form is one | page with a lot of white space. It says in very large letters: | "I want to buy a dumb investment. I understand that the person | selling it will almost certainly steal all my money, and that I | would almost certainly be better off just buying index funds, | but I want to do this dumb thing anyway. I agree that I will | never, under any circumstances, complain to anyone when this | investment inevitably goes wrong. I understand that violating | this agreement is a felony." | | 4. Then you take the form to an SEC employee, who slaps you | hard across the face and says "really???" And if you reply "yes | really" then she gives you the certificate. | | 5. Then you bring the certificate to the seller and you can buy | whatever dumb thing he is selling. | | 6. If an article ever appears in the Wall Street Journal in | which you (or your lawyer) are quoted saying that you were just | a simple dentist, didn't understand what you were buying and | were swindled by the seller's flashy sales pitch, then _you_ go | to prison. | cm2012 wrote: | This is the funniest thing I've read this year | loeg wrote: | Subscribe to Money Stuff! It's free and full of similar | gems. | | https://twitter.com/matt_levine/status/994296126055608320 | SilasX wrote: | Related: Robin Hanson's idea of "would have banned" stores | (that sell things that would normally be banned, with some | kind of filter that you understand why they were banned): | | https://www.overcomingbias.com/2007/03/paternalism_is_.html | | https://www.lesswrong.com/posts/PeSzc9JTBxhaYRp9b/policy- | deb... | dwohnitmok wrote: | I enjoy Matt Levine's pieces and I understand this is meant | to be humorous and far from serious, but it's also | instructive to think about how such a scheme could go wrong, | because it illustrates how hard incentive problems are. I | think the big problem would be if the "Certificate of Dumb | Investment" by happenstance didn't seem so dumb anymore (a | couple of lucky, high-profile investments really take off and | are in the news for weeks) and then say a million people (< | 1% of the U.S. adult population!) pile in to the next dumb | investment and get all their money stolen. | | No matter what they've signed, that's still a million people | who've gotten their money stolen and they'll be out for | blood, communicating on forums, in-person, etc. Beyond the | brute fact that a million people have had money stolen, which | is bad, there's the secondary problem that if just another 1% | of that million still complains to newspapers, there's no way | that the government could arrest 10,000 people at once | without major public backlash, especially if those people | play their cards well and can spin a media story of "victims | of financial fraud further being punished by the government." | If you've got 10,000 examples to choose from, there are bound | to be sympathetic stories which capture the public attention. | | And then at that point, if the government chooses not to | prosecute those cases, the floodgates are loose and the | "Certificate of Dumb Investment" has lost most of its power | and purpose. | DangitBobby wrote: | Yeah, it's funny as a joke but not really a sound | principle. We have all sorts of people screaming "that's a | stupid investment!" for stupid investments. The problem is | not that the nay-sayers aren't heard. It's that the buyers | are convinced everyone else is a h8er or sheeple, and will | buy whatever dumb shit they've been convinced of | regardless. | fragmede wrote: | Have you ever been party to a class action lawsuit and | gotten some amount of recompense for your troubles? And had | that not been part of the mainstream news so no one you | already knew was part of it? Because they happen all the | time, and the government doesn't go after them - damages | are civil not criminal, so the lawyers are the ones getting | richer. As far as "the big problem", people win the lottery | every day. It's still not a sound investment strategy | (unless you have some sort of edge). | pg_bot wrote: | It always seemed a bit nonsensical to me that you can't invest | in companies (in the USA) when you can spend your money freely | in nearly every other respect. You can waste thousands on | gambling, food, clothing, elective surgery, penny stocks, and | all sorts of other activities without anyone batting an eyelid. | If the goal is to stop idiots from pissing their money away, | regulators have seriously underestimated the creativity of | fools. | robotresearcher wrote: | You can't enter the gambling, surgery and stock markets with | naught but a Keynote deck. | pg_bot wrote: | I wasn't talking about starting a casino or surgery center. | I was talking about playing roulette or turning yourself | into a human cat hybrid. | robotresearcher wrote: | I understand. But there are strong feedback mechanisms in | place so that a casino will actually pay your (unlikely) | winnings and a surgeon will actually cat your face, which | have to do with scrutiny, penalties for bad behavior, and | the cost of entering a highly regulated market requiring | lots of customers to recoup. They provide the service | they claim. | | The story is about companies whose business model is | simply to take investment money. They do not try to | provide the service they claim. | ksdale wrote: | That's what the story about, but non-accredited investors | aren't only prevented from investing in those particular | companies. They're prevented from investing in the good | ones, too. You say that the casino will pay your unlikely | winnings, but the thing about casinos is that unless you | actually have an edge, the more you gamble, the more you | lose. The vast majority of games have odds that result in | the house making a profit over time. And yet we're | allowed to spend our money freely in casinos. | | There are all sorts of penalties for bad behavior on | behalf of companies. Of course, that doesn't guarantee | they'll make money, but I think it's a very valid point | that we're allowed to waste our money on all sorts of | dumb bullshit, but not on something like investing in | startups, which at least has a _possibility_ , however | remote, of resulting in some sort of return. | robotresearcher wrote: | I'm all for people's freedom of action. | | Why do you think we have these rules, since a free-for- | all is the default? Is this a barrier to entry that | protects the rich, or a barrier to getting ripped off | that protects the less rich? Or both? | | Chesterton's fence and all that. | | You are _allowed_ to throw all your money away if you | want. | | These rules are (at least partly) protecting you from | having someone take your money under false pretenses. | ksdale wrote: | I think they're absolutely there under the pretense of | protecting people, and they do protect people from scams, | at the cost of preventing average people from | participating in one of the biggest wealth creation | events in modern history. I think they're hypocritical, | specifically because people are allowed to do all sorts | of (in my opinion) far dumber things with their money. I | think the world would be a much better place if gambling | were illegal and all the people who currently waste their | money at slot machines spent all that time thinking about | how companies work. | | You're correct that I'm allowed to throw my money away if | I want, so why am I not allowed to do this? | robotresearcher wrote: | Because if you got scammed, you threw your money away but | you didn't want to. An important difference, no? | ksdale wrote: | Do you think most of the people who go to casinos think | they're going to lose money? I think an unfortunate | percentage do not realize at all that the odds are | stacked against them. Their misunderstanding of | statistics means they are quite literally getting | scammed. And for the remainder that are doing it for | entertainment, that's quite literally what I'm proposing | be the standard for investing in companies. | notahacker wrote: | > we're allowed to waste our money on all sorts of dumb | bullshit, but not on something like investing in | startups, which at least has a possibility, however | remote, of resulting in some sort of return | | A lower possibility than the casinos or lotteries, if | we're talking retail investment in early stage startup | pitches you have no affiliation with. The reluctance of | everybody to acknowledge this is the reason the law | exist. Most people walk out of casinos having lost some | of their money. Most retail investors in random business | propositions will never see any of that money again. | ksdale wrote: | It really depends on what you're investing in, doesn't | it? We let people spend hundreds of thousands or millions | of dollars in casinos over the course of their lives. | When you go to a casino, you're paying for the thrill of | gambling, and I think random business propositions offer | the same thrill at worst. | notahacker wrote: | Well yeah, depends which number you bet on roulette or | whether you're the best poker player in the room too! | Perhaps we could regulate startups like gambling and | allow them to welcome anyone but only allow them to | market the "thrill of gambling" like casinos instead of | delivering very confident financial projections about how | much they're going to make. But I'm not sure investment | would be forthcoming then, because actually I think | people want to put their savings into startups to get | rich. | | When gambling is restricted, gamblers generally _don 't_ | argue it's a conspiracy to prevent them getting rich. The | delusion that retail startup investment isn't the bigger | gamble with worse odds (unless you're in the leagues | where you can personally prod the founders on a daily | basis) is why accredited investor rules exists. It'd be a | lot easier to believe arguments relaxing them were sound | if the people making them were arguing it was depriving | them of fun rather than depriving them of the opportunity | to get rich. | jakelazaroff wrote: | _> They 're prevented from investing in the good ones, | too. You say that the casino will pay your unlikely | winnings, but the thing about casinos is that unless you | actually have an edge, the more you gamble, the more you | lose. The vast majority of games have odds that result in | the house making a profit over time._ | | What do you think is the expected return of investing in | a private company? I don't have data to back this up, but | I'd bet it's negative -- especially if you hold common | stock, or whatever non-preferred equity retail investors | would get. | | And if, on top of that, we relaxed the guard rails | preventing people from being scammed? I think the odds | would be much worse than you'd find in a casino. | ksdale wrote: | I personally find it less morally repugnant to let people | make bad bets on companies than to let people lose their | money at slot machines all day. | jakelazaroff wrote: | Sure, you're entitled to that. I find it less morally | repugnant to do whatever keeps people from getting | scammed. | ksdale wrote: | I'd also be fine with making casinos illegal, if that's | what you're proposing. | colechristensen wrote: | It also protects against the opposite effect: in an | environment full of scams, you get run out of business for | being honest because you have a hard time competing with the | scammers. | Datenstrom wrote: | > in an environment full of scams, you get run out of | business for being honest because you have a hard time | competing with the scammers. | | This effect was really well illustrated for me Golden Sun | (Red Rising saga book #2) by Pierce Brown. The protagonist | is telling an older general about how he isn't worried | about a scheming snake oil politician type and is corrected | about why they are dangerous. Because "Liars make the best | promises." | | > "Pliny is a leech," I say. "A liar as much as you're an | honest man." "And that makes him dangerous. Liars make the | best promises." | benatkin wrote: | I'm not sure, it seems that many who make good money but are in | debt can invest: | | > Individual investors with an annual income or net worth less | than $107,000 can contribute either $2,200 or 5% of their | annual income or net worth, whichever is greater. The old rules | limited them to the lesser of those two numbers. | | > Investors with annual incomes or net worth greater than | $107,000 can contribute up to 10% of the highest number. | | https://news.bloomberglaw.com/securities-law/startups-and-cr... | djbusby wrote: | That's RegCF, accredited is under RegD. See also RegA and | RegB based investment. There are numerous options. | scsilver wrote: | I'm glad they expanded accreditation to licensed professionals | who don't have 2 million. Before it was too much gatekeeping | just on money alone. | fossuser wrote: | I get that they exist to protect people from getting scammed, | but it also locks people out of some of the best ways to create | wealth unless they're already rich. | | Crypto is an example of both. More people get scammed, more | regular people accumulated wealth. Outside of that look at | startups, regular people are locked out of early stage | investment (including many of us in the industry). | | I understand the trade off but find it frustrating I'm | constrained for my own good. It feels like being held down to | the level of the (uncharitably stated) dumbest person. | NikolaNovak wrote: | Hmmm; According to which metrics and stats is investment in | early startups / random new companies and schemes, the best | way to accumulate wealth? How do we define "best" - safest? | Highest top possibility? Lowest risk? Over which period of | time? | | Our experiences may vary. I have far more visibility into | people scammed left right and centre where I'm at. Those who | did make money on sketchy schemes are lucky outliers (who of | course believe themselves to be savvy risk takers fair enough | ; I see most of them as incorrigible Russian roulette players | who got lucky but not wiser). | eezurr wrote: | The relatively little money (and little experience with | startups) that most retail investors have would not be enough | to diversify their risk and thus be equivalent to gambling. I | think the figure is 5% of startups are successful? | | Anyone who has become wealthy through crypto became so | because they gambled. And, bitcoin has a history of being | manipulated. I had a friend who was part of a network that | communicated to him when to buy and sell bitcoin. He | mentioned "the whales" a few times when talking about it. | kryogen1c wrote: | > locks people out of some of the best ways to create wealth | unless they're already rich | | im sorry what? investing in startups is one of the best way | to create wealth? you have a source that talks about average | and median returns on investments across all startups? | fossuser wrote: | I don't care about the average or median case and 'some of | the best' is suitably subjective, I just want the freedom | to make my own choices. | | The entire bet with startups if you're not rich enough to | fund via an incubator is picking a team or company you | think is good and kicking in some smallish amount of cash | (~10k), angel list basically. If you're in the industry you | may be better positioned to do this than a random person. | We can do this by going and working for a startup and | dumping money in to exercise options (arguably even riskier | since now your job is also tied to its success), but not by | just kicking in some cash unless you hit the accredited | investor threshold. | | I should be able to choose to do this if I want to. Instead | I can only put money in after the company is public and a | lot of the early return has already been taken by people | rich enough to be allowed to buy in earlier. | | Meanwhile I could go and gamble at a casino on slots | without any proof that I'm rich enough to waste money that | way. | jonas21 wrote: | If you've been in the industry for a while, you may | already qualify as an accredited investor. The income | threshold is $200K/year, which according to levels.fyi | would easily be met by someone with just a few years | experience at a FAANG, for example. | | If you don't qualify on income, you can also qualify by | passing the Series 65 exam, which is a 3-hour multiple- | choice test that anyone can take. | | Once you're an accredited investor, you'll find that the | biggest barrier is finding good startups who will take | your money. The ones who are interested in taking a small | amount of cash from some random person are probably the | least likely to succeed. | lkrubner wrote: | " _The accredited investor rules in USA seem draconian_ " | | Think carefully about what the word "draconian" means. There is | no organization that is responsible for tracking or allowing | membership in the club of "accredited investors." This article | suggests 1 in 10 USA households meets the definition: | | https://dqydj.com/accredited-investors-in-america/ | | Look around on Google and you will find many different | estimates. Since there is no central organization that actually | tracks this number, it is impossible to point to an official | number. | | If an unaccredited investor invests in a small startup, there | is no penalty for the investor. Because of that, I would not | use the word "draconian." | [deleted] | cure wrote: | > The accredited investor rules in USA seem draconian | | I don't know about that - it hardly seems draconian, it's a | trust-based system, entirely reliant on self reporting. Most of | the time you just have to check a box that says you are an | "accredited investor". Sometimes they want you to upload a few | bank statements. | djbusby wrote: | If you check that box, then others run diligence and discover | you've lied it's called fraud. Attitude like yours is why | many early companies are obligating their investors to prove | net-worth. So many people want to be investors they'd lie to | get there - number one sign you're a bad investors. Don't | cheat! | blowski wrote: | I didn't see the OP saying you should lie, only that the | system relies on self-reporting. If anything, I'd guess | they agree that the system is open to abuse, but they're | not saying people should therefore abuse it. | djbusby wrote: | Perhaps I'm just bitter | | I've been part of a non-zero amount of deals where there | was one, or more, parties who've made that false claim. | In an open group I participate in there are some early | Angels and want-to-be investors. I've observed folks | attempting this shortcut. And every time it's fucked over | multiple people. So, yea, it's trust based - and truth | will out. | cure wrote: | Sorry to hear that, that sucks! | Drdrdrq wrote: | For the uninitiated, what happens in this scenario? Does | the deal fall through, do the other investors need to | cover for the missing party,...? | cure wrote: | > Attitude like yours is why many early companies are | obligating their investors to prove net-worth. | | I didn't express any attitude about the current rules | around "accredited investors", I merely expressed what the | current status quo appears to be, i.e. the system is | largely based on self reporting. Obviously, there are all | sorts of problems with that. | | For what it's worth, I don't particularly like the current | rules around "accredited investors", they seem pretty | arbitrary, and at the same time too lax (self reporting) | and too restrictive (obviously, these rules give rich | people access to a lot of opportunities not available to | others). | catlifeonmars wrote: | OP was saying the system is flawed, not that they are | exploiting the flaws in the system. Those aren't the same | thing. | benatkin wrote: | From what I can see, check stubs would work as well, you | could have no money in the bank... | | https://news.bloomberglaw.com/securities-law/startups-and- | cr... | vmception wrote: | Can someone tell me more about Rose Parks Advisors and the | predilections of Matthew Christensen? | | I have a view into family offices and there is a lot they can do, | I am just wondering more about if there is a relationship between | this startup and that family office to make this worth that | family offices' time, or if that family office really just has | that much cash to place. Many times family offices can have a | large limited partner of the family that is their non-profit | foundations, which is basically dead capital that can be used to | spruce up any investment, and so that is what it is used for. | Many quick raises are done by institutional investors that are | just endowments. | RC_ITR wrote: | TL;DR | | The founder of Coupang was one of Christensen's students; the | check he put in turned out to be one of the all-time great | investments. | | Rose Park is flooded with cash and credibility (but under- | indexes on access vs. traditional VCs), so they're working hard | to get into a lot of deals. | | https://www.forbes.com/sites/alexkonrad/2021/03/15/rose-park... | vmception wrote: | > By structuring Rose Park as one evergreen fund instead of a | typical venture fund, the Christensens were able to invest in | a mix of public and private companies .... ""We're allowed to | invest in any type of security in any geography, any | industry, any stage, but only when the investment thesis | derives from my dad's research" | | Interesting. I would like to see more of that. I am also | curious about the evergreen fund structure. I helped form a | hedge fund with an aggressive sidepocket , where sidepockets | act like a VC fund but without burdening the limited partners | with capital calls. But being even more flexible really makes | the subscription documents and prospectus complicated, and | making additional funds are expensive and time consuming, | even as just a family office without outside investors, the | separate limited partners are just entities that the family | has formed before. Pooling assets from trusts, retirement | plans, individual family members, and non-profits like | foundations. | | I'm mostly confused/inspired by which offshore feeders are | being used. | mikemac wrote: | > When you're the founder of a startup that takes in a $50M | investment like this, you're all set to live off the money | however you want. You can pay yourself a "market salary" of | $500,000/yr+ | | This is just not true, even for a venture backed company like | this. The Board of Directors should be approving all executive | comp; seems like a baseless claim to suggest there isn't some | basic governance at play here | enra wrote: | I don't know what the situation is here but a startup can setup | the board or governance in different ways. Founder could | control everything directly or indirectly and the board might | have one or no external directors. | | And while technically you should inform the board of executive | comp changes, it's not like the investors generally care that | much in the early stages or there is some box they have to | officially check. You could just go to your payroll system and | increase your comp. They don't come to check your payroll or | accounting unless they suspect something so it's not that hard | fly under the radar for some time. | airstrike wrote: | > Founder could control everything directly or indirectly and | the board might have one or no external directors. | | Uhh, investors are definitely going to demand seats on the | board after funding | margalabargala wrote: | Some do, some don't. Depends on the investor and the | company. | | I work for a startup that has raised a bit over $30M, with | no board seats given up. | mikemac wrote: | Do you really think Greylock, A16Z or Azure Capital has no | interest in BOD seats and no experience forming a | Compensation Committee? | | As CEO, the Board is your boss. If you instruct payroll to | bump your salary up without proper approval you will probably | be looking for another job. | | These investors have a basic fiduciary duty to their LPs to | make sure there is no blatant fraud, and you don't get to | billions under management and not understanding this. | enra wrote: | There are hot rounds you have those names involved and they | all don't get a board seat. Usually only the lead gets a | board seat (not always) and growth investors (Tiger) also | don't typically ask for board seats. Depends on the amount | of leverage the founder has. If A16Z is wanting to win a | deal and Tiger is offering more money and no board seat, | and the founder wants that then A16Z either has to pass or | offer the same. | | You're overestimating the formalness of the early stage | startup corporation practices or board (seed-series b) and | the reporting requirements. Most of the time it's like any | other meeting, you chat about what's going well, what's not | and how to improve. It's not like public company board at | all, there most definitely are no committees (maybe on | paper). If you need approvals, like for employee option | grants, you just send them an fyi and a docusign (this case | the approval is also after the fact. You already gave | someone an offer and the accepted it. It would be hard to | go back to change it so approval is just a rubber stamp.) | | It's up to you as board define what kind of board meetings | you have and what's on the agenda. At the end of the year, | most VCs ask you submit some basic financials, cap table | etc but for example the CEO's salary is not one of those | numbers. The BOD might be also completely fine with | $500k/year salary. | | As the startup grows and matures, the practices mature too | but likely that won't happen before ~100 employees or after | Series B. | | I can assure you that as CEO, I could go to our payroll | service increase my salary. We don't even have a payroll or | HR department. No-one would really know until maybe next | year when accounting gets done. Obviously, I wouldn't do | that but if you don't care about your reputation and there | to scam then it's very easy to do. If the investors find | out, they might not be able to get rid of the CEO that | easily, since like I said before, the founder(s) could | control the board by votes or by seats. It's also unlikely | these investors would cause any publicity around this | because it's embarrassing to them and pushing a founder out | could hurt their reputation (like when Benchmark kicked | Travis out of Uber), they would just more likely walk away. | spamizbad wrote: | My understanding is that "hot" founders receive a | tremendous amount of latitude from their BOD - so they | wouldn't think twice about "generous" (by startup | standards) executive comps. | chernevik wrote: | "When you're the founder of a startup that takes in a $50M | investment like this, you're all set to live off the money | however you want." | | I think if you're going to suggest this about a particular | startup, you probably should have some documentation this is | actually happening. | Aunche wrote: | > You can pay yourself a "market salary" of $500,000/yr+. | | That is like L6 FAANG money. Even if you're just defrauding rich | investors, you're still likely putting more than an L6 amount of | work. I don't think these entrepreneurs are doing doing it for | the money like the author is implying. I think they genuinely | enjoy being an entrepreneur, sometimes to a delusional extent as | with Elizabeth Holmes. | qnsi wrote: | CEO and tech skills are vastlty different. Doubt most startup | CEOs would ever get hired by Google ___________________________________________________________________ (page generated 2022-02-07 23:00 UTC)