[HN Gopher] Meaningful exits for founders (2016) ___________________________________________________________________ Meaningful exits for founders (2016) Author : freediver Score : 85 points Date : 2023-08-18 15:16 UTC (7 hours ago) (HTM) web link (medium.com) (TXT) w3m dump (medium.com) | yesimahuman wrote: | Regardless of where you sit on the line between ambition and | optimizing for founder outcomes, I think we can all agree first | time founders aren't thinking about the math here enough and are | far more susceptible to listening to what VCs say they should do | and care about. Having been in this position, all I can say is | I'm glad we didn't raise more money because we had far more exit | options. I really appreciate what Bryce and indie have done to | change the narrative here. | SandersAK wrote: | The reason there is not a lot of dialogue around this is because | the numbers don't work for all parties at the right time. | | When you have a small founder team, you need capital for | essentially nothing to show. You can't raise that capital selling | the $170M exit dream to angels or a fund. | | Conversely, VCs are assuming a 10% or less success rate across | their portfolio. And of that, maybe 2-3% of portcos really | returning everything. | | So they don't have the luxury of shepherding 100 portcos to $170M | exits, since in reality, a $1b exit has a similar chance of | happening as a $170M exit. Which is to say very very low. | | There's no magic sauce, no prime formula, no wizened or | sageinvestor. It's a shit show from start to finish. You're best | off finding investors who are on the same wavelength as you, and | focusing less on whether you hit a home run or a grand slam. | | When you get to a place where you're printing cash or whatever, | then sure, make sure the math works out for you. But for 99% of | all founders, this question never comes, and they spend too much | time thinking about it. | foobiekr wrote: | So in the failure case, very little of it matters, but in the | success case the VC industry can be exceptionally predatory - | participating preferences, multipliers, etc. etc. etc. | | Honestly, it takes no time at all to have clean term sheets and | you don't have the option to fix it later. | latchkey wrote: | Sage advice. Most startups fail, so squabbling over the numbers | has always seemed absurd to me. I'd rather see discussion along | the lines of "what happens after we do well" because you have | no idea of what "well" will be down the line. | santiagobasulto wrote: | This is a great post, but I think it fails to see one important | point... | | > a founder selling at the Series D price of $210M, would make | the same amount of money at exit as they would have if they'd | sold for $38M after having only raised a seed round (...) | Lifetimes of work and risk lie between a Seed round and a Series | D round. And, despite increasing the value of the underlying | business 7x, the dollars at exit for the founder remain roughly | the same. | | Even though the exit dollars might be the same, it's failing to | see two important points: | | a) founders taking money off the table in early rounds. Founders | can sell part of their equity at their company just as a personal | "cash out" strategy. 1password founders took their Series A | mainly for this. b) the network capital gained at a Series D | company is NOWHERE near at a Series A company. It's impossible to | put a dollar amount to that, but it'd say your career will be | completely different from a successful Series A or Series D | company. | dublin wrote: | I'd take a solid cash cow producing producing value for | customers at an A-round size over growing it to D-round size | any day. Maybe because I've just been through enough of this | crap to know that yes, you want to make money with your | startup, but there are some things no amount of money can | compensate you for... | | And a company spinning off a fair amount of cash can be grown | surprisingly rapidly organically, though it does take several | changes in how the company is run as it hits inflection points | (there are usually several!) due to growth (e.g. people, | processes, and effective business/marketing/sales oversight | become more important to grow beyond $6-10M/yr...) | benjaminwootton wrote: | I think for most founders, exiting with 100% ownership of a small | pie is a much better proposition than exiting with 10% of a large | pie IF you have that decision to make. The risk, hard work and | difficulty in the latter are exponentially greater. | graiz wrote: | The links referenced in the article didn't work, this was from | 2016. https://medium.com/jme-venture-capital/meaningful-vc- | exits-2... | | I couldn't find the capshare post but there was a similar slide | deck from capshare: | https://www.slideshare.net/IanBeckett3/analysing-5000-startu... | dang wrote: | Related: | | _Meaningful Exits for Founders (2016)_ - | https://news.ycombinator.com/item?id=17486303 - July 2018 (23 | comments) | logicallee wrote: | This is from seven years ago. The rules have changed. In today's | connected world, it is impossible to have a meaningful exit as a | founder. You cannot keep or enjoy any money, or raise a family, | or do something else after exiting as a founder. | | Instead, you can look forward to a level of interference you | couldn't imagine, followed by immediate and lifetime torture by | dark forces who think it is wrong for anyone to have any money. | | I now recommend founders simply don't take an exit, set their | salary at $1 and work all day forever for the love of the | business. For income, get a day job and don't be too successful | at it either. | | The rules of the game have changed and founding a company as an | owner is all risk, no reward. | | You can still found a business you are so passionate about that | you would be happy to be tortured for the rest of your life for a | chance to change the world in a positive direction. | | If you would die for your business, it is still worth doing. | jonfromsf wrote: | What are you going on about? | ilrwbwrkhv wrote: | It's crazy that a series d exit would net a founder 7 million and | yet my bootstrapped business returned a 4 million profit for me | last tax year. | | I think people need to learn more about how to scale a | bootstrapped business. Even when I was getting started, I read a | ton on VC funded businesses but not a lot on non VC funded | businesses. | | I think there is tremendous amount of money to be made in | bootstrapping as well. I think a lot of indie hackers / | bootstrappers also think too small. | | You can definitely make 100s of millions of dollars without VC | money. That part of reality has not been properly dispersed. | [deleted] | hodgesrm wrote: | This. In addition to better outcomes for founders it can be a | better outcome for the economy at large including but not | limited to customers and employees. As a whole society would be | better off with fewer Ubers & WeWorks. | idlewords wrote: | WeWork was a useful way to make SoftBank subsidize office | rentals for freelancers and small businesses; it had high | social benefit. | dublin wrote: | Given what WeWork charged, you can't convince me there was | much subsidy there, nor much social benefit. | | "Cool offices" are something that should never even be | talked about by a founding team until they have several | spare million sitting in the bank. Until then, rent cheap- | ass real estate and buy second-hand office furniture. And | that's if you even have offices, which you may not need if | you're a software and/or services company. Nice laptops, | monitors, chairs, Zoom, GitHub, and Google subscriptions | are really cheap compared to real estate! | bitcurious wrote: | Would love to have you write about it. Seems like you have both | the experience and the appreciation. | ilrwbwrkhv wrote: | I wrote about it a bit here: | https://news.ycombinator.com/threads?id=ilrwbwrkhv#37180387 | tptacek wrote: | It is straightforward to get a body-shop consulting business to | mid-7-figures. | | In an acquisition of that business, you're going to get a very | low multiple on your forward revenue. That's because, in | general, you can't plug a body-shop consultancy into a bigger | sales machine and amplify the profits; sales and delivery in | those businesses are delicately balanced, and while they can be | scaled, they can't be _abruptly_ scaled by an acquirer.+ | | If you can bootstrap a product business, none of that caveat | applies. You should bootstrap if you can! | | + _(but if your consultancy is throwing up 7 figure profits, | you might not care about its sale value; just run the company | for 10 years and bank the profits)._ | dabeeeenster wrote: | What evidence do you have that it is "staightforward"? If it | was, everyone would do it. | dabeeeenster wrote: | "It is straightforward to get a body-shop consulting business | to mid-7-figures." | | Sorry, no. This is demeaning. It's not easy and it's not | straightforward. | | disclosure: Been running a "body-shop consulting business" | (also demeaning) for 21 years in London, started about a | dozen other businesses, 2 are 2MM+ rev/50% EBITDA profit | recurring revenue companies. | | Please don't demean "consulting" or "agency" work. In my | experience it is _way_ more challenging to win and grow | business in those circles than it is in a well times SaaS | company. I learnt a LOT doing that for a long time. The work | is just as relevant. | whatshisface wrote: | They had to say it was straightforward because the previous | poster had said they had done it. That's how the cocktail | party works. ;) | tptacek wrote: | My background is in this kind of consulting work. I'm not | demeaning it. | gnicholas wrote: | > _It 's crazy that a series d exit would net a founder 7 | million and yet my bootstrapped business returned a 4 million | profit for me last tax year._ | | I'd be curious which is rarer: a VC-backed business that exits | after series D, or a bootstrapper who nets $4M/year? | | IMO both are unicorns! | dabeeeenster wrote: | Without question the bootstrapper. You almost never hear | about them but there are thousands of them out there. They | don't have huge PR VC teams behind them, hence you never hear | about them. | gnicholas wrote: | > _Without question the bootstrapper._ | | I think you mean the opposite, given the phrasing of the | question. | | > _They don 't have huge PR VC teams behind them, hence you | never hear about them._ | | This seems like half an argument. I get that PR teams have | an incentive to talk about their company, which is why they | are in the news sometimes. But it doesn't explain why non- | VC backed companies that are swimming in cash would be so | elusive. Would they be in the news? Perhaps not -- though | they might still want to generate PR for themselves, to | grow their business. | | But you'd think that people in the startup world, who spend | lots of time reading about startup strategies, examples to | follow, etc., would have heard of such companies if there | were many out there. I've been at this for a number of | years, and I rarely hear about bootstrapped startups that | are quite so successful. I guess PE folks would have a good | sense, since such businesses would presumably make great | acquisition targets. | | And perhaps that's what keeps them so rare -- someone | making a couple million a year would rather sell the whole | thing for $20M and move onto their next thing (be it a | startup or a private beach), and there are plenty of | acquirers who are happy to make that trade. | dabeeeenster wrote: | There are thousands and thousands of private bootstrapped | business where the founders are banking 1-10M EBITDA | every year. You almost never hear about them. | dabeeeenster wrote: | Sorry yes - thank you - I meant bootstrappers are far | more common. | | My main point is that there's an enormous amount of | survivor bias with VC backed companies. Bootstrapped: not | so much. | idlewords wrote: | Also there is a lot of risk and not a lot of benefit to | talking loudly in public about how much money you're making | as a bootstrapped business. | gnicholas wrote: | This thought crossed my mind. But wouldn't there be | chatter about this sort of thing within the startup | community, as bootstrapped businesses get snapped up? | There are podcasts like Built To Sell, which tell the | stories of small companies that have been sold. I've | noticed that many of them are service businesses, and | there aren't as many SaaS companies as I would have | expected. Presumably the incentive to keep quiet about | your lucrative niche would end after you've sold the | business? | legendofbrando wrote: | I'm curious about the nature of your business, $4M in profit in | a year is really impressive. What business are you in? | nemo8551 wrote: | They strap boots. | | To be honest I'm amazed there is that amount of money in it | but they must be very good at it. | Aeroi wrote: | Could you share what market or type of business you are | running? I always have a difficult time wrapping my head around | starting a business in a large market with clear market winners | ($1B+ Rev.) | randmeerkat wrote: | > Even when I was getting started, I read a ton on VC funded | businesses but not a lot on non VC funded businesses. | | Any suggested reading for the non VC funded business? | rwalling wrote: | Zero to Exit Start Small, Stay Small The SaaS Playbook | | Startups for the Rest of Us podcast YouTube.com/MicroConf | | Indie.vc Tinyseed.com | k1w1 wrote: | We have been able to bootstrap Aha! from zero to over $100 | million in annual revenue without any external funding. We | have written about some of our experiences at | https://www.bootstrap.company/ and | https://www.aha.io/blog/collection/bootstrap-movement. | waprin wrote: | Not a successful self-funded entrepreneur but Im working on | it and I've studied a lot of the greats. | | DHH and Jason Fried blog and books like Rework | | Arvid Kahl is a successful software bootstrapper and has a | few great books and a bootstrapper newsletter | | Everything by Rob Walling is focused on software | bootstrappers, and his associates brands / YouTube channel, | Microconf community etc | | Indie Hackers podcast , interviews, and website | | Founders at Work is written by a YC founder but ironically | had lots of bootstrapped interviews like Craigslist and Joel | Spolsky (Trello) | | Patio11 blog is classic | | MJ Demarco is non tech and writes more "motivational" style | books about bootstrapped entrepreneurship | | Once you go down this rabbit hole you'll discover many more . | Especially since bootstrappers love making content about | their experiences as it's marketing and potentially more | revenue (what DHH calls "selling your byproducts") | ilrwbwrkhv wrote: | Not a lot that I can find. Essentially businesses are about | making bets about what reality will look like in the future. | So the better modeling you can do of reality, the more | successful you can be. Earnestness is a strong word in my | dictionary when it comes to testing ideas these days. I | started seeing success when I stopped lying to myself and | became earnest after over a decade of failure. | dublin wrote: | THIS! I have been a founder and/or CTO for around a dozen | startups. Two exited successfully by M&A, but they made only | enough money to offset the others I lost my ass on. (One of | those was due to being 20 years too early - that product might | sell well, now...) | | I'm no longer interested in a doing a startup for someone else | to own and control. (My biggest startup mistake was hiring an | experienced CEO and COO to run my dream startup. The person | with the vision and dream needs to be calling the shots, and | hired guns are only just that... Passion for the product is | _really_ important!) | | Although I love startups, they are hard and take a LOT out of | you. It's not worth the hit to your life (and your | family's!)just to make a pile of equity/money for some | ungrateful trust fund kid or a VC partner who thinks their crap | doesn't stink just because they happened to be in the right | place when their first startup hit big. | | VC investment is fundamentally parasitic. If you're building a | software/services startup, you almost never really need VC - if | you can build a product company without it, do so. I live in | Austin, where there are a LOT of startups and startup people. | Out of all of them, I know _one_ inventor /technical founder | who thinks that taking VC was really worth it, and didn't get | screwed over by being liquidated to death. That's not a real | good showing for the VC guys. Just sayin'... | clark-kent wrote: | Thats impressive. Do you mind sharing some tips that helped you | scale your bootstrapped business to 4million profit? | ilrwbwrkhv wrote: | I am not a good writer that's why I do not do blogs and stuff | but I will try: | | 2 fundamental ideas: Distribution & Supply Chains | | Distribution: | | You need to secure distribution before your company can grow. | Which means essentially a lead list or people you can reach | in bulk or manually by walking down the street. You need at | least 500+ such connections. | | The goal of the initial distribution is iterating on your | core value proposition. Core value proposition is a binary | statement which should be answerable by hell yes or no by | your distribution. So iterate on the statement on the first | 100 till you get to a hell yes on the binary question. That | question should also become the heading of your landing page | above the fold. | | Supply Chains: | | To deliver the product you need to think in supply chains. If | you have played factorio or such games this will make more | sense to you. | | You need a constant supply chain of potential customers | (distribution from above). You need a constant supply chain | of great employees. You need a constant supply chain of new | income streams in your product. | | A good product delivers value at first touch. That is through | strong UX and clear demarcation. Every feature should exist | to deliver the core value. So you need to reject a bunch of | designs, product ideas, customer feedback to make sure that | you are only delivering value. | | Other thoughts: | | I can only speak of core technology businesses. If you are | selling data, you are not a tech company, stop acting like | one. Just put stuff in a spreadsheet and sell that. | | Use a strongly typed language like Golang or a highly | expressive one like Ruby for your backend. Choose extreme | languages such as Imba or Steel Bank Common Lisp (which I | built on initially before switching to Golang) for maximum | advantage. | | Make sure that you have a potential market of at least a $100 | million flowing through. | pablo24602 wrote: | Thank you for your insight- leaving a comment here to come | back to later. | cj wrote: | (Not the original poster but have a similar background). | | #1 advice for engineer-founders is to always be questioning | whether coding is the best leveraged use of your time. | | As a bootstrapped engineer founder, I spent _way_ too many | months (years?) coding non-stop, even after we got past PMF, | despite having the revenue to hire engineers to replace me | day-to-day. These days I do zero coding, and am still equally | happy and fulfilled. At least for me, spending days coding | was a really easy way to feel productive, but it wasn 't the | best use of time compared to hiring, marketing, sales, | company culture, etc. | | #2 advice for founder-engineers: after you're able to stop | coding, remember that your product is worthless if no one | knows about it or if no one is using it. Once you get product | market fit into a good place and have revenue traction, it's | time to spend your nights thinking about marketing and sales | rather than code. | | TLDR: always make sure you're spending your time in the most | highly leveraged areas. Hiring and delegating. Coding is | rarely the highest leveraged area your time can be spent. | waprin wrote: | Thanks for sharing. | | I think the #1 thing most bootstrappers struggle with is | finding the right market, idea, validation etc. As much as | people say "ideas are overrated" I increasingly think | that's not true, it's that a good idea has to include | things like "can realistically get done by a self-funded | tiny team and make revenue soon" which the "idea guys" | rarely have. | | As far as not coding too much, I'm increasingly finding | this true. One thing I've noticed is that most non tech | founders outsource development and most technical founders | don't even though technical founders can outsource far more | efficiently since they can play more of a "tech lead" role | rather than hand it to a dev shop. I really regret not | hiring designers sooner since I'm bad at it and there's | tons of affordable talented designers on Upwork. | | Still, hiring is a little nerve wracking since it eats into | your runway. It's really tough to know when to burn money | or time when you have minimal or no revenue. After PMF , | hiring makes sense but before then it's really ambiguous | how to make that call. | akomtu wrote: | It's not hard to come up with a highly profitable, but | morally bankrupt idea. It's anything that serves those on | the top of the food chain: a new creative way to enchance | the survelliance machine, etc. But most of the engineers | are firmly attached to the ideas of truth and goodness, | and so they struggle with ideas that also fit their moral | constraints. Big firms understand this, and create a | layer of fake goodwill to shield engineers from the | reality of what pays their salary. That being said, | morally upright and profitable businesses exist, but it | takes some nontrivial intuition to invent one. | [deleted] | KaiserPro wrote: | One thing that would be helpful to add to this post: | | 1) the chances of your company making it to series B | | 2) the chances of you as a founder actually making any money. | | Much of the startup "legend" of massive exits, everyone making | lots of money, is exactly that: legend. | | VCs batch startups together because >90% will fail. Of those that | do make it out of the incubator in any meaningful way, you can | expect another 80% mortality over the next two years. | | Say you get aquihired, you're not going to get much of a share | payout, if at all. | | Even if you get blockbuster hired (ie bought for 250million) | you're probably going to get golden handcuffs rather than "fuck | you" money upfront. | | Same for an IPO, your shares will be converted, but you can't | exercise them until after n years. | bsuvc wrote: | TLDR: dilution is a thing and investor incentives are not always | aligned with founder, when it comes to early exit opportunities. | | --- | | But... | | I don't think there are really a lot of opportunities to exit at | $38m in the early stages of a startup, even if your valuation | says it is possible on paper. There just isn't much of a market | for companies at that stage of growth. | | Imo, the more likely scenario is for a startup to either 1. fail | to raise and run out of money, or 2. Become self-sustaining, but | never successful enough to achieve a meaningful exit for the | founders or investors, basically a "zombie" company that may | never exit. | | In the second case, it is the investors that get screwed, as the | founder has made a nice lifestyle business out of their | investment. I think most investors realize this is one of the | outcomes though, so "screwed" is probably too harsh of a term to | use to describe it. | ClumsyPilot wrote: | > founder has made a nice lifestyle business out of their | investment | | It's perfectly reasonable that one might have a medium size | business supporting the local economy. It's a shame that VC | model is hostile to this outcome. | bsuvc wrote: | Bootstrapping is a fine alternative to VC and more | appropriate for many businesses. | | But it isn't hostile to want a return on your investments, | and investors are not operating as a charity to support the | local economy, although that does incidentally happen as a | result of investments. | yesimahuman wrote: | The second case isn't probably good for founders either. I | don't think it would be easy to convince investors to let you | take cash out of the business to any meaningful degree, but I | suppose that depends on how much control you have over the | business at that point. | Joel_Mckay wrote: | This sums up the experience: | | https://www.youtube.com/watch?v=V12ZAZ4Jn8Q | ChrisArchitect wrote: | (2016) | | Shared under different urls | | Anything new since? | khazhoux wrote: | I'd love to see a similar analysis for non-founders. I.e., the | other N-2 people at the startup. Like, how many hundred-millions | or even billions will exit have to be before you get $500k as the | Nth employee of a typical Series A/B/C/D? ___________________________________________________________________ (page generated 2023-08-18 23:00 UTC)