6 ms·

Why you should take the money

132 points by omergertel 15y ago

mashmac2 15y ago
"Your drive was never about money" I think this is an increasingly popular viewpoint these days, and is being recognized by lots of startups taking funding and taking some money off the table. Money makes you comfortable, yes, but you need the rest of your environment to be comfortable (relatively) to focus on your business and put your effort into that. And I, for one, am very glad that founders these days have this option, do to what they love and want to do without having to worry about financial security (well, in some cases anyways).
tptacek 15y ago
Isn't the conflict - of - interest here just enormous? The best interests of the company, and in particular the employees, is the funding round with the least onerous terms. If all a VC needs to do to get a board to accept worse terms is to kick back some money to a few strategic board members, where does that leave everyone else? And while I'm sure Rand Fishkin (who I do not know from Adam) is not jacking up his company in this case, what about appearances?
- webwright 15y ago
  I think it's pretty common for founders to take some money off the table in B+ rounds, so I wouldn't sweat appearances much here. It's also not uncommon for early angels to see liquidity (partial or total) in later rounds as well. It's not a kick-back, it's a stock sale. If Rand takes a million off the table, he's selling a million bucks in stock (and reducing his ownership accordingly). This actually helps other shareholders a touch in the B round because the company has to issue fewer new shares (causing early investors to get diluted less in the new round). But yeah-- theoretically an investor could sell broadly crappy terms to some founders by buying out a mess of their shares. If founders want to screw their employees, they can often find a way (see Skype).
  - tptacek 15y ago
    I wouldn't want to be read as suggesting that every time founders "take money off the table" that they're getting a kickback; only that this is a vector for kickbacks.
  - bostonpete 15y ago
    > This actually helps other shareholders a touch in > the B round because the company has to issue fewer > new shares I'm not following this logic. If a founder sells their own shares in a B-round and pockets the proceeds -- that doesn't do anything to allow the company to issue fewer new shares because none of the money from those shares went to the company.
    - nasmorn 15y ago
      It helps in the sense that VCs often need to invest a certain minimum sum of money or prefer to invest more thus giving better terms in this case. If the company isn't strapped for cash it can be beneficial to allow the VC to attain a higher share through selling founder or angel shares instead of just diluting all parties equally.
    - webwright 15y ago
      Option A: Series B investor buys shares from the Company. Company issues new shares and the Series B guy owns 20% of the company. This dilutes everyone else's ownership (for him to own 20%, everyone else's stake has to come down). Option B: He buys all of his shares from existing shareholders. This requires no additional shares so people who are NOT cashing aren't diluted at all. I'm just guessing here-- I've never taken money off the table. But I can't imagine it working any other way.
      - skmurphy 15y ago
        Option B puts no money into the company. In option A existing stockholders are diluted but the company has more cash. So "taking money off the table" comes at the expense of what the company can raise. If there was additional demand for the stock (as evidenced by someone willing to pay for the shares in Option B) then this could have resulted either in a higher stock price (and less dilution for more money) or more funds raise (possibly with more dilution).
- pak 15y ago
  Facebook's investment from Jim Breyer in 2005 came with million-dollar bonuses for Zuckerberg, Moskovitz, and Parker. Just sayin'...
  - danssig 15y ago
    Facebook isn't the place to go for examples of moral soundness. Just sayin' ...
andrewcross 15y ago
I've always thought this is the way I'd like to go with a startup if it became successful. Sure not having money is a great motivator, but the time spent doing other things just to save money often costs you more. As an example, I've spent a lot of time writing a script for a product overview video for my startup. I could be spending this time on more valuable tasks, like product dev or sales, if I had the money to go with another company.
fomojola 15y ago
> You are like Michael Dell and Bill Gates and Steve Jobs and Warren Buffet and Sergey Brin and countless others who have achieved financial success so massive it’s almost impossible to wrap your brain around the implications of their net worth, and yet their work ethic, drive, and ability to innovate hasn’t flagged for a decade or more. Hate to do this, but Micheal Dell and Bill Gates have innovated in the last decade? Really? Is this the same decade or has there been a different decade I somehow missed?
- sliverstorm 15y ago
  Bill Gates is 55. Microsoft was founded 35 years ago. You're really going to hold it against him that he isn't still a dynamo of ideas and innovation?
  - runako 15y ago
    Microsoft was founded in 1975, over 36 years ago.
    - sliverstorm 15y ago
      You're right, math fail. Thanks.
  - fomojola 15y ago
    I'm not holding it against him: I'm just questioning the statement. The Gates foundation is great, but its not innovative: Rockefeller/Carnegie/etc did similar things in their time. And I have no clue what Micheal Dell has done in the last decade that is noteworthy. So to all the folks voting my comment down: in the last 10 years what about the things Bill Gates and Micheal Dell have done is innovative?
- pchristensen 15y ago
  They surely innovated for at least a decade after they got rich.
- scythe 15y ago
TamDenholm 15y ago
I just wanted to reflect on the point that $25,000 in the bank is "no personal savings". To me thats 6 months at my current rate and a year being frugal. I'm aware its totally different economics than myself, but it just kinda made me laugh.
- sliverstorm 15y ago
  Just wait until you climb the ladder a bit more, and begin to believe that you cannot possibly survive on less than $200,000 in the bank. Expenses add up, and you make your way down the slippery slope of labeling things as "necessities".
  - TamDenholm 15y ago
    Perhaps. I do like to consider myself one of those people who think i wouldnt be like that, but obviously i'll never truly know until it happens. I remember when i had my first job, i thought my £650 a month wage was loads, now thats just my rent.
  - dangravell 15y ago
    This does happen, and it's probably the default. But it is possible to notice it's happening, and reverse the process: http://www.getrichslowly.org/blog/2006/12/27/how-to-protect-yourself-from-lifestyle-inflation/ http://www.getrichslowly.org/blog/2006/12/27/how-to-protect-... This is pretty much what I did when starting up, realising I wanted as much runway as possible. Have to say I also guffawed at $25k being "no personal savings".
- deleted 15y ago
  [deleted]
- Lukeas14 15y ago
  I'm pretty sure most American's could live frugally on 25K for 6 months. However, it's still considered foolish if you have the means to save more because that 6 months is based on your "normal rate of expenditures". A surprise medical emergency could easily wipe that out leaving Rand in a position where he might have to take VC money at much worse terms because of his financial situation.
sliverstorm 15y ago
It sounds like you won’t accept the “you deserve it” argument Good for him then. That's an argument I hear far too often that, in my opinion, appeals purely to greed and fosters self-entitlement as if it was a good thing.
- Cyranix 15y ago
  A counterpoint opinion: although "I deserve it" may be a rationale to which many greedy or self-entitled people cling, there does exist a point where a well-balanced person can make a reasonable value judgment about the worth of their efforts. If you deny that it's possible to make this judgment fairly, your perspective implies that there is no meaningful correlation between effort and positive outcomes -- it's a mentality of "nothing is good enough", which can work as a long-term view (perhaps better said as "there is always room to improve") but in the short- to mid-term is a destructive mindset which can lead to burnout. My two cents, as a guy who struggled with depression for several years due in large part to having held such a negative opinion of myself that I couldn't celebrate any intermediate successes.
  - sliverstorm 15y ago
    In my mind, you're talking about deserving vs. earning. To me, deserve is intrinsic (e.g. You deserve the right to a speedy trial) while earn is value-based (e.g. You've worked hard, you earned it) The two words are close to eachother, but I am wary of 'deserve' because it seems to be abused.
    - Cyranix 15y ago
      That's fair. I feel like Jason may have been using the former word to describe the latter situation.
lsc 15y ago
I think the important bit here is the time/money tradeoffs. I mean, sure, I can live on two grand a month, but that means I'm cooking most of my own food, repairing my own car, etc... I mean, those are all fine things to do, but if you are investing in my business, it might be worth the cash to pay me enough that I can afford to pay other people to deal with my personal needs. I mean, if I spend the money on a new BMW, that doesn't help you. But for the same money, I can have someone come by and clean my house once a week, and have enough left over to get takeaway on busy nights. Both of those things will free up time for me to make money for both of us.
knarf55 15y ago
I think it depends on what he wants to do with the money? He already mentioned that money isn't going to change his life style (but we'll see if that's really the case) but having only 25k in the savings with a family? That's just being a bit reckless. I do agree with the points of a few commenters here that he should just take a 1M or 2 off the table so he can focus on the company and not worry about his personal financial circumstances. Also, you never know in this world when a medical emergency happens and he needs to use this money. Having the money gives him breathing room and overall the benefits of just having options in life. If nothing else, he can reinvest that money to other startups as an angel.
deleted 15y ago
[deleted]

132 points by omergertel 15y ago

"Your drive was never about money" I think this is an increasingly popular viewpoint these days, and is being recognized by lots of startups taking funding and taking some money off the table. Money makes you comfortable, yes, but you need the rest of your environment to be comfortable (relatively) to focus on your business and put your effort into that. And I, for one, am very glad that founders these days have this option, do to what they love and want to do without having to worry about financial security (well, in some cases anyways).

tptacek 15y ago

Isn't the conflict - of - interest here just enormous? The best interests of the company, and in particular the employees, is the funding round with the least onerous terms. If all a VC needs to do to get a board to accept worse terms is to kick back some money to a few strategic board members, where does that leave everyone else? And while I'm sure Rand Fishkin (who I do not know from Adam) is not jacking up his company in this case, what about appearances?

webwright 15y ago
I think it's pretty common for founders to take some money off the table in B+ rounds, so I wouldn't sweat appearances much here. It's also not uncommon for early angels to see liquidity (partial or total) in later rounds as well. It's not a kick-back, it's a stock sale. If Rand takes a million off the table, he's selling a million bucks in stock (and reducing his ownership accordingly). This actually helps other shareholders a touch in the B round because the company has to issue fewer new shares (causing early investors to get diluted less in the new round). But yeah-- theoretically an investor could sell broadly crappy terms to some founders by buying out a mess of their shares. If founders want to screw their employees, they can often find a way (see Skype).
- tptacek 15y ago
  I wouldn't want to be read as suggesting that every time founders "take money off the table" that they're getting a kickback; only that this is a vector for kickbacks.
- bostonpete 15y ago
  > This actually helps other shareholders a touch in > the B round because the company has to issue fewer > new shares I'm not following this logic. If a founder sells their own shares in a B-round and pockets the proceeds -- that doesn't do anything to allow the company to issue fewer new shares because none of the money from those shares went to the company.
  - nasmorn 15y ago
    It helps in the sense that VCs often need to invest a certain minimum sum of money or prefer to invest more thus giving better terms in this case. If the company isn't strapped for cash it can be beneficial to allow the VC to attain a higher share through selling founder or angel shares instead of just diluting all parties equally.
  - webwright 15y ago
    Option A: Series B investor buys shares from the Company. Company issues new shares and the Series B guy owns 20% of the company. This dilutes everyone else's ownership (for him to own 20%, everyone else's stake has to come down). Option B: He buys all of his shares from existing shareholders. This requires no additional shares so people who are NOT cashing aren't diluted at all. I'm just guessing here-- I've never taken money off the table. But I can't imagine it working any other way.
    - skmurphy 15y ago
      Option B puts no money into the company. In option A existing stockholders are diluted but the company has more cash. So "taking money off the table" comes at the expense of what the company can raise. If there was additional demand for the stock (as evidenced by someone willing to pay for the shares in Option B) then this could have resulted either in a higher stock price (and less dilution for more money) or more funds raise (possibly with more dilution).
pak 15y ago
Facebook's investment from Jim Breyer in 2005 came with million-dollar bonuses for Zuckerberg, Moskovitz, and Parker. Just sayin'...
- danssig 15y ago
  Facebook isn't the place to go for examples of moral soundness. Just sayin' ...

andrewcross 15y ago

I've always thought this is the way I'd like to go with a startup if it became successful. Sure not having money is a great motivator, but the time spent doing other things just to save money often costs you more. As an example, I've spent a lot of time writing a script for a product overview video for my startup. I could be spending this time on more valuable tasks, like product dev or sales, if I had the money to go with another company.

fomojola 15y ago

> You are like Michael Dell and Bill Gates and Steve Jobs and Warren Buffet and Sergey Brin and countless others who have achieved financial success so massive it’s almost impossible to wrap your brain around the implications of their net worth, and yet their work ethic, drive, and ability to innovate hasn’t flagged for a decade or more. Hate to do this, but Micheal Dell and Bill Gates have innovated in the last decade? Really? Is this the same decade or has there been a different decade I somehow missed?

sliverstorm 15y ago
Bill Gates is 55. Microsoft was founded 35 years ago. You're really going to hold it against him that he isn't still a dynamo of ideas and innovation?
- runako 15y ago
  Microsoft was founded in 1975, over 36 years ago.
  - sliverstorm 15y ago
    You're right, math fail. Thanks.
- fomojola 15y ago
  I'm not holding it against him: I'm just questioning the statement. The Gates foundation is great, but its not innovative: Rockefeller/Carnegie/etc did similar things in their time. And I have no clue what Micheal Dell has done in the last decade that is noteworthy. So to all the folks voting my comment down: in the last 10 years what about the things Bill Gates and Micheal Dell have done is innovative?
pchristensen 15y ago
They surely innovated for at least a decade after they got rich.
scythe 15y ago

TamDenholm 15y ago

I just wanted to reflect on the point that $25,000 in the bank is "no personal savings". To me thats 6 months at my current rate and a year being frugal. I'm aware its totally different economics than myself, but it just kinda made me laugh.

sliverstorm 15y ago
Just wait until you climb the ladder a bit more, and begin to believe that you cannot possibly survive on less than $200,000 in the bank. Expenses add up, and you make your way down the slippery slope of labeling things as "necessities".
- TamDenholm 15y ago
  Perhaps. I do like to consider myself one of those people who think i wouldnt be like that, but obviously i'll never truly know until it happens. I remember when i had my first job, i thought my £650 a month wage was loads, now thats just my rent.
- dangravell 15y ago
  This does happen, and it's probably the default. But it is possible to notice it's happening, and reverse the process: http://www.getrichslowly.org/blog/2006/12/27/how-to-protect-yourself-from-lifestyle-inflation/ http://www.getrichslowly.org/blog/2006/12/27/how-to-protect-... This is pretty much what I did when starting up, realising I wanted as much runway as possible. Have to say I also guffawed at $25k being "no personal savings".
deleted 15y ago
[deleted]
Lukeas14 15y ago
I'm pretty sure most American's could live frugally on 25K for 6 months. However, it's still considered foolish if you have the means to save more because that 6 months is based on your "normal rate of expenditures". A surprise medical emergency could easily wipe that out leaving Rand in a position where he might have to take VC money at much worse terms because of his financial situation.

sliverstorm 15y ago

It sounds like you won’t accept the “you deserve it” argument Good for him then. That's an argument I hear far too often that, in my opinion, appeals purely to greed and fosters self-entitlement as if it was a good thing.

Cyranix 15y ago
A counterpoint opinion: although "I deserve it" may be a rationale to which many greedy or self-entitled people cling, there does exist a point where a well-balanced person can make a reasonable value judgment about the worth of their efforts. If you deny that it's possible to make this judgment fairly, your perspective implies that there is no meaningful correlation between effort and positive outcomes -- it's a mentality of "nothing is good enough", which can work as a long-term view (perhaps better said as "there is always room to improve") but in the short- to mid-term is a destructive mindset which can lead to burnout. My two cents, as a guy who struggled with depression for several years due in large part to having held such a negative opinion of myself that I couldn't celebrate any intermediate successes.
- sliverstorm 15y ago
  In my mind, you're talking about deserving vs. earning. To me, deserve is intrinsic (e.g. You deserve the right to a speedy trial) while earn is value-based (e.g. You've worked hard, you earned it) The two words are close to eachother, but I am wary of 'deserve' because it seems to be abused.
  - Cyranix 15y ago
    That's fair. I feel like Jason may have been using the former word to describe the latter situation.

lsc 15y ago

I think the important bit here is the time/money tradeoffs. I mean, sure, I can live on two grand a month, but that means I'm cooking most of my own food, repairing my own car, etc... I mean, those are all fine things to do, but if you are investing in my business, it might be worth the cash to pay me enough that I can afford to pay other people to deal with my personal needs. I mean, if I spend the money on a new BMW, that doesn't help you. But for the same money, I can have someone come by and clean my house once a week, and have enough left over to get takeaway on busy nights. Both of those things will free up time for me to make money for both of us.

knarf55 15y ago

I think it depends on what he wants to do with the money? He already mentioned that money isn't going to change his life style (but we'll see if that's really the case) but having only 25k in the savings with a family? That's just being a bit reckless. I do agree with the points of a few commenters here that he should just take a 1M or 2 off the table so he can focus on the company and not worry about his personal financial circumstances. Also, you never know in this world when a medical emergency happens and he needs to use this money. Having the money gives him breathing room and overall the benefits of just having options in life. If nothing else, he can reinvest that money to other startups as an angel.

deleted 15y ago

[deleted]