by anttiai on 11/10/20, 12:43 PM with 497 comments
by ccmcarey on 11/10/20, 1:33 PM
> As part of the structure of the deal, Xenon guaranteed I’d take home $3.7m, regardless of what came up during due diligence
Interesting, I wonder how this is structured - surely there are items that can come up during due diligence that are deal-breakers for Xenon, and surely due-diligence is performed before the contract is closed?
> But they were incredibly gracious and both agreed to write off their investment. General Catalyst’s (who had the lion’s share of that $800k) response showed just how classy they are: “We recognize the work that’s gone into the past 7 years and it sounds like this is a great landing spot for the team. We’re grateful for the opportunity to have supported you along the way.”
I have no idea how they managed to get the investors to walk with nothing, when the founders walked away with so much.
by relaunched on 11/10/20, 3:12 PM
>>>General Catalyst’s (who had the lion’s share of that $800k) response showed just how classy they are: “We recognize the work that’s gone into the past 7 years and it sounds like this is a great landing spot for the team. We’re grateful for the opportunity to have supported you along the way.”
by lubos on 11/10/20, 9:09 PM
And here is the problem. Take VC money and now you are forced to run company at breakeven point.
This company would be perfectly fine operating with half the staff and generating for the CEO half a million in profits per year - every year.
He could have met his family financial goals long ago and still keep the company.
This is what folks at 37signals figured out years ago and good on them. Do not take VC money unless you are already a millionaire and aiming for the moon.
by fairity on 11/10/20, 7:47 PM
My guess is that this wasn't all luck.
The VC's in this case knew how transparent this founder was being in reporting his startup journey. They knew that this decision would get publicity.
With this knowledge, the VC firm probably made a calculated decision to forego their liquid pref in return for the good will generated by the founder's transparent PR.
It's cool to see the founder being financially rewarded for his transparency.
by simonebrunozzi on 11/10/20, 4:41 PM
Years ago Jonathan was in a position where we needed to buy back his shares in a company in which he invested early. He could have asked for a much higher price, and instead he graciously agreed to a different outcome - he understood the situation and did the right thing.
Glad to see that General Catalyst did the same in relation to Baremetrics, writing off their investment. These things don't go unnoticed. Sometimes reputation is way more important than a few more bucks for your LPs.
by skrebbel on 11/10/20, 2:36 PM
Folks, this is a founder who's openly sharing the kinds of things we usually keep hidden. I doubt there's been a startup exit in the last decade where a healthy skeptical HN'er couldn't find some wrongs being done, if the details had been available. It's extremely hard to get everything right, from every perspective. The only difference here is that the details are actually available.
Please go easy. We want more posts like these, not fewer.
by alex_c on 11/10/20, 5:34 PM
Then I checked General Catalyst, they manage multiple funds in the $500M - $1B range[1]. In that context the $800K really is a rounding error, around 0.1% of a single fund's size.
It never ceases to amaze me how money stops being money past a certain amount (which would be life-changing for most people), and just becomes numbers to move around.
[1] https://www.crunchbase.com/organization/general-catalyst-par...
by ceejayoz on 11/10/20, 1:28 PM
by pier25 on 11/10/20, 3:04 PM
So the investors just accepted to lose $800k while the founder was getting $3.7M?
Can someone explain the logic here?
by tiffanyh on 11/10/20, 2:46 PM
If it went to the existing employees (they have 7 of them on the About Us page), that's ~$42k per employee.
by tinyhouse on 11/10/20, 6:03 PM
by rexreed on 11/10/20, 6:17 PM
So I am super happy to see some real transparency with real numbers and a real talk about the earn out.
by CPLX on 11/10/20, 1:28 PM
by mrisoli on 11/10/20, 6:54 PM
I enjoyed even my first impressions at the interview process and I'm happy Josh got a nice payout, congrats!
I do hope Baremetrics transparency continues in some fomr as its a big inspiration.
by 02thoeva on 11/10/20, 2:02 PM
by dimva on 11/10/20, 1:44 PM
EDIT: saw that the founder lives in Birmingham, Alabama. So yes, $3.7 million IS a lot of money.
by victop on 11/10/20, 8:02 PM
For those who have gone through an acquisition, how much more Josh could have netted if he accepted to stay 2-4 years?
by maxekman on 11/10/20, 5:22 PM
by connectsnk on 11/10/20, 4:35 PM
by pm90 on 11/10/20, 4:38 PM
I thought this was a key insight, and I'm happy the author is frank about it. Some people enjoy building things from scratch, others enjoy taking a good idea and scaling it. IMO, both are hard problems and its good that he bailed before trying to go down that route.
by abuehrle on 11/10/20, 9:59 PM
by theptip on 11/11/20, 2:59 AM
Curious about this one; are the acquirers not bothered about the possibility of everyone jumping ship? They have a new CEO and generalists on hand to take over the business immediately? And/or the business is basically in “runs itself” mode, with most of the work being done on growth opportunities?
Normally I think of the golden handcuffs as a necessity to stop the business from imploding and being worth zero, but interested to know why this wouldn’t apply.
by bryanmgreen on 11/11/20, 2:29 AM
Josh gets the exit he really seems to need for his personal and financial well-being.
Xenon gets one heck of a product for honestly quite cheap. Better marketing will actually go a long way here.
by boltzmann_ on 11/10/20, 1:46 PM
by jariel on 11/10/20, 7:09 PM
Conrad Black literally went to jail for selling newspapers and taking a personal commission on the side. [1]
When you're selling company value, but taking the money yourself in the form of some kind of arbitrary comp, that's defrauding investors, it's a form of embezzlement.
That the investors 'didn't care' is fine, but I don't see how it could have been arranged in the first place - the acquirer does not get to decide how much the 'founder' is going to get.
Also - the $800K write off seems odd. A million dollars is not nothing, and there would definitely not have been $800K in lawyers fees, far from it.
Something here doesn't seem quite right.
Also - folks - if he is negotiating comp outside of share value, that's not only hosing the investors - but any employee equity as well.
A small team where some other guy has 5% of the company, that's $150, not a lot, but not nothing. If the package was dealt outside of equity, those equity holders were screwed, if in fact there were other shareholders/equity holders.
by luord on 11/11/20, 3:12 AM
That is incredible and, as the author says, classy. If I ever find myself actually doing the investment rounds for anything I create or help create, I hope that people like General Catalyst take an interest.
by ineedasername on 11/10/20, 3:53 PM
This is an excellent insight
by andygcook on 11/10/20, 2:28 PM
For those curious, more here: https://www.brownadvisory.com/us/qsbs-tax-exemption-valuable...
by dmje on 11/10/20, 2:00 PM
by hiimtroymclure on 11/10/20, 5:56 PM
by lorthemar on 11/12/20, 3:06 PM
I've worked with a mobile analytics company in the past and it was pretty much the same story. Only, they weren't as transparent and couldn't walk away with a profitable exit.
So this really looks like the best way he could exit without burning himself out.
by g3houdini on 11/10/20, 7:52 PM
by ineedasername on 11/10/20, 3:52 PM
by question12322 on 11/11/20, 1:12 AM
Do anybody know how much Xenon Partners (te same buyer) paid recently for UXPin.com? I think that UXPin is 5-10x times bigger, but saw that their CEO after selling the company instantly joined Google as a senior manager.
UXPin had a few investors and 3-4 cofounders. So probably different outcome?
by astatine on 11/11/20, 10:52 AM
I respect the soul searching that you went through and the decision that you took.
Thanks again. Wish you the very best in whatever you _start_ next.
by xyst on 11/10/20, 2:34 PM
by kgog on 11/10/20, 5:19 PM
I have never seen this before. Guaranteed outcome regardless of DD. Is this an outlier company?
by suhail on 11/10/20, 3:15 PM
by borvo on 11/10/20, 3:31 PM
by mv4 on 11/10/20, 5:38 PM
by Aeolun on 11/10/20, 2:48 PM
4M is a lot, but an amount I can wrap my head around.
by fred_is_fred on 11/10/20, 6:48 PM
by rjyoungling on 11/10/20, 4:20 PM
by ph0rque on 11/11/20, 3:39 AM
What about gross profit (or more precisely, EBIDTA)?
by mxpxrocks10 on 11/10/20, 9:21 PM
by NelsonMinar on 11/10/20, 6:59 PM
by vmg1 on 11/10/20, 5:23 PM
by simook on 11/10/20, 7:22 PM
by pc86 on 11/10/20, 1:46 PM
> I wanted them to at least get their money back, but ultimately, for the $4m purchase price to work, we’d need to ask them to walk on their [$800,000] investment.
He clearly didn't want it very badly, then. Nearly $3 million wasn't enough? That's about $420k per year for the time he put in, not counting anything he already took out. Keeping the extra money only increases that to about $530k/yr.
And it sounds like the early employees get nothing, other than not getting fired immediately.
I like the Baremetrics product but man this really leaves a bad taste in my mouth about Josh personally.
by ffdjjjffjj on 11/10/20, 2:06 PM
by ponker on 11/10/20, 5:20 PM
This is the flipside of all of the VC deals that completely fuck over the founders.
by moonbug on 11/10/20, 2:27 PM
by deckard1 on 11/10/20, 5:35 PM
So, did something go wrong here? What is it about this analytics business that makes it so expensive to operate? Were all the employees necessary? Was the pricing or marketing wrong? Or is this just the reality of most SaaS?
I gotta say, this really puts a damper on what I always thought was a fairly lucrative business model, if you could make it past the early bootstrap/product-market-fit period.
by ianhawes on 11/10/20, 2:00 PM
>practically speaking, never need to work again
Yikes, does someone want to tell him?