by adora on 3/9/21, 5:48 PM with 70 comments
by rsweeney21 on 3/10/21, 4:30 PM
The week after we closed our series A they told me I had to hire a COO. I asked, "You trying to get me to hire my replacement?" "No, we'd never do that. How could you even think that?"
Less than two months after we hired the COO they fired me. The COO was made the CEO and he ran the company into the ground.
The lesson for founders is to never, ever, ever give up control of your board/company. Always maintain control of a majority of the board seats.
by stanrivers on 3/10/21, 4:53 PM
Examples from Charlie Munger [1]:
"One of my favorite cases about the power of incentives is the Federal Express case. The heart and soul of the integrity of the system is that all the packages have to be shifted rapidly in one central location each night. And the system has no integrity if the whole shift can’t be done fast. And Federal Express had one hell of a time getting the thing to work. And they tried moral suasion, they tried everything in the world, and finally, somebody got the happy thought that they were paying the night shift by the hour and that maybe if they paid them by the shift, the system would work better. And lo and behold, that solution worked."
"Early in the history of Xerox, Joe Wilson, who was then in the government, had to go back to Xerox because he couldn’t understand how their better, new machine was selling so poorly in relation to their older and inferior machine. Of course, when he got there he found out that the commission arrangement with the salesmen gave a tremendous incentive to the inferior machine."
[1] https://www.butwhatfor.com/charlie-munger-the-psychology-of-...
by Comevius on 3/10/21, 6:15 PM
I'm not saying that participating in bubbles cannot be economically rational, but venture capital today is especially suited for making decisions that are bad for everyone involved, prioritizing future valuation over good business.
It's the same growth or sustainability choice we keep failing at as a civilization.
by ncmncm on 3/10/21, 10:43 PM
See, that's an important difference between investors and VCs.
A VC firm or division gets (say) $1B, and a deadline: invest it all by end of quarter. All they can invest in are what come through the door. They know most of those have no future. A few do, but not enough to absorb the whole allotment. They can't not invest. What to do? No choice, really; invest it all, with 9 of 10 expected to flop.
Having identified, at the outset, which should flop, start milking them. There's no reason to waste that money, even though it's lost to the actual investors. Make them spend their nut where it will do somebody some good. Maybe make them hire a crony, who will hire more. Make them use a pet staffing agency. HR pros are (to first order) all grifters, so provide them one of yours. Make them buy software from one of the not-flops from this round or last quarter's, or somebody you own part of, personally. Be creative. You can draw it out, deposit more cash from next quarter's infusion, and extract that. Maybe they can build, code, patent something of value that can be bought for pennies at the bankruptcy.
There are a million variations on this, all used.
by zuhayeer on 3/10/21, 3:01 PM
by jacquesm on 3/10/21, 6:21 PM
Does anybody know how to parse this?
by jacquesm on 3/10/21, 6:57 PM
by kenneth on 3/10/21, 6:19 PM
Your existing investors have a vested interest in making you successful. A higher valuation is more acceptable to them than to outsiders (due to being able to officially mark up their investment, which helps them raise their next funds and improve their apparent performance prior to liquidity). Founders also have a far better idea of what kind of support they can expect from an existing investor than a newcomer.
Of course, as a seed stage investor, I am biased in my views on this. But I do really believe that making potential adversaries out of your existing investors is a deep mistake.
by evancharles on 3/10/21, 9:01 PM
by mbesto on 3/10/21, 4:53 PM
Cynical viewpoint coming in:
VC investors are only "good people" because that is what currently drives the market for dealflow. What I think a lot of entrepreneurs miss is that VCs are finance professionals first and foremost. If the market dynamic starts to change, you might see them behaving differently but still aligned ultimately to the interest of their LPs.
TL;DR - VCs who create good content, are helpful, are nice to founders, etc. ("founder friendly") in a professional context are only that way because it's generally what has been proven to generate good leads for deal flow.
by ganzuul on 3/10/21, 6:09 PM
by ahstilde on 3/10/21, 9:52 PM