The PE market around firms at about this size is getting very, very interesting, and I think increasingly you’re going to see founders build companies engineered to achieve a similar outcome, with a capital stack to match.https://twitter.com/Shpigford/status/1326153473956716544 …
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It would be tough to justify for tier 1 VCs or PMs at Google but if you were a product-savvy engineer living in, without loss of generality, St. Louis, how does $4M in equity after taking a reasonable salary for 5-7 years sound? Sounds pretty good, I think.
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Replying to @patio11
I'm quite curious about why the seed investors walked away from $800k, when the purchase prices was $4M. Is that something you can explain (in the general case, if not in this specific case)? Thx.
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Replying to @MorlockP
Speaking generally, VC is investing in the expectation of hitting "home runs." Companies which do not end up achieving that trajectory affect returns minimally. One might choose to balance return of the original capital with the impact on your firm's brand w/ founders.
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The conversation might go: "You took a shot. It didn't pan out. Such is the nature of the venture business. We don't want to block what would be a good outcome for you and the team, so we will give you what is effectively a gift and get out of your way to achieve win for team."
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"To *my* investors, I'd explain: what are my other options here? I squeeze and founder grinds for few years, changing nothing fundamentally? Or quits and business folds? No thanks. Flameouts are part of the game; this no worse. We'll mark this as a zero and move on with life."
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Replying to @patio11
sure, and I'm decently convinced this is how it works, but I'm still asking: if I'm the VC and you call me up saying "I'm either gonna sell or shut down", I say "ok, I understand ...but since you're pocketing $4M, why not pocket $3.2M and pay me back my $0.8M"
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Replying to @MorlockP
A VC is entitled to ask for what they're owed under the contract, much like any business is entitled to ask for what it is owed under contracts, but businesses waive things in the interest of other business goals (like preserving relationships, branding, etc) all the time, right.
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ok, got it I was assuming that was it, but just wanted to have it spelled out that "yes, there's a cap table, yes, they're ENTITLED to get back the $800k, but they're choosing to purchase goodwill".
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