It also goes to the heart of how messed up our economic system can be. I can be mollified by saying that he worked hard and earned his ~$4 million by building a business. But I can't internally justify the VCs gifting him $800k for AFAICT nothing. I'm going to have to work for the next 4-5 years for that but he gets it basically on the whim of some person at a VC.
For a fund to realize that the company can live on, even if it's not the 10-100x they were hoping for, shows class. Listen, it's not curing cancer - but, it shows a level of maturity and understand that we should praise and not take for granted.
The way that fund economics work, they can write off a lot of small bets. However, the way that partnerships work, there are big egos at play. It's a dirty game, but when people do the right thing, it's worth praising.
Because if we set the bar at curing cancer (not that that's what you were doing my friend), then nothing is meaningful. I get that that's a more pragmatic/logical perspective but I believe that change starts small. So it's key to be very vocal about great things they we perceive as small because that can create ripple effects.
I worry when we bash people that do good things with some variation of "Good, But Not Good Enough!" [1] Because, it doesn't inspire people to do even better. In fact, it creates the opposite behavior "why should I even bother at all, can't win with these people."
It's, more or less, impossible for them to do worse than $0.
I get that there's some scenarios where they're not going to make money but the business can be viable as a lifestyle type business. But someone is buying this one for $4 million cash. So this isn't giving someone a company worth 0. This is handing out 800k+ in cash.
Of course they can. They can do $0 _and_ fuck someone else's life over out of spite, vindictiveness, or company policy.
I'm with all the other poster saying what General Catalyst, while almost certainly at least party for self interested reasons, deserve praise and respect for doing this. I know with certainly that there's a bunch of people reading here who'll now move a General Catalyst offer/termsheet right up the top of their pile sometime in the next few years. I hope this works out well for both General Catalyst and for future startups and founders who work with them.
I've had multiple offers to buy and invest. And always do your due diligence. One turned out to be a shell company - which means a bigger company secretly trying to low ball acquire my company
In some cases it's VCs or celebrities and you do your due diligence
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At the end it comes down to one simple thing
If the VC feels this founder and his team worked very hard and not taking that $800,000 (or $800K + x) means those people will get a bit more (and for the company people it means a lot while for VC it means nothing
Then VC doing it is a genuinely good thing
Now consider what it means to someone considering General Catalyst
At best - they are great guys
At worst - they are smart
It also means for sure that they are not
parsimonious spiteful shortsighted vindictive penny wise and pound foolish
So now any founder taking investment from General Catalyst knows that there is a good chance that
General Catalyst are honest and reasonable They will not sabotage an exit to try and maximize their cut at the expense of founders
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Is this deriving too much from a simple act?
Perhaps
However, in an industry where VCs are usually known for kicking out founders, this is a welcome change
There is a lot of money chasing those, and this is one great way to stand out from the crowd.
Why do people keep saying this? The dude sold a company for $4 million dollars. Asking for the $800k back that you invested isn't screwing him over.
They put in $ for 20%, you put in sweat for 80%. Why again is them not getting 20% the right solution? Unless the agreements said “hey look, sub 5x were okay with you getting it all”.
The business didn’t work. Arguably since only management is involved with running the business, it’s managements fault it didn’t work...why do the investors get 0 and the management team get bailed out? It’s not like they took zero salaries / weren’t compensated...
The world doesn’t work if you sign stuff and then later decide to not honor it just because you can torpedo the guy or girl on the other side of the table.
The ceo also doesn’t seem to have paid the staff either, based on his self disclosure. Not sure exactly how jamming a VC and not giving them at least what they put in back isn’t honorable.
But that's not what happened. The business was sold for $4 million. The only difference the VCs actions made was that the founder walked away with 3.7 million instead of 2.9.
>>>As part of the structure of the deal, Xenon guaranteed I’d take home $3.7m, regardless of what came up during due diligence. This was important because many times, after months of due diligence, things invariably come up that reduce the purchase price: working capital requirements, unpaid PTO, unrecognized revenue, and a thousand other things. And I wasn’t interested in dealing with that.
I wanted stability and I wanted that $3.7m outcome to hit our family’s financial goals.
Given those terms, I believe the author when he says that this was the best offer he could get that met his terms. If that is true, had the investors insisted on their cut, he founder wouldn't have hit his family financial goal, and would not have sold.
What a VC does with their money is their choice, a 800k return isn't worth their time and energy if they can spend that time and energy on a billion dollar company within their portfolio.
Alas, that is not at all true. I once sat through a presentation by a VC on how bad things can go, and they can possibly go much, much further south than $0. Lawsuits, crimes, and total time suck for years are some of the things that can go negative.
> It's, more or less, impossible for them to do worse than $0.
Every VC investment is a speculative bet on the future success of the company.
If Baremetrics sold for $800 million, they would have made 1000x their money.
If it was their only investment, then it would be a major fail but VC business model works by making 100 bets. Few bets deliver 1000x return but many of them are 100% loss.
The VC knew what they were doing and their $800k got them exactly what they paid for: an option to make a lot of money in case of a big future success.
That's why they gave Baremetrics $800k 5 years ago. Why they are giving the founder $800k today is far less clear.
> Why they are giving the founder $800k today is far less clear.
They aren't. They are just writing off their initial investment.
They lose $800K (which is less than that because it can be offset for tax purposes), not $1.6M.
If company grows 1,000 times, their stake also grows 1,000 times