Congrats on the success - have you thought about hiring a banker to seek an exit to PE?
From personal experience, after eight going on nine years, the itch to work on something new can kick in.
That’s not to say they won’t make money in the future. Their investment still exists, and while I’m not optimizing for a quick exit or extremely fast growth at all costs, we will eventually exit.
Not sure if it will be in 2 years of another 10 years, but we will eventually. At which point they’ll make at least 5-10x their original investment.
When I offered to buy back shares from early investors most said no and opted to keep the shares for a pay day in the future.
this is obviously a loss for the investor if they accepted. The time value of money is not zero. Unless you're willing to also pay the expected return from such an investment, you'll have just asked them to provide free capital for you with nothing given back.
I agree with you, but so what?
The expected ROI for any given seed investment is $0. It’s common knowledge at this point that seed investing is a numbers game where nearly all seed investments fail and a tiny percentage return huge.
I consider our investors successful in that we’ll, at a very minimum, return more than they would have seen if they had invested in the S&P 500 over 10 years.
It's all about tradeoffs, and the right tradeoff depends on the specific venture.
I do, however, think that a lot of people starting companies seek VC funding when it's not appropriate for their venture, just because they perceive that to be the only, or best, way.
Personally, I took a very low paying job at a VC-backed company over 10 years ago. Left some time later with a significant amount of equity in the form of stock options. The company has grown immensely since then, they became profitable and stopped raising money
Now I’m stuck with a bunch of ISO options that I need to spend money on to actually own the equity, without any foreseeable exit/liquidity event. The company is not offering to buy back anyone’s stock and won’t even provide financials to find a buyer myself
Personally I don’t like when founders talk up the value of equity. Stock options should always be seen as lottery tickets and nothing more.
A lot of countries have minority shareholder rights. This seems like something where those rights would kick in (even if you just have options).
At the time we raised the seed round, we thought we were going to go the regular VC funded path, but somewhere along the way (probably when we became profitable) we changed our operating model to one similar to a bootstrapped company.
Some investors got annoyed (some probably still are annoyed), but we've offered to pay them back their original investment. I used to get angry emails from investors telling us it's terrible that we're not burning money, because you have to invest and burn money in order to grow fast.
I really like the position we're in now, with 100% total control over the company, no board of directors other than founders, destiny is in our own hands. No pressure to raise since we're profitable, and we continue to grow by reinvesting profits back into the business (hiring more people).
This strategy 100% will not work if you tell investors this is your plan from the start. VC-backed and bootstrapped companies operate very differently and have very different long-term goals. Bootstrapped companies typically aren't compatible with the goals of investors. I have trouble seeing how you would pitch "raise 1 round" to seed investors successfully. And I absolutely would not recommend being dishonest about your intentions if you know this is your plan from the start. (For us, we truly believed what we told our original investors and the vision we painted, and only changed our operating model a couple years later after burning nearly all of our seed capital)