Re:The Lessons Google Ventures Learned from Secret
by harryh on Wednesday May 06, 2015 @08:43AM
(#9498168)
1. To anyone. You're just buying the cash. Sell it at a 5% discount to cash on hand and I'll buy it. What the founders do is irrelevant.
2. Founders do get options. They just get them with a very low strike price because when they start the company it's worthless (essentially).
3. Secret didn't fail because it raised money at too high a valuation. It failed because it didn't achieve real product market fit. If it had achieved fit then the excellent terms on which they raised money would have been very good for them.
To your point about "invest on any terms you offer" what I'm trying to show you here is that having investors buy preferred shares is good for everyone involved.
1. To who? There is a liquidity problem here. No one would buy a company at par value that just had the founders bail - and no founders are going to bail on a company that is killing it. This is such an outlier case that it's ridiculous to assume its a primary motivator.
2. Simple, give employees vesting equity grants like the founders, not options.
3. Downside protection is anti-pattern for VC. High risk = high reward. You might get more investments, but those are inflated and skews the market toward making riskier investments if they know they have a fall back. Secret is a perfect example.
The reality is LPs are in there because that's been standard and companies who need investment would rather take the money with shitty preferences than not take it at all.
If you don't want to do investments with LP, then either be so good that people want to invest on any terms you offer or don't take VC.