[HN Gopher] Can a $310M startup avoid due diligence?
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Can a $310M startup avoid due diligence?
Author : svgossip
Score : 284 points
Date : 2022-02-07 17:47 UTC (5 hours ago)
(HTM) web link (svgossip.substack.com)
(TXT) w3m dump (svgossip.substack.com)
| ForHackernews wrote:
| Sure, why not? Who cares about due diligence? We're deep into the
| silly-season of the market.
|
| Supposedly Tether has been given $75 billion and nobody's asking
| any tough questions, so what's a few hundred million between
| friends?
|
| https://www.bloomberg.com/news/features/2021-10-07/crypto-my...
| htrp wrote:
| > But a16z is typically known for breaking out the checkbook for
| follow-on funding the instant their investments are showing signs
| of success. What happened here?
|
| I think the problem becomes that because VC is such an insular
| environment, no VC firm wants to be caught talking about how
| portfolio company isn't successful. As a result, they'll politely
| decline to lead follow-on rounds, but still allowing the startup
| to tout the investment from top tier VC firm as social proof for
| the next round.
| jacquesm wrote:
| Of course they can. It happens all the time, FOMO is a powerful
| drug.
| skeeter2020 wrote:
| "Solving Human Coordination"
|
| 50M must buy a lot of Kool-Aid
| woodruffw wrote:
| Sagas like these succinctly demonstrate the moral hazard of
| cryptocurrencies and other forms of organized faithless financial
| activity: we're all idly speculating on the next fool's
| willingness to buy into the scheme. There is no incentive for
| honest action (or innovation, for that matter), and there
| _cannot_ be until there is ample regulation.
|
| I don't have overwhelming amounts of sympathy for the accredited
| investors who buy into these schemes at petty individual scales,
| but I _do_ have sympathy for the honest employers and employees
| trying to survive in a faithless economy.
| newaccount2021 wrote:
| villgax wrote:
| You could say the same for Pixis/Pyxis One/AbsentiaVR or whatever
| else they try to rebrand themselves as now.
|
| An IT-outsourcing company focusing on new tech just gets passed
| around as some AI SaaS tool, without having any public docs or
| advocacy. The shadiest part is how they've raised $124mn from
| Softbank, General Atlantic et al & yet nobody knows any
| financials.
|
| For a Bangalore based company they sure did spin up new origin
| stories like California based etc at every round, hype like 200
| "self evolving networks" etc. Half of their marketing copies
| mention existing tools & the other half says they are yet to
| build said tools.
| erulabs wrote:
| Amazingly, my startup (KubeSail.com YCS19) has similar revenue,
| has raised 500x less, and we've been told point blank that
| "nobody wants to invest in a hardware company", or "yes, but
| what's the path to 100B".
|
| Hey maybe we don't have any path to 100B (is 1B just for
| chumps?), and maybe our margins aren't B2E-style 99%, but I'd
| much rather be making something people want rather than...
|
| And then I hear my wifes voice in my head: "You can't pay
| yourself that little forever...". Maybe _I 'm_ the fool.
|
| Strange world.
| [deleted]
| brendonjohn wrote:
| There's clearly been a lot of thought put into KubeSail, the
| platform & pibox provisioning service looks interesting.
|
| Have you had businesses try to make this part of an internal
| provisioning process?
|
| It looks like you're aiming for hobbyists, but I'd take a guess
| you could be integrating with businesses at a premium.
| obventio56 wrote:
| The VC model has to consider the expectation that most
| investments will be a complete loss. To have even a hope of
| ~20% return every investment has to have a path to $xxxB.
| Otherwise it's not worth including.
| bpodgursky wrote:
| Yes, this is a huge misunderstanding of where the returns
| from VC come from. It does not come from "moderate success".
| That's hopeless, given the fail rate.
|
| If you have a safe path to 20% or even 100% returns, just get
| a loan. There's absolutely not point in the VC process at
| that level... or reason for them to exist.
| thr0wawayf00 wrote:
| I might get downvoted for saying this, but rich people aren't
| necessarily smarter than anyone else. They're just richer.
|
| Undoubtedly, there are many successful founders with talent and
| brains that were able to exit successfully, and to those
| people, kudos. But a tremendous amount of immense family wealth
| is controlled by people that are in no way, shape or form
| smarter or more talented than the average person. Their wealth
| just demands an unhealthy amount of control and influence in
| whatever it is they're investing, regardless of how
| knowledgeable they are.
|
| I saw it in multi-family real estate about 5 years ago. A
| multi-family property company I was associated with was making
| an absolute killing (and still are) when all of a sudden,
| leadership wanted to start investing in AI because their
| investors demanded them to.
|
| They signed a massive deal with a custom software shop to build
| them an AI tool to decide which properties to buy, and the
| entire project was an absolute joke. It wasn't AI of any kind,
| it was just a dashboard that pulled data from various real
| estate APIs for things like walkability score, etc. But they
| showed their investors and called it "AI", who absolutely loved
| it, not knowing at all what actually was, partially because
| these execs were old school real estate guys that didn't
| understand themselves what the tool really was either. They
| raised millions more for their next fund, and the whole time
| I'm wondering how what this company was doing wasn't
| fraudulent.
|
| In the end, it didn't even matter, the next fund performed
| incredibly well and at the following Christmas party, one of
| the employees involved in the project received a $50k Escalade
| as a gift to reflect the success of the "AI" project.
|
| I will never again assume that just because someone has a ton
| of money knows anything about they're talking about.
| doctor_eval wrote:
| I am unable to talk about specifics - but I can 100% endorse
| this comment. Would add management consultants to the list as
| well.
| femto wrote:
| I once worked with someone who went from "not rich" to
| "rich", who also ending up in a senior position at Cisco
| where he had the authority to spend lots of money.
|
| His observation was that a "normal" person has to work hard
| to find ways to make money. A person with lots of money to
| spend has people queuing at their door, offering ways to make
| even more money. It becomes a case of picking the best
| opportunities from the menu.
| hutzlibu wrote:
| "I will never again assume that just because someone has a
| ton of money knows anything about they're talking about."
|
| Well, apparently they did know, how to increase their
| avaiable money. And this is what matters to most people, not
| solving real problems. The problem seems, that those 2 things
| are not really aligned often.
| thr0wawayf00 wrote:
| The thing is that it's so much easier to make money when
| you have it. It's not even necessarily that rich people
| just know innately how to make money, it's more like they
| just have access to many more people who do know how to
| invest.
|
| Any schmo can open a Wealthfront account with no minimum
| balance that returns somewhere in the realm of retail
| investment returns, but only people with obscene amounts of
| money can go invest in the real estate firms like the one I
| referenced, which return many times more to the investors
| than anything in retail would. That firm was returning many
| multiples above anything you could invest in on the retail
| side. So having a million dollars to put into these kinds
| of firms winds up making so much more percentage-wise than
| the tens of thousands that I can put into my retirement
| account. It's a self-perpetuating system that allows the
| wealthy to continue out-earning everyone else. That's how
| wealth inequality works in a nutshell.
|
| I could give you the name of the firm so you too would know
| how to make that kind of money. Only, you wouldn't be able
| to without being able to make the minimum required
| investment. It's not that they have some secret knowledge
| about making money, it's that they can buy access to the
| high-return investment firms that you and I just can't.
| ModernMech wrote:
| > The thing is that it's so much easier to make money
| when you have it.
|
| So true. My rich uncle once told me "The hardest million
| I made was my first million". Then you look at how the
| banking system works: the more money you have in the
| bank, the more money the bank pays you. But if you don't
| have enough money in the bank, then the bank charges you.
| So it's actually more expensive to be poor than it is to
| be rich, and the richer you are, the faster you become
| richer.
|
| It's as if you're first place in Mario Kart, and all you
| get are stars, while the last place car keeps getting
| banana peels that they then slip on. Not a very fun game,
| but that's life.
| hutzlibu wrote:
| "But if you don't have enough money in the bank, then the
| bank charges you. So it's actually more expensive to be
| poor than it is to be rich, and the richer you are, the
| faster you become richer."
|
| Not only banking, everything is more expensive, when you
| are poor.
|
| Miss a payment, because the money was gone before the end
| of month? You still have to pay it fully, plus fees.
|
| Can only afford a old car? Pay more with repairs and tax.
|
| You need money but have low bank reputation? Pay way
| higher interest rate - if you are lucky to even get the
| loan.
|
| You get screwed over, but cannot afford a lawyer? Bad
| luck.
|
| Etc. etc.
| pmorici wrote:
| Does it matter what it was if it helped them pick good real
| estate investments?
| varispeed wrote:
| If it becomes a bad choice you can blame the AI not
| yourself. That's the whole point.
| MegaButts wrote:
| > I might get downvoted for saying this, but rich people
| aren't necessarily smarter than anyone else. They're just
| richer.
|
| You'd have to be an idiot to think otherwise.
| floodyberry- wrote:
| You're literally on the "rich people are better than" site
| [deleted]
| [deleted]
| irthomasthomas wrote:
| Juicero
|
| Theranos
|
| ZERA food recycler
|
| Nikola electric truck
|
| What are your favourites?
| danjac wrote:
| Re: Theranos - to give Henry Kissinger and the other very
| old rich guys the benefit of the doubt, perhaps Elizabeth
| Holmes is just a Bene Gesserit using the Voice to get
| them to hand over their money?
| thr0wawayf00 wrote:
| I look at how the ultra-wealthy are lionized in the US and
| genuinely wonder sometimes. It's amazing what we'll let
| those people get away with because we too want to join the
| exclusive club of high net worth individuals.
| worik wrote:
| > I look at how the ultra-wealthy are lionized in the US
| and...
|
| I look at the ultra-wealthy make a diagnosis of obsessive
| compulsive disorder
| missedthecue wrote:
| Interestingly, when I look at the top 5 richest people on
| the planet, I don't think any are optimizing for wealth.
| forbiddenvoid wrote:
| They are not optimizing for wealth... anymore. It's easy
| to shift your priorities once you are overwhelmed with a
| resource you could not possibly use all of.
| missedthecue wrote:
| I think I would describe Jeff Bezos and Elon Musk etc...
| as optimizing for making their companies succeed in the
| end, not optimizing for wealth.
| brimble wrote:
| I sometimes wonder how much the fact that I'd stop
| _trying_ to make more money at like $25m savings--and
| maybe sooner--is a factor in my not having that much
| money in the first place. Like I 'm not saying that's all
| or even most of the reason, but I do wonder if the
| running-up-the-score attitude is itself valuable for
| making any decent amount of money in the first place.
| qnsi wrote:
| what do u need 25mil for? Seems arbitrary. With 7.5m u
| can have 300k/y income from stock invested without
| lowering your net worth. Seems more than enough for
| anyone
| brimble wrote:
| Yeah that's why I threw in "maybe sooner". $25m _is_ a
| bit arbitrary but is also somewhere around the point at
| which I 'd have to start _trying_ to waste money before I
| 'd risk touching principal. That's "never think about
| money again, even a little" territory, for me (but then I
| don't want a yacht or any of that), so at the top end of
| the range in which I could see myself deciding never to
| work again.
|
| Also, $7.5m is still low enough to be threatened by
| healthcare costs and end-of-life care and such (x2 for a
| couple, plus if a kid gets very sick before they're out,
| or even after but you don't want them to be ruined by it,
| et c). Not enough to wipe it out, probably, but enough to
| diminish it substantially if you get a bad roll of the
| dice. I wouldn't even need _that_ much to stop having any
| motivation to try to make more, if I lived somewhere with
| decent universal healthcare where having your savings
| eaten by the healthcare /hospice-care industry is
| practically unheard of.
| missedthecue wrote:
| If you did intelligence tests on 1000 American centi-
| millionaires and 1000 randomly selected Americans, do you
| think the difference in scores would be undetectable?
| thr0wawayf00 wrote:
| Yes, because a tremendous amount of wealth is inherited.
| The idea that the vast majority of wealthy Americans are
| self-made is a myth.
| missedthecue wrote:
| 80% of US millionaires are first generation.
|
| https://www.washingtonpost.com/wp-
| srv/style/longterm/books/c....
| nsv wrote:
| Big difference between millionaire and centi-millionaire
| or billionaire though. You can save a million dollars
| just by making the median American salary and making
| large contributions to your 401k over 40 years, due to
| the power of compound interest.
| majani wrote:
| Inheritance doesn't start and stop at money. There are
| other inherited traits that may influence the scores of
| the people in the study.
| gumby wrote:
| The majority of people world wide are, by that definition,
| idiots.
| Cyril_HN wrote:
| > I might get downvoted for saying this, but rich people
| aren't necessarily smarter than anyone else. They're just
| richer.
|
| ... ish?
|
| Generally speaking, rich people may not be smarter than
| anyone else but they probably aren't dumber. In other words,
| they are likely to be making fewer mistakes and taking more
| favourable risks, even if they aren't particularly any more
| likely to spot an extraordinary opportunity.
| thr0wawayf00 wrote:
| > Generally speaking, rich people may not be smarter than
| anyone else but they probably aren't dumber.
|
| You're kind of proving my point here though by making the
| argument that rich people probably just make better
| decisions than the working class. It's not really about
| making better decisions as it is about having access to
| better financial opportunities that others don't have. As I
| stated elsewhere, the real estate firm I described offered
| massive returns that you could not dream of getting in
| retail investment situation, but it required a minimum $1M
| investment, which obviously excludes most people.
|
| I could give you the name of the firm so you too could know
| how to make that crazy money, but if you don't have the
| million, you're SOL. It has nothing to do with how smart
| you are, it has everything to do with how much money you
| have.
| dougSF70 wrote:
| I have a similar feeling. I must be the fool for not raising
| capital while money is so cheap, especially when I see firms
| raising 7 figures with no revenue nor even a product.
| agentdrtran wrote:
| How does this differ from competitors outside of backups being
| included?
| rossmohax wrote:
| I went on your page, and it looks like I am your target
| audience - relatively tech savvy, want to ungoogle myself,
| ready to pay for convenience of doing so, yet I got confused
| quickly.
|
| 1. What do you sell? Hardware or some kind of management
| software? Looks like latter, then why there is image of PiBox
| all over the page?
|
| 2. What is cluster? Is it a single PiBox/another Linux or
| something more? Word "cluster" implies to me there are many
| somethings grouped, what are these somethings?
|
| 3. Price plans mention proxied traffic. What it is and how does
| it fit into big picture?
|
| 4. I signed up, clicked add cluster -> "Bring YourOwn" and
| nothing changes, it still offers me to buy PiBox with shipping
| date in July(!! I know it's not your fault, but damn). How do I
| add my own "cluster" (whatever it is)?
|
| 5. Once logged in, I can't get to the homepage anymore, it is
| all dashboard now.
| erulabs wrote:
| Hi! Thanks for your feedback!
|
| 1. We sell both hardware and software, although our software
| works with almost any computer that runs Linux - it doesn't
| require our hardware and can run on anything that can run
| Kubernetes. Obviously, this is somewhat "the deep end" for
| many users, so our PiBox comes plug-n-play ready.
|
| 2. Cluster is a Kubernetes term, which we really should stop
| using, although we have a core value of educating instead of
| shielding our users - so we've tried to keep the "upstream"
| terminology as much as we can. It simply means "one or more
| Linux servers". Most of our customers simply run one machine
| as their "cluster", but a small handful have dozens of
| machines in the same group.
|
| 3. We're trying to bundle everything that's needed to host
| apps and websites at home. For most users, home internet
| connections aren't very good for this - the IP address
| changes often, and sometimes ISPs do not even allow port 80
| or 443 to be exposed to the internet - we solve this by
| proxying traffic directly to your cluster, bypassing
| firewalls and avoiding the need for port-forwarding, router
| configuration, etc. This means you can plug in a PiBox,
| install, say, PhotoStructure, and access
| `photos.home.erulabs.k8g8.com` (for example), without needing
| to know anything at all about networking or firewalls or DNS.
| We also offer backups, as another example of trying to make
| home-hosting "complete".
|
| 4. Ack! I broke this last night! Thank you for pointing that
| out, fixed now!
|
| 5. You can click "home" in the footer, but yes, some polish
| there would be nice... One day we'll hire a proper designer
| ;)
|
| Thank you for the feedback, very much appreciated.
| colechristensen wrote:
| Oh that's neat, I had almost exactly that startup idea years
| ago, but it never got any further than describing it to some
| friends over a beer. Looks like you created something pretty
| cool!
| tomxor wrote:
| Here's a massively oversimplified and harsh view, but maybe
| useful to contrast different ends of the spectrum:
|
| 1. Get VC style investment, become unicorn, pay yourself
| 500-1000k a year immediately, ride the roller-coaster. Ending =
| derail ? feel burned, but have some dosh to show for it,
| possibly swallowing feelings of contempt towards investors due
| to overriding decision that forced you to watch your baby burn
| : Homerun, now watch everything you worked for be monetised
| into a souleless husk of it's innocent beginnings, you can't
| help but feel you sold out, quit once you had enough, dosh to
| show for it.
|
| 2. No investors, go the hard way, grow slow. If you make the
| right decisions, you will be able to afford to gradually
| increase your salary to something modest, and eventually
| perhaps even "good", you maintain full control of your product
| and peace of mind of ownership and decision making. OR, you
| keep making the wrong decisions, you burn through all your
| money, possibly burn through your enthusiasm too if you don't
| know when to quit.
|
| #1 can be risky for the soul 2# can be risky for the pocket
|
| If you aren't very materialistic and don't want expensive toys,
| #2 can be quite attractive because of the sanity you are able
| to create for your everyday worklife... the other thing is that
| just because it isn't a 100B business idea, doesn't mean it
| isn't a good business idea, it might just have a different
| scale, maybe it can't pay 10k workers and a pile of investors,
| but it could pay pay 10 or 100 people with the same salary,
| minus all the corporate BS... it just takes longer to get
| there. VCs want relatively quick money, but that is only
| applicable to certain ideas that can reach a certain scale,
| even then it comes at a non monetary cost that can be hard to
| stomach.
| Zhenya wrote:
| Tried to check out your site, 'clicked start for free' on the
| homepage but got:
|
| "Bad request"
|
| Can I learn more?
| [deleted]
| erulabs wrote:
| Heh, maybe _thats_ why we don't have a 300M valuation! I
| shouldn't comment on HN _while deploys go out_. Fix going out
| currently, thank you!
| catlifeonmars wrote:
| Or maybe commenting on HN is a good way to get free user
| acceptance testing. Comment on every deployment!
| [deleted]
| bhelkey wrote:
| I went to your homepage. So I can pay for a server to run
| backups and apps? The problem is that I have heard of exactly 0
| of the apps you highlighted.
|
| Excluding backups, essentially the pitch is, 'Pay us money to
| run a server to serve apps you have never heard of.' Are
| Element, Jellyfin, NextCloud things you expect your target
| customers to know about?
|
| My perception is that Plex is moderately well known, I suggest
| you highlight that.
|
| Disclaimer: I work for Google, all opinions are my own.
| bhelkey wrote:
| > KubeSail Platform allows you to provision software when
| your customers signup and pay. Spin up cloud resources on-
| demand, or physically ship your customers a plug-n-play
| device.
|
| I may have misunderstood, this appears to be B2B?
|
| Edit: I went on the blog. My current understanding is:
|
| "KubeSail" is the physical box (some sort of pi with a sata
| adapter).
|
| "KubeSail Templates" is some standardized wrapper around
| opensource cloud software.
|
| "KubeSail Platform" is some sort of B2B deployment platform
| for the open source wrappers.
| lmilcin wrote:
| It is.
|
| Everybody just focuses on two possible outcomes that are easy
| to define -- what is the probability it goes bust and what is
| probability it is going to add a letter to FAANG.
|
| I think the answer is laziness. If you invest money you
| shouldn't care much about the size of the company you are
| investing. From a purely financial point of view should be
| looking at return on your investment where return is defined as
| an integral over all possible future payouts adjusted for their
| probability and adjusted for your risk tolerance.
| gitfan86 wrote:
| >I think the answer is laziness.
|
| If an investor wasn't lazy they wouldn't be an investor and
| have a real full time job, OR they would be Jason Calacanis.
|
| I'm not saying that they are bad people, I totally understand
| the appeal of getting a cushy, but potentially profitable
| job.
| bachmeier wrote:
| Apologies in advance for providing unsolicited feedback...
|
| When I go to a landing page, I expect to be given a reason to
| give the company my money. (And in fact I'm _hoping_ to be
| convinced of that, because it means my life is better.) I
| visited your landing page and do not know what problem you are
| claiming to solve. It looks like a competitor for Digital
| Ocean, but DO is easier to use and just as cheap. IMO your
| landing page should make me say "I want to give them my money
| so I don't have to think about [problem] again."
| erulabs wrote:
| No need to apologize, I appreciate the feedback! I tweak our
| little initial landing page pitch lines all the time, and I
| feel like the current state is pretty bad. I'll see if I
| can't improve it :)
| henriquez wrote:
| in b4 libel lawsuit
| gojomo wrote:
| What statement or two in this writeup could be proven false in
| a libel suit?
| caust1c wrote:
| Is this the new valleywag? Someone needs to be the new
| whistleblower with a hint of sarcasm. Hope this is it!
| dheera wrote:
| I mean, as long as you go to work on time, and don't slack off,
| you've been duly diligent.
| mrintellectual wrote:
| > You can pay yourself a "market salary" of $500,000/yr+. You can
| use the money as a piggy bank for flights, hotels, Uber Black,
| and other travel expenses.
|
| This is just downright false. The founders alone do not decide
| C-suite compensation - that's reserved for the board of directors
| (which should be a combination of one or more founders plus other
| individuals selected by the investors). Travel expenses and other
| "piggy bank spending" would also have to be reported in quarterly
| or yearly financial reports to the shareholders.
|
| If what this article says is true, the investors deserve just as
| much blame as the founder.
| exogeny wrote:
| I'm also interested in the Quixey story -- how can a company
| raise >$100mm without ever releasing a product? What happened
| there?
| nikanj wrote:
| Ask Magic Leap.
| sulam wrote:
| Hey, at least the founder is fluent in "Hebew".
| ddp26 wrote:
| I'm curious too, as there were some early LessWrong folks
| working there, IIRC. I used to walk by their office in Mountain
| View.
|
| This article discusses what went wrong with their finances, but
| doesn't discuss what happened with the product (app search, app
| deep-linking): https://www.axios.com/behind-the-fall-of-
| quixey-1513301224-0...
| missedthecue wrote:
| Lernout & Hauspie was a dotcom era fraud that attracted
| investments from several major players, including a $45 million
| investment from Microsoft and millions more from Intel and the
| Belgian government. At one point, it was valued at $10B.
|
| They claimed to have solved real time speech recognition and
| translation, and claimed to have over $300M in annual revenues.
| None of that was true. Their speech recognition software did not
| work, and they had very little revenue. Their management went to
| prison and it was one of the biggest financial frauds in modern
| European history at the time.
| mattkrause wrote:
| My impression was that Lernout & Hauspie had had decent--for
| the time--technology: they bought Dragon (admittedly in a shady
| deal), PowerScribe, and a few other "real" companies. It was
| certainly rougher than people might have desired, but this is
| the first time I've heard they didn't have any actual products.
|
| I thought its downfall was more related to straight-up
| accounting fraud, with fake sales, hidden loans, etc.
| jacquesm wrote:
| Yes, they did have a product and the parties that acquired
| the assets at bankruptcy firesale prices did rather well.
| ar7hur wrote:
| I think Nuance bought most of the assets. And 20 years
| later MSFT bought Nuance. Full circle!
| missedthecue wrote:
| Like you mention, they acquired legitimate companies, but as
| far as I can gather, their own tech was fraudulent through
| and through. This is an account of someone who went on a
| roadshow with the Lernout & Hauspie sales team in the 1990s.
|
| " _They had this room with a whole wall of computers and you
| talked into a microphone and the computers would do the
| speech recognition. Then they put your sample through a
| translation program, and the program would convert it to
| another language. They were demonstrating the Holy Grail of
| speech recognition in 1999. It turned out all that was done
| by a man behind the curtain, literally the Wizard of Oz. The
| man behind the curtain just typed it in; everything else was
| an illusion._ "
|
| From page 37 of this columbia.edu PDF.
|
| https://www8.gsb.columbia.edu/valueinvesting/sites/valueinve.
| ..
| james_pm wrote:
| TIL my daughter is Barbicide Certified! Who knew. I'm not
| kidding. I put my last name in lookup.merits.com and her record
| came up. I think it's actually correct as she did take some
| courses on cosmetology in high school.
| rwmj wrote:
| Despite the weird name, the company is somewhat well known
| amongst hairdressers/beauticians - my wife's a hairdresser and
| I'd heard of them. They were one of a few companies doing
| online courses in hygiene, PPE, covid safety, etc. who came
| along at exactly the right time for the pandemic.
| igorrek wrote:
| Reminds me of the famous Wolf of Wall Street scene with M.
| McConaughey:
|
| "Keep the client on the Ferris wheel, and it goes, the park is
| open 24/7, 365, every decade, every goddamn century. That's it.
| Name of the game."
| ModernMech wrote:
| I have to admit, for a long time I thought that Barbicide is what
| you call it when a barber is murdered.
| lordnacho wrote:
| What I don't get is how some people have found the capital
| fountain but others haven't, and it seems to have nothing to do
| with whether the businesses are actually working.
|
| A friend of mine runs a fashion business that has worked with
| actual A-list celebrities, yet turns away orders because they
| lack the cash to make the stuff.
|
| Others have had a hard time getting appointments with VCs to show
| their deck, and others have had a tough time getting those that
| are in touch to put any money in.
|
| But in the news it's story upon story about firms getting piles
| of money thrown at them. What's more is several of the ones I
| know about have pretty much nothing for a business, and due
| diligence would reveal it.
| ModernMech wrote:
| The VC model is all about making a lot of huge risky bets in
| the hopes that at least one of them will pay off. So you don't
| need an actual business that's making real money. That doesn't
| fit into the VC model. What you need is a story about how your
| business will be as big as Google or Facebook. That's what VCs
| are buying.
|
| So if you come to them with a pitch for a business with solid
| fundamentals and a clear map to profit, they will not be
| interested. Why? Because even if you deliver 100% on your
| promise, it won't be enough for them to recoup the bets they
| made on a dozen other risky ventures. If you hit it out of the
| park, you better be on target to be a billion dollar unicorn.
| Otherwise, what's the point? They need to make up the millions
| upon millions of dollars they've been betting.
|
| In that sense, it's much better to have a story about a juicer
| that will be sold to billions of people and replace the concept
| of juice as we know it. Or to have a story about how you will
| revolutionize the world of medical testing even though the
| technology is science fiction. VCs don't care, they just want a
| story. All this talk about due diligence is them trying to feel
| better about their bets. Really if your idea was sound it
| wouldn't be something VCs would find interesting in the first
| place (because then it would be obvious and therefore not
| valuable to the tune of billions).
| x0x0 wrote:
| If you look at Theranos, the major funding sources were _not_
| traditional vcs.
|
| Total investment: $724m, approx. Waltons: $150m, Rupert
| Murdoch: $121m, Cox family: $100m, DeVos family: $100m,
| Carlos Slim: $30m, etc. I count at least $559m from non-vc
| sources [1].
|
| And then you have hedge funds like Partner Fund Management:
| $96m. Whether you consider them a traditional vc or not, per
| their lawsuit, Theranos faked blood test results. I guess you
| can blame them, but I'm not sure how much duedil is going to
| catch wholesale fraud.
|
| MedVenture, a vc, did due diligence and didn't invest. GV
| turned them down.
|
| VCs certainly didn't make Walgreens not do duedil before
| partnering with Theranos. etc.
|
| I don't think Theranos is proof that vcs are, as a class,
| incompetent and just want a story.
|
| [1] https://www.wsj.com/articles/theranos-cost-business-and-
| gove...
| lmeyerov wrote:
| Different things.
|
| - Hard to scale a celebrity fashion business in practice and as
| a story. A family friend started a successful jewelry company
| popular w/ Hollywood types and it's growing great, just nothing
| like Splunk, Notion, SpaceX, etc. There are outliers here - why
| everyone loved D2C co's like Dollar Shave Club - but gotta fit
| that growth model.
|
| - Much of VC is largely story driven and, at least in b2b,
| rides a delegated sales/marketing motion (vs product/tech ROI
| motion). Once the first big money is in (pure pitch), there's a
| funny treadmill. Each round gets spent on artificially pumping
| numbers (big marketing, big sales, ...) enough to hit the next
| round before the money runs out. As long the #'s match what
| looks good in a deck, the co is largely good. However, most
| investors don't actually do truly deep diligence to identify
| whether the core is hollow, just that if there's enough that in
| 18mo + 36mo there's a good enough story on getting a bigger
| investor in. That can easily be something like "ignoring
| company quality, is there any sort of market demand here?" Each
| startup has issues and VCs often have surprisingly little time
| (ex: read up on Tiger), and you only hear about the Yes's and
| not the Passes (startups just need 1-2 Yes's), so not
| surprising to see some dumb/ok-money float in. So 7 years and
| $100M+ of funding later, sales/marketing-driven customers
| probably start churning out and the leads are burned, and
| oops... but maybe it's ok and they've exited. Bringing back to
| the founders, it's not that they're building a great company,
| but that they can sell that story and delegate operations to
| the 'adults' (sales/marketing/engineering) who keep the facade
| alive through the hollow growth of an otherwise busted product.
| There's probably a similarly unsatisfying set of common stories
| for consumer co's ;-)
| DethNinja wrote:
| Yeah, if you got "deep" connections, you definitely can avoid due
| diligence.
|
| Where do you think all that printed money during pandemic
| actually went? Only a minuscule amount was given to plebs, rest
| goes to shady startups and gets diluted.
|
| Such evaluations also make naive founders believe that they can
| get a similar amount. If you aren't in the club, you won't ever
| see a dime of this funny money.
| sjtindell wrote:
| That doesn't seem right. Projects now are significantly more
| developed than they used to be, although scams still abound. In
| the early days I bought something called Hobonickels and it
| went up 5,000%. It was literally a copy/paste with a changed
| name. Today the projects have roadmaps, teams, and products
| that release. They do more auditing, both security and
| financial. Because the market has demanded it, not some
| regulatory body.
| mceoin wrote:
| Is there any evidence that Kagan took money off the table or paid
| himself an outsized salary, or hired his friends on exaggerated
| salaries, or used the startup's funds as his piggybank?
|
| Similarly, the article conflates A16Z leading the seed round but
| not the follow on round as being some kind of smell. A16Z
| certainly do lead follow-on rounds, but it isn't the norm. (It
| would be interesting to know if they exercised pro-rata or not,
| but even that isn't necessarily indicative of anything.)
|
| I don't know if there is or isn't fraud here, but the only
| evidence seems to be that Kagan was good at fundraising, raise a
| lot in a frothy market on little traction, and did not succeed at
| building the product or a successful business.
|
| One of the best things about the tech ecosystem is the lack of
| stigma around failure. I hope people don't lose sight of that as
| round sizes and valuations spike.
| qnsi wrote:
| there is small proof of fraud though. I am now writing from
| memory but they claim they have many clients when their own
| search shows they have only few small clients.
| manquer wrote:
| Likely a16z exercised their pro-rata as a16z is also listed in
| their Series B on Crunchbase along with the seed.
|
| There are any number of reasons a lead investor in your seed
| doesn't lead your Series B, and there is no way to know a16z
| did not want to lead in the first place. A different fund may
| give a larger check/different terms/ a partner you want on
| board and you may accept that instead etc.
|
| There are many companies with outsized valuations that do not
| justify the revenue or any other metric, it is neither new to
| this wave (or even the dotcom wave) nor is it all that
| uncommon. On the surface it doesn't look like there is anything
| out of ordinary Kagan has done yet.
|
| It is high risk industry after all, if investors put strong
| filtering criteria then they risk loosing on deals which were
| actually legitimate or became legit with funding, it is risk
| VCs are quite aware of and willing to take.
|
| A Buyer should be beware of what he is getting into,
| accreditation is a thin shield,With Increasing SPAC listings
| and inflated markets even public listing won't protect them
| from early stage startup shenanigans these days companies like
| Nikola (anyone can invest ) do exist.
| [deleted]
| gumby wrote:
| > Similarly, the article conflates A16Z leading the seed round
| but not the follow on round as being some kind of smell.
|
| Typically everybody _wants_ a new investor to lead the next
| round. A completely inside round is usually a sign that a
| company is in trouble (though it could mean the deal is so
| sweet the insiders don't want to share).
|
| As in investor, a newcomer is reassuring that you aren't simply
| in love with the business.
|
| And for management, investors, and of board, someone new
| setting a price guarantees that the new price wasn't determined
| on some sweetheart basis.
| jiveturkey wrote:
| I'm kind of more interested in "SV Gossip".
|
| "Launched 2 hours ago". Can't look at other articles without
| subscribing.
| er4hn wrote:
| I'm not sure if they have other articles. When I look at their
| Archive I just see this one.
|
| Maybe this is their MVP?
| pavlov wrote:
| _> "While the investors listed above can take care of themselves,
| unfortunately, invitations to invest were also extended to small-
| time individual angel investors. Thousands of AngelList members
| were invited to invest personal checks ranging from $2,000 to
| $20,000+ via the mailing lists of multiple syndicates."_
|
| It's worth noting that any US person investing this way is
| required to be an accredited investor, which is another way of
| saying they've proven they can afford to lose that $20k (or
| whatever they're putting in).
|
| The accredited investor rules in USA seem draconian, but if it
| weren't for them, we'd be absolutely drowning in fake tech
| companies taking money from retail investors. (Today those fakes
| are in crypto, where you can pretend your investment offering is
| a utility token or maybe a donation to a revolutionary DAO that
| just happens to issue tradeable crypto-tokens in return, and hide
| behind pseudonyms to make it harder for SEC to find you
| eventually.)
| sjtindell wrote:
| Where is the line of personal responsibility? Fraud should be
| prosecuted. Isn't that the protection? These are laws that
| ensure only the rich can get richer. Terrible. Literally a law
| that says "you're too stupid, we're protecting you".
| thethimble wrote:
| The fact that laws prevent people from doing things that
| would cause them harm is a feature, not a bug.
|
| The accreditation requirements are not absurdly stringent (eg
| $200k annual income). I think there's a clear argument that
| people who do not meet those requirements can neither
| accurately judge the risk of their prospective investments
| nor afford to lose their investment (high likelihood). The
| current crypto markets are perfectly bearing this line of
| thinking out.
|
| Retail investors are free to invest in public companies where
| there are significantly more fraud protections in place.
| thethimble wrote:
| Also note that the SEC has recently (2016) relaxed rules on
| equity crowdfunding to allow retail investors more access
| to such deals while also mitigating some components of risk
| or fraud:
|
| https://www.sec.gov/smallbusiness/exemptofferings/regcrowdf
| u...
| Turing_Machine wrote:
| > Fraud should be prosecuted. Isn't that the protection?
|
| While throwing a (likely bankrupt) fraudster in jail might be
| emotionally satisfying, it doesn't get your money back.
|
| These laws are aimed at protecting 87-year-old Aunt Minnie,
| who has some money in the bank that her late husband left
| her.
| agency wrote:
| As an alternative there's always Matt Levine's "Certificate of
| Dumb Investment" proposal:
| https://www.bloomberg.com/opinion/articles/2018-09-24/earnin...
|
| 1. Anyone can invest all they want in a diversified portfolio
| of approved investments (non-penny-stock public companies,
| mutual funds and exchange-traded funds with modest fees,
| insured bank accounts, etc.).
|
| 2. Anyone can also invest in any other dumb investment; you
| just have to go to the local office of the SEC and get a
| Certificate of Dumb Investment. (Anyone who sells dumb non-
| approved investments without requiring this certificate from
| buyers goes to prison.)
|
| 3. To get that certificate, you sign a form. The form is one
| page with a lot of white space. It says in very large letters:
| "I want to buy a dumb investment. I understand that the person
| selling it will almost certainly steal all my money, and that I
| would almost certainly be better off just buying index funds,
| but I want to do this dumb thing anyway. I agree that I will
| never, under any circumstances, complain to anyone when this
| investment inevitably goes wrong. I understand that violating
| this agreement is a felony."
|
| 4. Then you take the form to an SEC employee, who slaps you
| hard across the face and says "really???" And if you reply "yes
| really" then she gives you the certificate.
|
| 5. Then you bring the certificate to the seller and you can buy
| whatever dumb thing he is selling.
|
| 6. If an article ever appears in the Wall Street Journal in
| which you (or your lawyer) are quoted saying that you were just
| a simple dentist, didn't understand what you were buying and
| were swindled by the seller's flashy sales pitch, then _you_ go
| to prison.
| cm2012 wrote:
| This is the funniest thing I've read this year
| loeg wrote:
| Subscribe to Money Stuff! It's free and full of similar
| gems.
|
| https://twitter.com/matt_levine/status/994296126055608320
| SilasX wrote:
| Related: Robin Hanson's idea of "would have banned" stores
| (that sell things that would normally be banned, with some
| kind of filter that you understand why they were banned):
|
| https://www.overcomingbias.com/2007/03/paternalism_is_.html
|
| https://www.lesswrong.com/posts/PeSzc9JTBxhaYRp9b/policy-
| deb...
| dwohnitmok wrote:
| I enjoy Matt Levine's pieces and I understand this is meant
| to be humorous and far from serious, but it's also
| instructive to think about how such a scheme could go wrong,
| because it illustrates how hard incentive problems are. I
| think the big problem would be if the "Certificate of Dumb
| Investment" by happenstance didn't seem so dumb anymore (a
| couple of lucky, high-profile investments really take off and
| are in the news for weeks) and then say a million people (<
| 1% of the U.S. adult population!) pile in to the next dumb
| investment and get all their money stolen.
|
| No matter what they've signed, that's still a million people
| who've gotten their money stolen and they'll be out for
| blood, communicating on forums, in-person, etc. Beyond the
| brute fact that a million people have had money stolen, which
| is bad, there's the secondary problem that if just another 1%
| of that million still complains to newspapers, there's no way
| that the government could arrest 10,000 people at once
| without major public backlash, especially if those people
| play their cards well and can spin a media story of "victims
| of financial fraud further being punished by the government."
| If you've got 10,000 examples to choose from, there are bound
| to be sympathetic stories which capture the public attention.
|
| And then at that point, if the government chooses not to
| prosecute those cases, the floodgates are loose and the
| "Certificate of Dumb Investment" has lost most of its power
| and purpose.
| DangitBobby wrote:
| Yeah, it's funny as a joke but not really a sound
| principle. We have all sorts of people screaming "that's a
| stupid investment!" for stupid investments. The problem is
| not that the nay-sayers aren't heard. It's that the buyers
| are convinced everyone else is a h8er or sheeple, and will
| buy whatever dumb shit they've been convinced of
| regardless.
| fragmede wrote:
| Have you ever been party to a class action lawsuit and
| gotten some amount of recompense for your troubles? And had
| that not been part of the mainstream news so no one you
| already knew was part of it? Because they happen all the
| time, and the government doesn't go after them - damages
| are civil not criminal, so the lawyers are the ones getting
| richer. As far as "the big problem", people win the lottery
| every day. It's still not a sound investment strategy
| (unless you have some sort of edge).
| pg_bot wrote:
| It always seemed a bit nonsensical to me that you can't invest
| in companies (in the USA) when you can spend your money freely
| in nearly every other respect. You can waste thousands on
| gambling, food, clothing, elective surgery, penny stocks, and
| all sorts of other activities without anyone batting an eyelid.
| If the goal is to stop idiots from pissing their money away,
| regulators have seriously underestimated the creativity of
| fools.
| robotresearcher wrote:
| You can't enter the gambling, surgery and stock markets with
| naught but a Keynote deck.
| pg_bot wrote:
| I wasn't talking about starting a casino or surgery center.
| I was talking about playing roulette or turning yourself
| into a human cat hybrid.
| robotresearcher wrote:
| I understand. But there are strong feedback mechanisms in
| place so that a casino will actually pay your (unlikely)
| winnings and a surgeon will actually cat your face, which
| have to do with scrutiny, penalties for bad behavior, and
| the cost of entering a highly regulated market requiring
| lots of customers to recoup. They provide the service
| they claim.
|
| The story is about companies whose business model is
| simply to take investment money. They do not try to
| provide the service they claim.
| ksdale wrote:
| That's what the story about, but non-accredited investors
| aren't only prevented from investing in those particular
| companies. They're prevented from investing in the good
| ones, too. You say that the casino will pay your unlikely
| winnings, but the thing about casinos is that unless you
| actually have an edge, the more you gamble, the more you
| lose. The vast majority of games have odds that result in
| the house making a profit over time. And yet we're
| allowed to spend our money freely in casinos.
|
| There are all sorts of penalties for bad behavior on
| behalf of companies. Of course, that doesn't guarantee
| they'll make money, but I think it's a very valid point
| that we're allowed to waste our money on all sorts of
| dumb bullshit, but not on something like investing in
| startups, which at least has a _possibility_ , however
| remote, of resulting in some sort of return.
| robotresearcher wrote:
| I'm all for people's freedom of action.
|
| Why do you think we have these rules, since a free-for-
| all is the default? Is this a barrier to entry that
| protects the rich, or a barrier to getting ripped off
| that protects the less rich? Or both?
|
| Chesterton's fence and all that.
|
| You are _allowed_ to throw all your money away if you
| want.
|
| These rules are (at least partly) protecting you from
| having someone take your money under false pretenses.
| ksdale wrote:
| I think they're absolutely there under the pretense of
| protecting people, and they do protect people from scams,
| at the cost of preventing average people from
| participating in one of the biggest wealth creation
| events in modern history. I think they're hypocritical,
| specifically because people are allowed to do all sorts
| of (in my opinion) far dumber things with their money. I
| think the world would be a much better place if gambling
| were illegal and all the people who currently waste their
| money at slot machines spent all that time thinking about
| how companies work.
|
| You're correct that I'm allowed to throw my money away if
| I want, so why am I not allowed to do this?
| robotresearcher wrote:
| Because if you got scammed, you threw your money away but
| you didn't want to. An important difference, no?
| ksdale wrote:
| Do you think most of the people who go to casinos think
| they're going to lose money? I think an unfortunate
| percentage do not realize at all that the odds are
| stacked against them. Their misunderstanding of
| statistics means they are quite literally getting
| scammed. And for the remainder that are doing it for
| entertainment, that's quite literally what I'm proposing
| be the standard for investing in companies.
| notahacker wrote:
| > we're allowed to waste our money on all sorts of dumb
| bullshit, but not on something like investing in
| startups, which at least has a possibility, however
| remote, of resulting in some sort of return
|
| A lower possibility than the casinos or lotteries, if
| we're talking retail investment in early stage startup
| pitches you have no affiliation with. The reluctance of
| everybody to acknowledge this is the reason the law
| exist. Most people walk out of casinos having lost some
| of their money. Most retail investors in random business
| propositions will never see any of that money again.
| ksdale wrote:
| It really depends on what you're investing in, doesn't
| it? We let people spend hundreds of thousands or millions
| of dollars in casinos over the course of their lives.
| When you go to a casino, you're paying for the thrill of
| gambling, and I think random business propositions offer
| the same thrill at worst.
| notahacker wrote:
| Well yeah, depends which number you bet on roulette or
| whether you're the best poker player in the room too!
| Perhaps we could regulate startups like gambling and
| allow them to welcome anyone but only allow them to
| market the "thrill of gambling" like casinos instead of
| delivering very confident financial projections about how
| much they're going to make. But I'm not sure investment
| would be forthcoming then, because actually I think
| people want to put their savings into startups to get
| rich.
|
| When gambling is restricted, gamblers generally _don 't_
| argue it's a conspiracy to prevent them getting rich. The
| delusion that retail startup investment isn't the bigger
| gamble with worse odds (unless you're in the leagues
| where you can personally prod the founders on a daily
| basis) is why accredited investor rules exists. It'd be a
| lot easier to believe arguments relaxing them were sound
| if the people making them were arguing it was depriving
| them of fun rather than depriving them of the opportunity
| to get rich.
| jakelazaroff wrote:
| _> They 're prevented from investing in the good ones,
| too. You say that the casino will pay your unlikely
| winnings, but the thing about casinos is that unless you
| actually have an edge, the more you gamble, the more you
| lose. The vast majority of games have odds that result in
| the house making a profit over time._
|
| What do you think is the expected return of investing in
| a private company? I don't have data to back this up, but
| I'd bet it's negative -- especially if you hold common
| stock, or whatever non-preferred equity retail investors
| would get.
|
| And if, on top of that, we relaxed the guard rails
| preventing people from being scammed? I think the odds
| would be much worse than you'd find in a casino.
| ksdale wrote:
| I personally find it less morally repugnant to let people
| make bad bets on companies than to let people lose their
| money at slot machines all day.
| jakelazaroff wrote:
| Sure, you're entitled to that. I find it less morally
| repugnant to do whatever keeps people from getting
| scammed.
| ksdale wrote:
| I'd also be fine with making casinos illegal, if that's
| what you're proposing.
| colechristensen wrote:
| It also protects against the opposite effect: in an
| environment full of scams, you get run out of business for
| being honest because you have a hard time competing with the
| scammers.
| Datenstrom wrote:
| > in an environment full of scams, you get run out of
| business for being honest because you have a hard time
| competing with the scammers.
|
| This effect was really well illustrated for me Golden Sun
| (Red Rising saga book #2) by Pierce Brown. The protagonist
| is telling an older general about how he isn't worried
| about a scheming snake oil politician type and is corrected
| about why they are dangerous. Because "Liars make the best
| promises."
|
| > "Pliny is a leech," I say. "A liar as much as you're an
| honest man." "And that makes him dangerous. Liars make the
| best promises."
| benatkin wrote:
| I'm not sure, it seems that many who make good money but are in
| debt can invest:
|
| > Individual investors with an annual income or net worth less
| than $107,000 can contribute either $2,200 or 5% of their
| annual income or net worth, whichever is greater. The old rules
| limited them to the lesser of those two numbers.
|
| > Investors with annual incomes or net worth greater than
| $107,000 can contribute up to 10% of the highest number.
|
| https://news.bloomberglaw.com/securities-law/startups-and-cr...
| djbusby wrote:
| That's RegCF, accredited is under RegD. See also RegA and
| RegB based investment. There are numerous options.
| scsilver wrote:
| I'm glad they expanded accreditation to licensed professionals
| who don't have 2 million. Before it was too much gatekeeping
| just on money alone.
| fossuser wrote:
| I get that they exist to protect people from getting scammed,
| but it also locks people out of some of the best ways to create
| wealth unless they're already rich.
|
| Crypto is an example of both. More people get scammed, more
| regular people accumulated wealth. Outside of that look at
| startups, regular people are locked out of early stage
| investment (including many of us in the industry).
|
| I understand the trade off but find it frustrating I'm
| constrained for my own good. It feels like being held down to
| the level of the (uncharitably stated) dumbest person.
| NikolaNovak wrote:
| Hmmm; According to which metrics and stats is investment in
| early startups / random new companies and schemes, the best
| way to accumulate wealth? How do we define "best" - safest?
| Highest top possibility? Lowest risk? Over which period of
| time?
|
| Our experiences may vary. I have far more visibility into
| people scammed left right and centre where I'm at. Those who
| did make money on sketchy schemes are lucky outliers (who of
| course believe themselves to be savvy risk takers fair enough
| ; I see most of them as incorrigible Russian roulette players
| who got lucky but not wiser).
| eezurr wrote:
| The relatively little money (and little experience with
| startups) that most retail investors have would not be enough
| to diversify their risk and thus be equivalent to gambling. I
| think the figure is 5% of startups are successful?
|
| Anyone who has become wealthy through crypto became so
| because they gambled. And, bitcoin has a history of being
| manipulated. I had a friend who was part of a network that
| communicated to him when to buy and sell bitcoin. He
| mentioned "the whales" a few times when talking about it.
| kryogen1c wrote:
| > locks people out of some of the best ways to create wealth
| unless they're already rich
|
| im sorry what? investing in startups is one of the best way
| to create wealth? you have a source that talks about average
| and median returns on investments across all startups?
| fossuser wrote:
| I don't care about the average or median case and 'some of
| the best' is suitably subjective, I just want the freedom
| to make my own choices.
|
| The entire bet with startups if you're not rich enough to
| fund via an incubator is picking a team or company you
| think is good and kicking in some smallish amount of cash
| (~10k), angel list basically. If you're in the industry you
| may be better positioned to do this than a random person.
| We can do this by going and working for a startup and
| dumping money in to exercise options (arguably even riskier
| since now your job is also tied to its success), but not by
| just kicking in some cash unless you hit the accredited
| investor threshold.
|
| I should be able to choose to do this if I want to. Instead
| I can only put money in after the company is public and a
| lot of the early return has already been taken by people
| rich enough to be allowed to buy in earlier.
|
| Meanwhile I could go and gamble at a casino on slots
| without any proof that I'm rich enough to waste money that
| way.
| jonas21 wrote:
| If you've been in the industry for a while, you may
| already qualify as an accredited investor. The income
| threshold is $200K/year, which according to levels.fyi
| would easily be met by someone with just a few years
| experience at a FAANG, for example.
|
| If you don't qualify on income, you can also qualify by
| passing the Series 65 exam, which is a 3-hour multiple-
| choice test that anyone can take.
|
| Once you're an accredited investor, you'll find that the
| biggest barrier is finding good startups who will take
| your money. The ones who are interested in taking a small
| amount of cash from some random person are probably the
| least likely to succeed.
| lkrubner wrote:
| " _The accredited investor rules in USA seem draconian_ "
|
| Think carefully about what the word "draconian" means. There is
| no organization that is responsible for tracking or allowing
| membership in the club of "accredited investors." This article
| suggests 1 in 10 USA households meets the definition:
|
| https://dqydj.com/accredited-investors-in-america/
|
| Look around on Google and you will find many different
| estimates. Since there is no central organization that actually
| tracks this number, it is impossible to point to an official
| number.
|
| If an unaccredited investor invests in a small startup, there
| is no penalty for the investor. Because of that, I would not
| use the word "draconian."
| [deleted]
| cure wrote:
| > The accredited investor rules in USA seem draconian
|
| I don't know about that - it hardly seems draconian, it's a
| trust-based system, entirely reliant on self reporting. Most of
| the time you just have to check a box that says you are an
| "accredited investor". Sometimes they want you to upload a few
| bank statements.
| djbusby wrote:
| If you check that box, then others run diligence and discover
| you've lied it's called fraud. Attitude like yours is why
| many early companies are obligating their investors to prove
| net-worth. So many people want to be investors they'd lie to
| get there - number one sign you're a bad investors. Don't
| cheat!
| blowski wrote:
| I didn't see the OP saying you should lie, only that the
| system relies on self-reporting. If anything, I'd guess
| they agree that the system is open to abuse, but they're
| not saying people should therefore abuse it.
| djbusby wrote:
| Perhaps I'm just bitter
|
| I've been part of a non-zero amount of deals where there
| was one, or more, parties who've made that false claim.
| In an open group I participate in there are some early
| Angels and want-to-be investors. I've observed folks
| attempting this shortcut. And every time it's fucked over
| multiple people. So, yea, it's trust based - and truth
| will out.
| cure wrote:
| Sorry to hear that, that sucks!
| Drdrdrq wrote:
| For the uninitiated, what happens in this scenario? Does
| the deal fall through, do the other investors need to
| cover for the missing party,...?
| cure wrote:
| > Attitude like yours is why many early companies are
| obligating their investors to prove net-worth.
|
| I didn't express any attitude about the current rules
| around "accredited investors", I merely expressed what the
| current status quo appears to be, i.e. the system is
| largely based on self reporting. Obviously, there are all
| sorts of problems with that.
|
| For what it's worth, I don't particularly like the current
| rules around "accredited investors", they seem pretty
| arbitrary, and at the same time too lax (self reporting)
| and too restrictive (obviously, these rules give rich
| people access to a lot of opportunities not available to
| others).
| catlifeonmars wrote:
| OP was saying the system is flawed, not that they are
| exploiting the flaws in the system. Those aren't the same
| thing.
| benatkin wrote:
| From what I can see, check stubs would work as well, you
| could have no money in the bank...
|
| https://news.bloomberglaw.com/securities-law/startups-and-
| cr...
| vmception wrote:
| Can someone tell me more about Rose Parks Advisors and the
| predilections of Matthew Christensen?
|
| I have a view into family offices and there is a lot they can do,
| I am just wondering more about if there is a relationship between
| this startup and that family office to make this worth that
| family offices' time, or if that family office really just has
| that much cash to place. Many times family offices can have a
| large limited partner of the family that is their non-profit
| foundations, which is basically dead capital that can be used to
| spruce up any investment, and so that is what it is used for.
| Many quick raises are done by institutional investors that are
| just endowments.
| RC_ITR wrote:
| TL;DR
|
| The founder of Coupang was one of Christensen's students; the
| check he put in turned out to be one of the all-time great
| investments.
|
| Rose Park is flooded with cash and credibility (but under-
| indexes on access vs. traditional VCs), so they're working hard
| to get into a lot of deals.
|
| https://www.forbes.com/sites/alexkonrad/2021/03/15/rose-park...
| vmception wrote:
| > By structuring Rose Park as one evergreen fund instead of a
| typical venture fund, the Christensens were able to invest in
| a mix of public and private companies .... ""We're allowed to
| invest in any type of security in any geography, any
| industry, any stage, but only when the investment thesis
| derives from my dad's research"
|
| Interesting. I would like to see more of that. I am also
| curious about the evergreen fund structure. I helped form a
| hedge fund with an aggressive sidepocket , where sidepockets
| act like a VC fund but without burdening the limited partners
| with capital calls. But being even more flexible really makes
| the subscription documents and prospectus complicated, and
| making additional funds are expensive and time consuming,
| even as just a family office without outside investors, the
| separate limited partners are just entities that the family
| has formed before. Pooling assets from trusts, retirement
| plans, individual family members, and non-profits like
| foundations.
|
| I'm mostly confused/inspired by which offshore feeders are
| being used.
| mikemac wrote:
| > When you're the founder of a startup that takes in a $50M
| investment like this, you're all set to live off the money
| however you want. You can pay yourself a "market salary" of
| $500,000/yr+
|
| This is just not true, even for a venture backed company like
| this. The Board of Directors should be approving all executive
| comp; seems like a baseless claim to suggest there isn't some
| basic governance at play here
| enra wrote:
| I don't know what the situation is here but a startup can setup
| the board or governance in different ways. Founder could
| control everything directly or indirectly and the board might
| have one or no external directors.
|
| And while technically you should inform the board of executive
| comp changes, it's not like the investors generally care that
| much in the early stages or there is some box they have to
| officially check. You could just go to your payroll system and
| increase your comp. They don't come to check your payroll or
| accounting unless they suspect something so it's not that hard
| fly under the radar for some time.
| airstrike wrote:
| > Founder could control everything directly or indirectly and
| the board might have one or no external directors.
|
| Uhh, investors are definitely going to demand seats on the
| board after funding
| margalabargala wrote:
| Some do, some don't. Depends on the investor and the
| company.
|
| I work for a startup that has raised a bit over $30M, with
| no board seats given up.
| mikemac wrote:
| Do you really think Greylock, A16Z or Azure Capital has no
| interest in BOD seats and no experience forming a
| Compensation Committee?
|
| As CEO, the Board is your boss. If you instruct payroll to
| bump your salary up without proper approval you will probably
| be looking for another job.
|
| These investors have a basic fiduciary duty to their LPs to
| make sure there is no blatant fraud, and you don't get to
| billions under management and not understanding this.
| enra wrote:
| There are hot rounds you have those names involved and they
| all don't get a board seat. Usually only the lead gets a
| board seat (not always) and growth investors (Tiger) also
| don't typically ask for board seats. Depends on the amount
| of leverage the founder has. If A16Z is wanting to win a
| deal and Tiger is offering more money and no board seat,
| and the founder wants that then A16Z either has to pass or
| offer the same.
|
| You're overestimating the formalness of the early stage
| startup corporation practices or board (seed-series b) and
| the reporting requirements. Most of the time it's like any
| other meeting, you chat about what's going well, what's not
| and how to improve. It's not like public company board at
| all, there most definitely are no committees (maybe on
| paper). If you need approvals, like for employee option
| grants, you just send them an fyi and a docusign (this case
| the approval is also after the fact. You already gave
| someone an offer and the accepted it. It would be hard to
| go back to change it so approval is just a rubber stamp.)
|
| It's up to you as board define what kind of board meetings
| you have and what's on the agenda. At the end of the year,
| most VCs ask you submit some basic financials, cap table
| etc but for example the CEO's salary is not one of those
| numbers. The BOD might be also completely fine with
| $500k/year salary.
|
| As the startup grows and matures, the practices mature too
| but likely that won't happen before ~100 employees or after
| Series B.
|
| I can assure you that as CEO, I could go to our payroll
| service increase my salary. We don't even have a payroll or
| HR department. No-one would really know until maybe next
| year when accounting gets done. Obviously, I wouldn't do
| that but if you don't care about your reputation and there
| to scam then it's very easy to do. If the investors find
| out, they might not be able to get rid of the CEO that
| easily, since like I said before, the founder(s) could
| control the board by votes or by seats. It's also unlikely
| these investors would cause any publicity around this
| because it's embarrassing to them and pushing a founder out
| could hurt their reputation (like when Benchmark kicked
| Travis out of Uber), they would just more likely walk away.
| spamizbad wrote:
| My understanding is that "hot" founders receive a
| tremendous amount of latitude from their BOD - so they
| wouldn't think twice about "generous" (by startup
| standards) executive comps.
| chernevik wrote:
| "When you're the founder of a startup that takes in a $50M
| investment like this, you're all set to live off the money
| however you want."
|
| I think if you're going to suggest this about a particular
| startup, you probably should have some documentation this is
| actually happening.
| Aunche wrote:
| > You can pay yourself a "market salary" of $500,000/yr+.
|
| That is like L6 FAANG money. Even if you're just defrauding rich
| investors, you're still likely putting more than an L6 amount of
| work. I don't think these entrepreneurs are doing doing it for
| the money like the author is implying. I think they genuinely
| enjoy being an entrepreneur, sometimes to a delusional extent as
| with Elizabeth Holmes.
| qnsi wrote:
| CEO and tech skills are vastlty different. Doubt most startup
| CEOs would ever get hired by Google
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