[HN Gopher] Meaningful exits for founders (2016)
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Meaningful exits for founders (2016)
Author : freediver
Score : 85 points
Date : 2023-08-18 15:16 UTC (7 hours ago)
(HTM) web link (medium.com)
(TXT) w3m dump (medium.com)
| yesimahuman wrote:
| Regardless of where you sit on the line between ambition and
| optimizing for founder outcomes, I think we can all agree first
| time founders aren't thinking about the math here enough and are
| far more susceptible to listening to what VCs say they should do
| and care about. Having been in this position, all I can say is
| I'm glad we didn't raise more money because we had far more exit
| options. I really appreciate what Bryce and indie have done to
| change the narrative here.
| SandersAK wrote:
| The reason there is not a lot of dialogue around this is because
| the numbers don't work for all parties at the right time.
|
| When you have a small founder team, you need capital for
| essentially nothing to show. You can't raise that capital selling
| the $170M exit dream to angels or a fund.
|
| Conversely, VCs are assuming a 10% or less success rate across
| their portfolio. And of that, maybe 2-3% of portcos really
| returning everything.
|
| So they don't have the luxury of shepherding 100 portcos to $170M
| exits, since in reality, a $1b exit has a similar chance of
| happening as a $170M exit. Which is to say very very low.
|
| There's no magic sauce, no prime formula, no wizened or
| sageinvestor. It's a shit show from start to finish. You're best
| off finding investors who are on the same wavelength as you, and
| focusing less on whether you hit a home run or a grand slam.
|
| When you get to a place where you're printing cash or whatever,
| then sure, make sure the math works out for you. But for 99% of
| all founders, this question never comes, and they spend too much
| time thinking about it.
| foobiekr wrote:
| So in the failure case, very little of it matters, but in the
| success case the VC industry can be exceptionally predatory -
| participating preferences, multipliers, etc. etc. etc.
|
| Honestly, it takes no time at all to have clean term sheets and
| you don't have the option to fix it later.
| latchkey wrote:
| Sage advice. Most startups fail, so squabbling over the numbers
| has always seemed absurd to me. I'd rather see discussion along
| the lines of "what happens after we do well" because you have
| no idea of what "well" will be down the line.
| santiagobasulto wrote:
| This is a great post, but I think it fails to see one important
| point...
|
| > a founder selling at the Series D price of $210M, would make
| the same amount of money at exit as they would have if they'd
| sold for $38M after having only raised a seed round (...)
| Lifetimes of work and risk lie between a Seed round and a Series
| D round. And, despite increasing the value of the underlying
| business 7x, the dollars at exit for the founder remain roughly
| the same.
|
| Even though the exit dollars might be the same, it's failing to
| see two important points:
|
| a) founders taking money off the table in early rounds. Founders
| can sell part of their equity at their company just as a personal
| "cash out" strategy. 1password founders took their Series A
| mainly for this. b) the network capital gained at a Series D
| company is NOWHERE near at a Series A company. It's impossible to
| put a dollar amount to that, but it'd say your career will be
| completely different from a successful Series A or Series D
| company.
| dublin wrote:
| I'd take a solid cash cow producing producing value for
| customers at an A-round size over growing it to D-round size
| any day. Maybe because I've just been through enough of this
| crap to know that yes, you want to make money with your
| startup, but there are some things no amount of money can
| compensate you for...
|
| And a company spinning off a fair amount of cash can be grown
| surprisingly rapidly organically, though it does take several
| changes in how the company is run as it hits inflection points
| (there are usually several!) due to growth (e.g. people,
| processes, and effective business/marketing/sales oversight
| become more important to grow beyond $6-10M/yr...)
| benjaminwootton wrote:
| I think for most founders, exiting with 100% ownership of a small
| pie is a much better proposition than exiting with 10% of a large
| pie IF you have that decision to make. The risk, hard work and
| difficulty in the latter are exponentially greater.
| graiz wrote:
| The links referenced in the article didn't work, this was from
| 2016. https://medium.com/jme-venture-capital/meaningful-vc-
| exits-2...
|
| I couldn't find the capshare post but there was a similar slide
| deck from capshare:
| https://www.slideshare.net/IanBeckett3/analysing-5000-startu...
| dang wrote:
| Related:
|
| _Meaningful Exits for Founders (2016)_ -
| https://news.ycombinator.com/item?id=17486303 - July 2018 (23
| comments)
| logicallee wrote:
| This is from seven years ago. The rules have changed. In today's
| connected world, it is impossible to have a meaningful exit as a
| founder. You cannot keep or enjoy any money, or raise a family,
| or do something else after exiting as a founder.
|
| Instead, you can look forward to a level of interference you
| couldn't imagine, followed by immediate and lifetime torture by
| dark forces who think it is wrong for anyone to have any money.
|
| I now recommend founders simply don't take an exit, set their
| salary at $1 and work all day forever for the love of the
| business. For income, get a day job and don't be too successful
| at it either.
|
| The rules of the game have changed and founding a company as an
| owner is all risk, no reward.
|
| You can still found a business you are so passionate about that
| you would be happy to be tortured for the rest of your life for a
| chance to change the world in a positive direction.
|
| If you would die for your business, it is still worth doing.
| jonfromsf wrote:
| What are you going on about?
| ilrwbwrkhv wrote:
| It's crazy that a series d exit would net a founder 7 million and
| yet my bootstrapped business returned a 4 million profit for me
| last tax year.
|
| I think people need to learn more about how to scale a
| bootstrapped business. Even when I was getting started, I read a
| ton on VC funded businesses but not a lot on non VC funded
| businesses.
|
| I think there is tremendous amount of money to be made in
| bootstrapping as well. I think a lot of indie hackers /
| bootstrappers also think too small.
|
| You can definitely make 100s of millions of dollars without VC
| money. That part of reality has not been properly dispersed.
| [deleted]
| hodgesrm wrote:
| This. In addition to better outcomes for founders it can be a
| better outcome for the economy at large including but not
| limited to customers and employees. As a whole society would be
| better off with fewer Ubers & WeWorks.
| idlewords wrote:
| WeWork was a useful way to make SoftBank subsidize office
| rentals for freelancers and small businesses; it had high
| social benefit.
| dublin wrote:
| Given what WeWork charged, you can't convince me there was
| much subsidy there, nor much social benefit.
|
| "Cool offices" are something that should never even be
| talked about by a founding team until they have several
| spare million sitting in the bank. Until then, rent cheap-
| ass real estate and buy second-hand office furniture. And
| that's if you even have offices, which you may not need if
| you're a software and/or services company. Nice laptops,
| monitors, chairs, Zoom, GitHub, and Google subscriptions
| are really cheap compared to real estate!
| bitcurious wrote:
| Would love to have you write about it. Seems like you have both
| the experience and the appreciation.
| ilrwbwrkhv wrote:
| I wrote about it a bit here:
| https://news.ycombinator.com/threads?id=ilrwbwrkhv#37180387
| tptacek wrote:
| It is straightforward to get a body-shop consulting business to
| mid-7-figures.
|
| In an acquisition of that business, you're going to get a very
| low multiple on your forward revenue. That's because, in
| general, you can't plug a body-shop consultancy into a bigger
| sales machine and amplify the profits; sales and delivery in
| those businesses are delicately balanced, and while they can be
| scaled, they can't be _abruptly_ scaled by an acquirer.+
|
| If you can bootstrap a product business, none of that caveat
| applies. You should bootstrap if you can!
|
| + _(but if your consultancy is throwing up 7 figure profits,
| you might not care about its sale value; just run the company
| for 10 years and bank the profits)._
| dabeeeenster wrote:
| What evidence do you have that it is "staightforward"? If it
| was, everyone would do it.
| dabeeeenster wrote:
| "It is straightforward to get a body-shop consulting business
| to mid-7-figures."
|
| Sorry, no. This is demeaning. It's not easy and it's not
| straightforward.
|
| disclosure: Been running a "body-shop consulting business"
| (also demeaning) for 21 years in London, started about a
| dozen other businesses, 2 are 2MM+ rev/50% EBITDA profit
| recurring revenue companies.
|
| Please don't demean "consulting" or "agency" work. In my
| experience it is _way_ more challenging to win and grow
| business in those circles than it is in a well times SaaS
| company. I learnt a LOT doing that for a long time. The work
| is just as relevant.
| whatshisface wrote:
| They had to say it was straightforward because the previous
| poster had said they had done it. That's how the cocktail
| party works. ;)
| tptacek wrote:
| My background is in this kind of consulting work. I'm not
| demeaning it.
| gnicholas wrote:
| > _It 's crazy that a series d exit would net a founder 7
| million and yet my bootstrapped business returned a 4 million
| profit for me last tax year._
|
| I'd be curious which is rarer: a VC-backed business that exits
| after series D, or a bootstrapper who nets $4M/year?
|
| IMO both are unicorns!
| dabeeeenster wrote:
| Without question the bootstrapper. You almost never hear
| about them but there are thousands of them out there. They
| don't have huge PR VC teams behind them, hence you never hear
| about them.
| gnicholas wrote:
| > _Without question the bootstrapper._
|
| I think you mean the opposite, given the phrasing of the
| question.
|
| > _They don 't have huge PR VC teams behind them, hence you
| never hear about them._
|
| This seems like half an argument. I get that PR teams have
| an incentive to talk about their company, which is why they
| are in the news sometimes. But it doesn't explain why non-
| VC backed companies that are swimming in cash would be so
| elusive. Would they be in the news? Perhaps not -- though
| they might still want to generate PR for themselves, to
| grow their business.
|
| But you'd think that people in the startup world, who spend
| lots of time reading about startup strategies, examples to
| follow, etc., would have heard of such companies if there
| were many out there. I've been at this for a number of
| years, and I rarely hear about bootstrapped startups that
| are quite so successful. I guess PE folks would have a good
| sense, since such businesses would presumably make great
| acquisition targets.
|
| And perhaps that's what keeps them so rare -- someone
| making a couple million a year would rather sell the whole
| thing for $20M and move onto their next thing (be it a
| startup or a private beach), and there are plenty of
| acquirers who are happy to make that trade.
| dabeeeenster wrote:
| There are thousands and thousands of private bootstrapped
| business where the founders are banking 1-10M EBITDA
| every year. You almost never hear about them.
| dabeeeenster wrote:
| Sorry yes - thank you - I meant bootstrappers are far
| more common.
|
| My main point is that there's an enormous amount of
| survivor bias with VC backed companies. Bootstrapped: not
| so much.
| idlewords wrote:
| Also there is a lot of risk and not a lot of benefit to
| talking loudly in public about how much money you're making
| as a bootstrapped business.
| gnicholas wrote:
| This thought crossed my mind. But wouldn't there be
| chatter about this sort of thing within the startup
| community, as bootstrapped businesses get snapped up?
| There are podcasts like Built To Sell, which tell the
| stories of small companies that have been sold. I've
| noticed that many of them are service businesses, and
| there aren't as many SaaS companies as I would have
| expected. Presumably the incentive to keep quiet about
| your lucrative niche would end after you've sold the
| business?
| legendofbrando wrote:
| I'm curious about the nature of your business, $4M in profit in
| a year is really impressive. What business are you in?
| nemo8551 wrote:
| They strap boots.
|
| To be honest I'm amazed there is that amount of money in it
| but they must be very good at it.
| Aeroi wrote:
| Could you share what market or type of business you are
| running? I always have a difficult time wrapping my head around
| starting a business in a large market with clear market winners
| ($1B+ Rev.)
| randmeerkat wrote:
| > Even when I was getting started, I read a ton on VC funded
| businesses but not a lot on non VC funded businesses.
|
| Any suggested reading for the non VC funded business?
| rwalling wrote:
| Zero to Exit Start Small, Stay Small The SaaS Playbook
|
| Startups for the Rest of Us podcast YouTube.com/MicroConf
|
| Indie.vc Tinyseed.com
| k1w1 wrote:
| We have been able to bootstrap Aha! from zero to over $100
| million in annual revenue without any external funding. We
| have written about some of our experiences at
| https://www.bootstrap.company/ and
| https://www.aha.io/blog/collection/bootstrap-movement.
| waprin wrote:
| Not a successful self-funded entrepreneur but Im working on
| it and I've studied a lot of the greats.
|
| DHH and Jason Fried blog and books like Rework
|
| Arvid Kahl is a successful software bootstrapper and has a
| few great books and a bootstrapper newsletter
|
| Everything by Rob Walling is focused on software
| bootstrappers, and his associates brands / YouTube channel,
| Microconf community etc
|
| Indie Hackers podcast , interviews, and website
|
| Founders at Work is written by a YC founder but ironically
| had lots of bootstrapped interviews like Craigslist and Joel
| Spolsky (Trello)
|
| Patio11 blog is classic
|
| MJ Demarco is non tech and writes more "motivational" style
| books about bootstrapped entrepreneurship
|
| Once you go down this rabbit hole you'll discover many more .
| Especially since bootstrappers love making content about
| their experiences as it's marketing and potentially more
| revenue (what DHH calls "selling your byproducts")
| ilrwbwrkhv wrote:
| Not a lot that I can find. Essentially businesses are about
| making bets about what reality will look like in the future.
| So the better modeling you can do of reality, the more
| successful you can be. Earnestness is a strong word in my
| dictionary when it comes to testing ideas these days. I
| started seeing success when I stopped lying to myself and
| became earnest after over a decade of failure.
| dublin wrote:
| THIS! I have been a founder and/or CTO for around a dozen
| startups. Two exited successfully by M&A, but they made only
| enough money to offset the others I lost my ass on. (One of
| those was due to being 20 years too early - that product might
| sell well, now...)
|
| I'm no longer interested in a doing a startup for someone else
| to own and control. (My biggest startup mistake was hiring an
| experienced CEO and COO to run my dream startup. The person
| with the vision and dream needs to be calling the shots, and
| hired guns are only just that... Passion for the product is
| _really_ important!)
|
| Although I love startups, they are hard and take a LOT out of
| you. It's not worth the hit to your life (and your
| family's!)just to make a pile of equity/money for some
| ungrateful trust fund kid or a VC partner who thinks their crap
| doesn't stink just because they happened to be in the right
| place when their first startup hit big.
|
| VC investment is fundamentally parasitic. If you're building a
| software/services startup, you almost never really need VC - if
| you can build a product company without it, do so. I live in
| Austin, where there are a LOT of startups and startup people.
| Out of all of them, I know _one_ inventor /technical founder
| who thinks that taking VC was really worth it, and didn't get
| screwed over by being liquidated to death. That's not a real
| good showing for the VC guys. Just sayin'...
| clark-kent wrote:
| Thats impressive. Do you mind sharing some tips that helped you
| scale your bootstrapped business to 4million profit?
| ilrwbwrkhv wrote:
| I am not a good writer that's why I do not do blogs and stuff
| but I will try:
|
| 2 fundamental ideas: Distribution & Supply Chains
|
| Distribution:
|
| You need to secure distribution before your company can grow.
| Which means essentially a lead list or people you can reach
| in bulk or manually by walking down the street. You need at
| least 500+ such connections.
|
| The goal of the initial distribution is iterating on your
| core value proposition. Core value proposition is a binary
| statement which should be answerable by hell yes or no by
| your distribution. So iterate on the statement on the first
| 100 till you get to a hell yes on the binary question. That
| question should also become the heading of your landing page
| above the fold.
|
| Supply Chains:
|
| To deliver the product you need to think in supply chains. If
| you have played factorio or such games this will make more
| sense to you.
|
| You need a constant supply chain of potential customers
| (distribution from above). You need a constant supply chain
| of great employees. You need a constant supply chain of new
| income streams in your product.
|
| A good product delivers value at first touch. That is through
| strong UX and clear demarcation. Every feature should exist
| to deliver the core value. So you need to reject a bunch of
| designs, product ideas, customer feedback to make sure that
| you are only delivering value.
|
| Other thoughts:
|
| I can only speak of core technology businesses. If you are
| selling data, you are not a tech company, stop acting like
| one. Just put stuff in a spreadsheet and sell that.
|
| Use a strongly typed language like Golang or a highly
| expressive one like Ruby for your backend. Choose extreme
| languages such as Imba or Steel Bank Common Lisp (which I
| built on initially before switching to Golang) for maximum
| advantage.
|
| Make sure that you have a potential market of at least a $100
| million flowing through.
| pablo24602 wrote:
| Thank you for your insight- leaving a comment here to come
| back to later.
| cj wrote:
| (Not the original poster but have a similar background).
|
| #1 advice for engineer-founders is to always be questioning
| whether coding is the best leveraged use of your time.
|
| As a bootstrapped engineer founder, I spent _way_ too many
| months (years?) coding non-stop, even after we got past PMF,
| despite having the revenue to hire engineers to replace me
| day-to-day. These days I do zero coding, and am still equally
| happy and fulfilled. At least for me, spending days coding
| was a really easy way to feel productive, but it wasn 't the
| best use of time compared to hiring, marketing, sales,
| company culture, etc.
|
| #2 advice for founder-engineers: after you're able to stop
| coding, remember that your product is worthless if no one
| knows about it or if no one is using it. Once you get product
| market fit into a good place and have revenue traction, it's
| time to spend your nights thinking about marketing and sales
| rather than code.
|
| TLDR: always make sure you're spending your time in the most
| highly leveraged areas. Hiring and delegating. Coding is
| rarely the highest leveraged area your time can be spent.
| waprin wrote:
| Thanks for sharing.
|
| I think the #1 thing most bootstrappers struggle with is
| finding the right market, idea, validation etc. As much as
| people say "ideas are overrated" I increasingly think
| that's not true, it's that a good idea has to include
| things like "can realistically get done by a self-funded
| tiny team and make revenue soon" which the "idea guys"
| rarely have.
|
| As far as not coding too much, I'm increasingly finding
| this true. One thing I've noticed is that most non tech
| founders outsource development and most technical founders
| don't even though technical founders can outsource far more
| efficiently since they can play more of a "tech lead" role
| rather than hand it to a dev shop. I really regret not
| hiring designers sooner since I'm bad at it and there's
| tons of affordable talented designers on Upwork.
|
| Still, hiring is a little nerve wracking since it eats into
| your runway. It's really tough to know when to burn money
| or time when you have minimal or no revenue. After PMF ,
| hiring makes sense but before then it's really ambiguous
| how to make that call.
| akomtu wrote:
| It's not hard to come up with a highly profitable, but
| morally bankrupt idea. It's anything that serves those on
| the top of the food chain: a new creative way to enchance
| the survelliance machine, etc. But most of the engineers
| are firmly attached to the ideas of truth and goodness,
| and so they struggle with ideas that also fit their moral
| constraints. Big firms understand this, and create a
| layer of fake goodwill to shield engineers from the
| reality of what pays their salary. That being said,
| morally upright and profitable businesses exist, but it
| takes some nontrivial intuition to invent one.
| [deleted]
| KaiserPro wrote:
| One thing that would be helpful to add to this post:
|
| 1) the chances of your company making it to series B
|
| 2) the chances of you as a founder actually making any money.
|
| Much of the startup "legend" of massive exits, everyone making
| lots of money, is exactly that: legend.
|
| VCs batch startups together because >90% will fail. Of those that
| do make it out of the incubator in any meaningful way, you can
| expect another 80% mortality over the next two years.
|
| Say you get aquihired, you're not going to get much of a share
| payout, if at all.
|
| Even if you get blockbuster hired (ie bought for 250million)
| you're probably going to get golden handcuffs rather than "fuck
| you" money upfront.
|
| Same for an IPO, your shares will be converted, but you can't
| exercise them until after n years.
| bsuvc wrote:
| TLDR: dilution is a thing and investor incentives are not always
| aligned with founder, when it comes to early exit opportunities.
|
| ---
|
| But...
|
| I don't think there are really a lot of opportunities to exit at
| $38m in the early stages of a startup, even if your valuation
| says it is possible on paper. There just isn't much of a market
| for companies at that stage of growth.
|
| Imo, the more likely scenario is for a startup to either 1. fail
| to raise and run out of money, or 2. Become self-sustaining, but
| never successful enough to achieve a meaningful exit for the
| founders or investors, basically a "zombie" company that may
| never exit.
|
| In the second case, it is the investors that get screwed, as the
| founder has made a nice lifestyle business out of their
| investment. I think most investors realize this is one of the
| outcomes though, so "screwed" is probably too harsh of a term to
| use to describe it.
| ClumsyPilot wrote:
| > founder has made a nice lifestyle business out of their
| investment
|
| It's perfectly reasonable that one might have a medium size
| business supporting the local economy. It's a shame that VC
| model is hostile to this outcome.
| bsuvc wrote:
| Bootstrapping is a fine alternative to VC and more
| appropriate for many businesses.
|
| But it isn't hostile to want a return on your investments,
| and investors are not operating as a charity to support the
| local economy, although that does incidentally happen as a
| result of investments.
| yesimahuman wrote:
| The second case isn't probably good for founders either. I
| don't think it would be easy to convince investors to let you
| take cash out of the business to any meaningful degree, but I
| suppose that depends on how much control you have over the
| business at that point.
| Joel_Mckay wrote:
| This sums up the experience:
|
| https://www.youtube.com/watch?v=V12ZAZ4Jn8Q
| ChrisArchitect wrote:
| (2016)
|
| Shared under different urls
|
| Anything new since?
| khazhoux wrote:
| I'd love to see a similar analysis for non-founders. I.e., the
| other N-2 people at the startup. Like, how many hundred-millions
| or even billions will exit have to be before you get $500k as the
| Nth employee of a typical Series A/B/C/D?
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