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Comment by hamana | Hacker News Reader

  >  Jeff Lawson(1) --- 8,623,617 --- 11.9%

How pathetic is this? Around 90% of the company is taken by the vulture capitalists and you, as a founder, only get to keep 12%. Bill Gates at the time of Microsoft's IPO had around 50% of the company.

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I see this a bit differently. Imagine getting to build $119M in value for yourself without needing to worry about profitability, by leveraging other people's money. Expressed that way, it sounds like a pretty good opportunity.

From a 1986 Fortune article: "With pretax profits running as high as 34% of revenues, Microsoft needed no outside money to expand."

[1] http://fortune.com/2011/03/13/inside-the-deal-that-made-bill...

Why doesn't Twilio have 34% profit margin? Because their price is low and their costs are high. If they increase the price of their product and cut certain costs, they would have similar profit margin to Microsoft.

The big question is the elasticity of their market. Microsoft could charge high prices because they were pretty much the only game in town first for microcomputer programming languages and then for PC-compatible operating systems. If they raised their prices, what would their customers do? Not write software? Write for a platform that has no users?

If Twilio raises their prices, will they make more money? Or will it cause people to not use Twilio, either opting for competing free services or using alternatives to SMS entirely? I don't know, and I don't think Twilio does either; hence the profitability risk.

They also don't own the networks they operate on.

As the quora question here - https://www.quora.com/How-did-Bill-Gates-own-such-a-large-sh... - says, its for a pretty straightforward reason, economics.

If you need investor money to grow, you get diluted. If you don't you don't.

Why does Twilio need investor money to grow and Microsoft did not? Microsoft also grew rapidly, but didn't take a lot of outside funding. Why? Because they charged adequate price for their products. In the documents, Twilio stated they have a hard time determining pricing (something I've seen with other SaaS companies as well). Since they are not profitable with the current pricing, they should increase it and cut certain costs.

That's because Twilio doesn't exist in a bubble. They're in a highly competitive sector. Their pricing has to reflect that.

They may lose money in the short-term but it allows them to become the de facto standard for telephony APIs and then they can increase their pricing or they can leverage their size to open new revenue streams.

The major investors (Bessemer, USV, Fidelity) amount to 48.2%. Bear in mind that other founders and employees will also hold equity, and that Jeff Lawson already cashed out a big chunk of equity (detailed in the doc).

Given that Twilio has raised a lot of money across a number of rounds (six listed in the document) as a loss making company, none of this seems that strange to me.

where do you see that? I don't know how to read those things

Page 143, or ctrl + F for "All executive officers and directors as a group (9 persons)".

it says how much they own, but not how much Jeff cashed out, right?

Ah, my bad, thought you were looking for the ownership numbers. He cashed out $15.6M worth in two transactions. Page 139. Quick math, without his share repurchases, he'd own roughly 15% of the company. 2-3 percentage points for $15M in cash seems like a pretty good deal.

2013 Repurchase: $6,355,308

2015 Repurchase: $9,310,100

Evan Cooke cashed out $4.4M in the same transactions.

Thats 12% of > $1B. Those "vulture capitalists" have invested >$230M into Twilio at various valuations to help it grow.

He was already paid out amounting to $9,310,100 prior to the IPO. Consider that insurance just in case an IPO never happened.

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