VCs & Starter Stock - Why & How to Ask for "F Shares" | Hacker News Reader

VCs & Starter Stock - Why & How to Ask for "F Shares"

blog.eladgil.com

24 pointseladgil11 comments

I'm in favor of letting founders cash out partially as the company grows. We did, and it worked well for everyone. But I should point out that asking for FF shares spooks a lot of investors, and VCs in particular.

It's kind of disheartening that an investor wouldn't recognize that having a huge gap between their utility function and the founder's utility function is a bad thing.

I assume you read Less Wrong? The median founder and VC probably never think about the concept of the personal utility function.

Nope, haven't read it. Can you give me a thumbs up/down on it?

I picked up the utility concept from my financial background.

Oh, Less Wrong is awesome. It's a group blog running on a rather cool hack of the Reddit source code. The founder and most prolific and frequently upvoted blogger is Eliezer Yudkowsky. My favorite single piece by him is probably That Alien Message: http://lesswrong.com/lw/qk/that_alien_message/

If you want to read more of Eliezer's writing, his book will come out eventually, but until then it is organized here. http://wiki.lesswrong.com/wiki/Sequences

His sci-fi novella, Three World's Collide is great sci-fi and serves as a not too hard to read introduction to the general values of Less Wrong. http://lesswrong.com/lw/y4/three_worlds_collide_08/

The kinds of posts that make it to the front page of Less Wrong now are often esoteric and boring. Most of the value in the site is in the archives. Note though, that the comments on Less Wrong are interesting because the level of discourse is ridiculously high. You cannot say things that are wrong; someone will downmod you and call you out on it. It's really hard to comment on Less Wrong. Learning how to keep up with the discourse and be able to reply to comments without getting downmodded feels like it has made me a lot smarter.

This writer seems to be implying that the otherwise founders are living on savings (dwindling bank account). Wouldn't founders of companies at the stage were they can sell these shares be earning a good salary already?

Fair point. The issue is more that life events happen (you have kids, need to buy a house etc.) and may not have the capital to do it...

Any investor who would be against letting a founder draw because he wants the founder to remain "hungry" is a manipulative asshole. I hope these don't exist in the post-Google era.

Hope is not a strategy, unfortunately.

The counter-argument to 'hungry' is to stress that hungry entrepreneurs generally want to take smaller acquisition offers than their VCs - and if the VCs block a life-changing deal for the entrepreneur, they'll be stuck with an angry and demotivated executive team.

Certain VCs are quite receptive to this argument. One of our own investors often complains that one of their investments exited too early, and that they should've just given the founder(s) a million each so they could buy a house.

It's not a question of manipulativeness. A manipulative mind would recognize that this strategy is unlikely to have good results. I would guess that this is more about investors wanting to feel superior and have the founders coming to them begging for pennies and scraps now and then. People do so love high status.

a manipulative asshole

That's unfair. There is a legitimate debate on this question. F stock runs largely against SV tradition, and presumably there isn't a lot of data yet on its long-term impact.

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