People who destroy entrepreneurial value are the scum of the earth

A few examples from my years working in Silicon Valley from the legal side (where, unfortunately, a lot of this crops up):

In the days when founders were generally less informed than they are today, I would often see them fall prey to "consultants" who would promise to open doors to funding and the like in exchange for a significant equity stake in their venture, only to show themselves to be nothing but B.S.ers.

I have seen lower-tier VCs who cared not a whit about their reputations take control, fire the founders and do a 100 to 1 reverse stock split in exchange for modest additional funding, reducing the entire equity holdings of the founders to less than 1% of the company in one fell swoop.

I have seen founders sell in acquisitions, take their full compensation in the form equity in the acquirer that had to vest over 4 years but without acceleration protection in the event of termination without cause, be told that "we wouldn't do this unless we wanted you to succeed," and then get fired within a few months as the acquiring company took years' worth of work from them for what amounted to a pittance.

I have seen a young founder build up incredible value in a new venture and, after a few years of devoting everything to it and building nice revenues, take in a "partner" who was a "player" in Silicon Valley, only to have that person maneuver him down from an initial 100% ownership stake to 50% to 5% and, finally, when a $30M buyout is about to happen, grant to himself massive amounts of additional stock (all for bogus reasons) to put the original founder under 1% right on the eve of the acquisition.

I could go on and on but the lesson in all of these is that entrepreneurs should always be vigilant to ensure that the deals they do are prudent and do not expose them to this sort of exploitation - it can come at you from all sides.

Very nice piece, by the way, Ryan - I find your posts consistently insightful.

PS: Ryan, is putting a big HN submit button and begging for an upvote a little too much, or is it how "the games needs to be played"?

edit: more stuff from the disclaimer from Generational Equity seminar, that I really hate (of course it's in small print). See how well it matches the post:

Generational Equity does accept clients or customers that may later prove to be unviable or unmarketable

Please be advised that no particular buyer has expressed a specific interest in your business.

Generational Equity does not conduct a detailed or sophisticated screening process for its potential customers

Only after a customer relationship is established can Generational Equity assist in identifying the value of your business

If you read between the lines, it says, in plain English: you must pay us first, then we'll tell you that no one wants to acquire your company, but hey, we told you so, despite our sales pitch to the contrary.

I know 2 kinds of people who own businesses, those who worked their butts off for years building them themselves and those who inherited them from their parents. I've noticed a disproportionate number of the inheritors who have taken family money that took 40 years to amass and have lost it in a year or two. Founders and builders that I know seem to be much more wary of "get rich" scams. They know what it takes to be successful; they've already done it themselves.

Ryan, I'm guessing that you questioned this because you built your own. But would you have been more receptive if you had inherited Daddy's business and wanted out to "live the good life"? Just wondering.

If it creates that perception for other people growing up, they really do a disservice to the world!

There are many business owners who want to sell for a variety of reasons -- divorce, need a large amount of cash, tired of running the business, etc...

Almost every entrepreneur has a "price" at which he'd be willing to sell. If this consulting business changed around their pricing scheme and took a percent cut of a successful sale, where everything was transparent, there are many people who would find value in this.

For a smalltime entrepreneur, of course it doesn't make sense to drop $30k on the HOPE that these guys find a buyer. However, if your company is making $1M in profit per year, it may well be worth MORE than $30k upfront to hire well-connected brokers to get multiple parties to bid up a purchase price for your company.

Theory of multiple intelligences suggests, that, when working in the right context, the ability for building strong & profitable businesses does not necessitate the "intelligence" of strong BS-filter. This is why you have a lawyer friend, a strong peer group of entrepreneurs, and that guy full of cynicism, whom you still listen with half an ear. Or if you don't, you should.

At this point, you don't even have any proof that they have unhappy clients.