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Comment by gkoberger | Hacker News Reader

The framing is weird here.

It makes it sound like the deal fell through but Sequoia still gave them $21M to be nice.

In reality, they had already given them the money in exchange for a board seat/equity/etc. When they realized they couldn't continue this relationship, the only option was to relinquish the half of the deal they could control. They probably couldn't get the money back even if they wanted to, and there's no way they'd attempt to and risk their reputation.

It makes sense for Sequoia and their LPs (Stanford, etc). They put $18 million into Stripe at a $100 million valuation, and Stripe is now worth $35Bn and growing. Sacrificing $21M to not hurt a relationship with Stripe is a rounding error for them.

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And as a startup raising capital, you'll still consider Sequoia. They didn't screw Finix at all, here.

$21m worth of lemons into lemonade.

I wonder if selling, perhaps at a discount, to a relatively passive secondary buyer like Industry Ventures would have been an option?

I think that might have opened them up to even more press. It would have also made the next investor not be as keen as to why Sequoia was pulling out in the first place... Looks like they weighed all their options and went with the one which would cause the least pain to them and the company.

What's the argument you're making? That if Sequoia sold the stake for, say, $10M (taking a $11M loss), then outsiders might misinterpret that as Sequoia losing faith in Finix and trying to cash out? And this would be true for any amount larger than $0?

There’s honor at stake when you give another investor discounted shares.

And if you think in 10+ year time horizons, honor is truly a more valuable asset than cash

Whose honor? I'm honestly confused about what the argument you're making. What's dishonorable about selling discounted shares if you can't keep them?

If they decided to cash out for any amount, that would go against their track record of holding on to companies and exiting when they are much larger in evaluation.

This would not only raise eyebrows, but eventually the truth will come out. Put yourself in the shoes of a buyer, if you were buying out Sequoia's shares and after a few weeks/months news came out that they only sold their shares because of this. Not only that, but that Finix is pretty much competing with Stripe, which they have no chance of succeeding at, it would tarnish Sequoia's reputation and also open them up to litigation. As someone else in this thread pointed, $21 Million is a rounding error for them.

> news came out that they only sold their shares because of this.

Why would this be kept a secret? Why doesn't Sequoia, upon realizing their conflict of interest, say "Attention everyone: we have to sell this investment for conflict-of-interest reasons. We can't reasonably give you our board seat and other influence, just the financial state, so we will sell it for a large discount."

Why would any of that tarnish Sequoia's reputation or open them up to litigation? (I mean, other than the minor reputational hit they have already taken for not doing thorough due diligence, which is being revealed regardless.)

Fair point, I am sure they have people much smarter than me in charge of making decisions like that. I am purely speculating at this point but that route could also lead to just being dragged out (if the offer was made public).

There might be a lot of reasons, and I am sure there would have weighed all their options and gone with this decision.

I'd be furious if the VC firm I gave a large portion of my company to wanted to give their equity, weeks later, to another firm. Even if it was a firm I liked.

Why? (No board seats, just the equity.)

All investors aren't equal, and Finix likely had a few term sheets and picked Sequoia over other VC firms. So it would be a bait-and-switch, even if unplanned. Wouldn't you want control over who owns you? VCs with equity, even without a board seat, still have a good amount of control or access to information.

Plus, if it was at a discount, it immediately makes the stock feel "cheap". Doesn't matter what the reasoning is, it'll just feel devalued to everyone involved.

What control can't be abdicated? Like, why can't it just be a contract that says "this new VC firm gets x% of stock (and so x% of future dividends), but the stock has no voting rights"?

(It doesn't make much sense to me that selling under these circumstances makes the stock feel cheap while throwing the stock in the trash bin doesn't. But I'll take your word on the psychology.)

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