Comment by PaulHoule | Hacker News Reader

Comment by PaulHoule | Hacker News Reader

You don't have to pay it back but you do give up equity.

It depends on the deal you strike. Mark Zuckerberg still controls Facebook even though it is a public company despite selling a bit here or there if he wants cash, borrowing against the shares, etc.

Other founders lose control of the company at an early stage. Many people would be delighted to get $5-50M worth of stock in a quality public company and be free to do something else with their life.

VC and accelerators offer benefits by association. For instance I worked at a startup that used space at an accelerator for B2B software startups close to Union Square in New York City. It was energizing to be surrounded by people who are thinking about both the software development and marketing aspects of the business, there is the network of the people who run the accelerator and brand name which helps with finding customers, hiring. You can walk out of that office and hike (or take the subway or a car) to meetings with mega finance, media, consumer brands, you name it.

> You don't have to pay it back but you do give up equity.

In most cases, investors get preferred shares, and founders get common shares. In the great majority of companies, the founder will earn their wages and get nothing for their equity.

About 10%[1] of companies do okay (not unicorn amounts), and founders might earn up to some millions.

For 20% (at a guess), the company is sold but the common shares are under water so founders get zero. That is because the preferred shares have seniority (priority) and the VCs get all the proceeds from a sale (e.g. acquihire).

There is a tiny minority[2] of super-successes (<1%) where founders make huge amounts, and selection bias means you have heard a lot about these very small number of successes.

The rest of the companies went bust spending all the money, and the founder hopefully got some wages.

But yes, a founder doesn’t owe anything for loans unless they were a guarantor for company debts, or they incurred personal debts while building the business (friends & family, mortgage drawdowns, credit card etcetera).

[1] https://80000hours.org/2014/05/how-much-do-y-combinator-foun...

Edit: my comments above are about companies that take VC money. No idea what the numbers might be like for YC founders that don’t get anything more than their YC investment.

[2] http://paulgraham.com/swan.html — also has this quote relevant to the article “That's the scary thing: fundraising is not merely a useless metric, but positively misleading. We're in a business where we need to pick unpromising-looking outliers, and the huge scale of the successes means we can afford to spread our net very widely. The big winners could generate 10,000x returns. That means for each big winner we could pick a thousand companies that returned nothing and still end up 10x ahead.”

> In most cases, investors get preferred shares, and founders get common shares. In the great majority of companies, the founder will earn their wages and get nothing for their equity.

I've found this post (by a VC!) to be helpful to understand how dilution works. tl;dr: don't do a startup for the $$$.

https://bothsidesofthetable.com/understanding-how-dilution-a...

Yup. Rather build a business for the $$$.

Dilution is mostly a separate problem, and it mostly only becomes relevant if you are one of the few winning businesses, where dilution just controls just how big you win. Dilution often matters more due to founders losing voting control before the business is a success, where founders have lost control of the business due to not controlling the board, amongst other risks. I worked at a business where the founder was ousted, and the investors then drove the valuation of the business down, through their bad decisions (edit: bad from the founders point of view, I don’t know enough about the internal incentives of the investors to know whether losing money was offset by other gains by the investors, although I personally felt that was unlikely).

If you are a founder, or are thinking of becoming one, be extremely wary of anything written by VCs. VCs tend to silently elide or ignore the real problems faced by founders. I suspect this isn’t intentional, but it is just that VCs seem to always talk about everything from their point of view.

For example your link about dilution talks about valuation, but preferred stock also usually has other rights that the diluted common stock (owned by founders or employees) does not have. The difference is critical, yet that article hardly even mentions the issue of common stock rights! https://www.propelx.com/blog/preferred-stock-vs-common-stock... Edit: Your linked article does refer to participating preferred equity and participating liquidation preferences; for a good summary of those see: https://www.startupblog.com/non-participating-vs-participati...

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