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Comment by diego | Hacker News Reader

Dividends? That would be a novel concept.

Only if the dividends are going to return 10-100x over the lifetime of the investment.

Dividend paying investments can still be sold, so the dividends themselves don't have to return 10x.

But doesn't that bring us back to the issue of who would buy those investments off the original investors if there is never going to be a liquidation event?

Have you looked at the bond markets recently? Total return doesn't need to be 1,000-10,000% to make a good investment.

We're talking about early-stage investors and what they expect from an investment when they put their money into a startup.

I think it's kind of like color, this team has been around for a long time, proven themselves and probably know most SV seed investors. To convince a lot of them to each make a small investment shouldn't be to hard.

You realize that the whole premise of selling a company for 10-100x is that the buyer believes the dividends will in fact exceed that, right?

I don't understand what's so complicated about my original question. She says she's not going to sell the company. It's reported that she took $2.5M. Let's say she gave up 50% of the company for that (which I'm sure she didn't). And let's assume that the investors want their return within the next ten years (they probably want it sooner). And let's assume it's 10x. So these are ALL very conservative numbers for early stage investors. Let's say she ends up with 50% net profit (never gonna happen). And let's say she pays out 100% of profits as dividends (never gonna happen). That means the investors have to average $2.5M/yr in dividends over the next ten years, which means she has to be doing $10M in gross per year, on average, with 50% in profit. For a tech blog, I think most people will agree this is probably beyond unreasonable. And remember, she said she's never going to sell it.

So again, all I'm asking is where are the investors supposed to get their returns?

It is a good question, your analysis is correct and I don't know why you are getting down votes.

I suspect the answer is three-fold.

1) Investors hope to get returns on private markets. Private markets provide a lot of liquidity these days.

2) Investors (and people who buy on private markets) hope that Sarah means "I want to retain control" when she says "I don't want to sell". It is a reasonable intepretation, and can provide excellent returns (did the Google guys "sell"? Did Zuck? Murdoch?)

3) Investors have a long term investment timeframe. They hope in 10 years time she feels differently.

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