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Comment by icedchai | Hacker News Reader

Or, based on examples I've witnessed, 5 years down the road you own 20% of a $1M company because your forecasts were off by an order of magnitude. You've gone through a couple down rounds, where investors took at least 20% each time. You feel obligated to your investors and employees, while there is almost zero chance of walking away with anything.

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One thing that is underappreciated in the startup mythos is just closing up shop and trying again.

do investors allow that

They don't control it.

That very much depends on the stage of the company and how much control has been given up at different points. Do you think the management team of a public company could just decide to shut it down? As you raise consecutive rounds, your control is eroded.

One of the greatest quotes I've ever heard from a founder buddy was when his startup was going through a particularly dark moment and struggling: One of the investors said to him "Maybe you should seriously think about shutting down and giving us our money back", to which he replied:

"It's not your money anymore."

Yeah, then the investors call a board meeting and bring in a new CEO to provide adult supervision after a 2/3rds vote. The give that guy more equity than you to keep the ship afloat. "It's not your company anymore."

Your daily reminder of the importance of maintaining board control.

Not realistic to maintain control past A unless you built a real rocketship. The board doesn’t usually want to run your company - they have enough other companies, some evidently better than yours as they don’t require this intervention.

> some evidently better than yours as they don’t require this intervention.

I’m not sure where that’s coming from.

Also plenty of companies out there have control past the A.

Most have voting control, subject to certain investor veto powers, after the A. Very few have it after the B.

Isn’t each round 10-20% to investors? Even in the worst case of Seed, A, and B at 20% each, founders still have 80% -> 64% -> 51% ?

And in the best case it’s just one series A taking ~15%, thus founders still have 85%

It can get much worse. Companies can have multiple “seed” rounds. It may not be doing well enough for a real “A” round. The naming of the rounds doesn’t matter. Valuation at each round does. If your valuation goes lower from one round to the next (“down round”) you’ll give up more equity, diluting everyone else faster.

Each round carves out 10+% for employee options, on top of 10-30+% to investors (Seed can be anywhere from 10-30%, Series A is typically 20% to just the lead, Series B 10%+).

Equity ownership and voting control are also different things. After the B you commonly have 2 investors and an independent director on the board, alongside 1-2 founders.

Can never happen, the guy who says that this ain't ur money no more has made sure that investors know their place on board, they r afterall just passive investors who r spreading risks around, even wework a company that has fucked up financials had to give their founder close to a billion dollars just for stepping down, as long as the founder is a majority stakeholder, he will always remain in control

I'm skeptical. It is rare for founders to maintain majority control past series A. Unless you are very successful, it doesn't happen.

Not VCs then.

Reputation is a thing. You might need investors in your next startup.

If you, the founder, only own 20% of the company, the investors absolutely do control it (absent super-voting shares, anyway). You can propose shutting down the company, but the investors can fire you and bring in a CEO who will keep it going.

Not necessarily true. Most control is exerted at the board level through board director seats. You can have a low % and a majority of board director seats, depending on the leverage you had in each round raised.

>5 years down the road you own 20% of a $1M

What a horrible fate. They only got five years of salary plus 200k extra. I'll include them in my prayers (just kidding, I don't pray).

They also probably worked many 100 hour weeks while they could've earned more and worked a lot less with less stress

That's how risk works. The FAANG employee friends have exactly a 0% chance at a 9-figure outcome. They'll easily be at top decile if they pull a nominal $10M+ post-tax in 20 years.

Except the "$200K" is purely paper, and has an expected value of closer to zero. Remember, common shareholders are the last ones to get paid. Investors have preferences and get paid back first (often with interest.)

Also realize you were probably forced to take a pay cut and have a below average salary due to cost-cutting measures from the board. We'll ignore the non-financial problems, like tons of stress, complaining employees demanding more equity because you couldn't give them raises...

No, it's not a good situation.

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