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Comment by bschmidt1 | Hacker News Reader

> founders get common stock

Not any company I found. The only "founders" who totally give their company to investors are kids who just graduated who get to raise a huge seed round because of family connections, and half the time it's not even their idea nor their company really.

My wife and I run a local business here in SF that does well on its own, but if at any point we wanted to take on VC funding, we would never in a million years do a deal where we give up the board and all the actual ownership of the business we started and grew ourselves.

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You aren't familiar with the mechanics involved.

Selling preferred stock doesn't "give up all the actual ownership of the business". The norm is literally the opposite: Preferred shares don't come with voting rights. Common shares do.

What preferred shares give investors is their investment back first in the event of liquidation. If an investor gives you a million dollars for 1% of your company, and you turn around and sell it for a million dollars, then the investor gets their million dollars back and you get nothing. Obviously. But if you sell the company for two million dollars, then the investor gets their million back and you get a million for yourself.

That's called a liquidation preference. Under standard deal terms investors get 1x. Nothing else to it.

So your fantasy of founding a company and giving yourself preferred shares makes no sense because a) no investor will put money in without seniority rights to recoup the investment if you fail, and b) preferred shares don't mean anything if you don't have investors.

Profit sharing has nothing to do with the type of equity, any profit sharing agreement is specific and can be anything. An investor can ask for royalties forever if they want.

I think you aren't aware of how the real world works, and have a textbook understanding. But not even that because you don't realize you can end up with basically nothing at the end holding only common stock that is given to W-2 employees.

> your fantasy of founding a company

You misread? Maybe intentionally. The company exists and has more customers than 99% of these YC startups. How many businesses are you operating?

> preferred shares don't mean anything if you don't have investors

Obviously, that's the context we're talking about. Bringing on investors. You think common stock is no different than preferred stock which is your main error.

Seniority rights have nothing to do with profit sharing or royalties.

I've founded two successful venture-backed companies. The current one raised a $25m Series A earlier this year. My investors have no control over the company, which is completely normal.

You're deeply confused about all of this.

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