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Comment by vladimirralev | Hacker News Reader

A quick warning for everyone. Investing without having a complete access to the books of the company you invest in is extremely stupid. No serious investor would do that. Don't be stupid.

You must make sure the valuation is fair, this means - check the valuation report, check the reputation of the company who did the valuation report, sanity check it, look for signs of bullshit.

Keep in mind, even if the founders have solid reputation there may be some unethical MBA behind the scenes who can act without founders understanding exactly what he is doing.

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"there may be some unethical MBA behind the scenes..."

This is an unnecessary smear on MBAs. There are bad ones out there, and there are plenty of good ones. Just like with any other degree.

Your points are completely sound, and I agree, but it's time we ended the knee-jerk hatred of those three letters. There are YC-backed startups with MBAs at the helm, and there is an increasing number of engineers with MBAs or dual degrees.

MBAs are fine. But their job is to take as much money as possible and give back as little as they can. This is fine when they are dealing with other equally equipped parties (YC, vc funds etc). If you don't understand the game, there is almost no doubt that an MBA will try to offer you the worst possible deal for you. If you have no means to examine the details of the deal, that's a guarantee. That's how business works. It is their job and they would be doing a bad job if they do otherwise.

You're painting "MBAs" with too wide a brush. There are MBAs in marketing, MBAs in health care, MBA software engineers, MBAs in consulting, MBAs in advertising, MBAs founding companies, MBAs in production and creative fields, MBAs in media, etc.

"MBA" is not a job title; it's a degree. I think the term you're looking for is "finance" or "Corp Dev," which is more of a specific job role that often fields MBAs to fill it. Their job is to get the most favorable terms possible in a deal, but not at the expense of the deal itself. So yes, go into a deal with a finance or corp dev person with your eyes wide open -- but they lose more than they gain if they develop a reputation for completely screwing people over again and again. It pays to know what their incentives are, how their firm makes money, and what your alternatives are to a deal with them (and often, your alternatives involve deals with other finance types).

MBA is a culture and a way of thinking as well.

What you enumerate are MBA specializations. The core of every MBA course is about optimization and modeling. There is no argument what to do when you can sell something at price P or 100*P, no matter what kind of MBA you have.

There is a mindset associated with it. It's a personal failure if you miss an opportunity to make more money as an MBA.

That's just nonsense to say that applies to every single MBA. You are almost a parody of the anti-MBA Hacker News type that make me suspect you may even be trolling (without looking at your profile; not funny if you are).

Do you have an MBA? Do you know the motivations of every single MBA in the world?

Hold on a second. I have nothing against MBAs. I also very clearly said "may" in my initial post so I am not even claiming my comments apply to every single MBA in the world. I don't see any substance in your comments, just calling me names.

It's not a big leap to assume that MBA students sign up to make more money and have more power. Why don't you tell me what exactly are MBAs after?

Sure, I bet you have heaps of friends who are MBAs as well, so there's no way you could possibly be biased against them.

MBAs are there to make money, same as every other profession. Do you work for free?

You should just apologise instead of defending yourself.

There is nothing wrong with making money. Like I said, this is fine and everybody can understand it. Why should I apologise?

I am simply arguing the MBA programs teach a certain mindset. Just like being a doctor, an engineer or an arts person are different mindsets. The difference is the guy with the MBA brings value by identifying and taking every opportunity to make money, while an engineer's focus is to build things. An MBA is typically held accountable for missing opportunities like that. And I would be really happy to read what's your take on how an MBA brings value.

"But their job is to take as much money as possible and give back as little as they can."

Nice one with the sweeping and insulting generalisation. How dare you say that.

Most early stage deals, like the ones you'll find on WeFunder or AngelList, typically do not have valuations or financials to share simply because it's too early on for a company to seriously offer that. Why waste time putting together financial and valuation models, when you could be working on the product and trying to grow?

Because if you can be working on a product right now you don't need outside investment?

No, rather it's that as a founder you have limited time to expend, and spending effort getting traction will have a much larger return than trying to optimize for the various requests of angel investors.

There are also enough quality investors out there who use signals other than hand-wavy financial reports that you could be spending your time to get.

These guys are asking for very specific prices on their website. They must have some kind of valuation behind it. I just need to know how they came up with this number. Also, both IRS and SEC have rules and guidelines on how to do valuation on startups - they use things like committed potential customers, founder reputation, CVs and things like this. Every startup has to do valuation before issuing stock options for example.

When I did the "valuation" on my startup for crowd-funding (Seedrs), when it was nothing more than a wire-frame and an idea in my head (and an MBA research project, but you almost make me feel like I should be ashamed to admit that or something), I just did it based approximately on the valuations that various accelerator-type programmes (including YC) were giving. I came up with 14% for £30k, giving a valuation of £214k. Low enough to get investment fairly quickly - nobody complained. How on earth are you meant to do a books-based valuation of an early-stage pre-revenue company? You have to give a specific valuation so people know what they are getting.

Just google it. There are many methods to do valuation of startups. And again, you can not issue stock options without IRS-supervised valuation. Most startups on the website are post-seed with more than 3 people on the team already BTW. So it's pointless to discuss pre-seed valuation at all.

Whatever numbers you have in your valuation I need to know how you got them to decide if it makes sense.

(Edit: You may be from the UK, so it's a little different than US. I was speaking for the US case here.)

You're mistaken, almost all of them are seed-stage, minus one. You can issue stock whenever you want.

But I realize that your point is that you'd prefer due diligence and transparency on terms before using a site like WeFunder. The thing is, most investments at that stage don't have that much due diligence beyond market size, team, and traction. I think this is where you're misunderstanding.

You're mistaken. Most of these companies are raising >500K, this is not seed money. Seed is typically less than 100K. There are at least 10 companies that come from YC, which means they already got their seed round. You can't do seed twice by definition.

There is no definition of 'seed', so I'm not sure where you're getting these ideas. Seed is just pre-Series A.

I am a YC W13 founder and I just raised a 'seed' round. Our investors signed the paperwork as a 'seed' round. We raised >$500k.

That would be highly unusual. But it doesn't matter that much to me if it's true. We were simply talking about different thing when saying "seed". No harm done.

http://www.investopedia.com/terms/s/seedcapital.asp

That's why companies use convertible notes. While the cap is a proxy for valuation, there is no issued stock options until the note converts to equity in a priced round.

In my experience most seed stage startups raising money do what I call "reverse valuations". They figure 2 things:

- how much money they want to raise. Say $500k.

- how much equity they're prepared to give up. Say 10%.

--> and there you have it. $5m valuation!

Because a basic model can take 20 hours, and then is useful in supporting the valuation in discussions. It can literally bump the value of your company post-investment, similar how an MS on your resume can get you a bigger salary. You COULD do without it, but it's not so obvious why you should always omit it.

Valuation of the company is determined by supply and demand (of the company itself in the form of stock). Supply is of course limited; companies will only raise a few 100K$ max in a seed round. Demand on the other side, is largely decoupled from how the company is doing in the market since its just too damn early. In other words, the only things that matters at this point are the founders and the market. If there is high demand, companies can raise their market cap. When companies struggle to raise money, they lower their cap. Established business can use revenue as an indicator to potential investors. This makes little sense to companies that have a few months of revenue total.

> some unethical MBA behind the scenes

Yes, because MBA's have a monopoly on unethical behavior.

This post by Forbes would say otherwise, but I stopped reading after they said average righteous blogger in leftish spheres:

http://www.forbes.com/sites/freekvermeulen/2010/11/22/does-a...

They don't have monopoly, but their job is essentially to take as much of your money as possible and give back as little as they can. When you have a party like this involved you watch your back.

People invest in OTC BB and pink sheets stocks all the time - no access to books.

It will take a couple of spectacular failures for people to reevaluate current crowd funding model.

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