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Comment by minimaxir | Hacker News Reader

An acquihire for a startup which had received $1.7M investment is probably not a great success.

Don't the original investors usually get their investment back from these things? So Twitter pays the investors $1.7M and pays the founders $200K per year as a dev team.

How does that usually work?

That's about right.

I think the parent was inferring that recouping $1.7M isn't viewed as a success for a VC.

In general I think acquihires are moderate successes for the founders. Not just financially but external validation of their collective skills as a team.

Yeah, that's pretty much the value of a talent acquisition the founders: enough cash and credibility to make things go a lot faster the next time around.

I highly doubt it was that little. I've seen quite a few acquihire term sheets and the payoffs are a lot better than you would think for the founders.

I bet the investors get their money back, the founders of Cover get $2m - $4m each in stock alone (vesting over 4 years of course), and the employees get $500k / year in total comp.

Someone has explained it here a couple of years ago that VCs generally view them as failures as they have investment pools with lifetimes of 7-10 years and each pool is expected to yield something like a 10x profit at the end of the period. There's not much difference between losing their original investment and getting it back as they will have similar effects on the performance figures of the pool at the end of the cycle.

Depending on whether a fund is still in its reinvestment period, they may also not be able to put that money to work - it may automatically go back to the LPs, who aren't generally very happy to just get their money back when they're expecting 25% or higher IRRs.

The terms weren't disclosed.

The $1.7M investment was a seed round (in Oct 2013), with lots of individuals putting money in[1]. If it were bought for say $20M (who knows?) then I'm pretty sure those seed investors would be happy with their 5x to 10x returns (depending on liquidation preferences) in 6 months.

If it were bought for $5M, then not so much. But if it was only $5M on the table I doubt they would have sold that quickly.

[1] http://techcrunch.com/2013/10/24/cover-android/

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