Buffer raises $3.5M
open.bufferapp.com
open.bufferapp.com
Secondary sales are, anecdotally, getting more common these days, despite the fact that many VCs dislike them. They're so obviously in the best interests of founders and early employees, and the VC arguments against them are frankly odious, that I'd wager we see a realignment on how acceptable this term is seen to be.
The argument advanced against secondaries is, phrased to be maximally charitable to it, that having founders and employees in the same boat as having to wait for an exit to really reap the rewards of the company keeps everyone's interests aligned and avoids causing any bad blood at the company caused by founders getting a very happy outcome prior to employees having gotten one.
Phrased less charitably: rich people (VC partners) think paper-rich-cash-poor people should continue being cash-poor so that rich people have better negotiating leverage over them.
Doesn't this work against the VCs when the startup with cash-poor founder gets a subpar M&A offer? I thought VCs had become accepting and even encouraging of early founder liquidity.
So basically the Silicon Valley VC ecosystem is reinventing secondary markets for equity shares. This scheme has the same basic purpose as traditional stock markets (i.e. capital formation for companies and liquidity for investors), but is limited to a restricted set of participants, and price formation occurs only during specifically timed liquidity events (rather than continuously). I wonder if investors and founders are really happier this way than they would be on the public markets. If you are an early employee and you want to buy a house (or whatever), would you rather be able to sell your shares at any time to the best bidder or be stuck waiting for the next liquidity event at who knows what price?
I think this is an interesting development for a couple of reasons. First it probably is indicative of the huge regulatory burden involved with going public (Sarbanes Oxley &c). Second it shows how much capital really is available in SV VC these days. There is so much money that founders and early investors don't even care about access to capital available in the public markets because they can get all the cash they want without having to leave the VC world. I wonder if we will see a shift back to the public markets if the VC money ever dries up for whatever reason.
"Smart entrepreneurs have often used this competition / appetite to invest in prorata rights to their advantage. How? Have you noticed the increase of founders selling their personal stock in what is known as a “secondary?” As in – the company may or may not ultimately succeed but I’m going to take $2-5 million off of the table now to derisk my personal situation.
This is a direct result of the prorata shuffle more than just goodwill by investors. Truth lives in subtleties and nuance. Understand trends more intimately and you can use them to your advantage."
http://www.bothsidesofthetable.com/2014/10/12/the-authoritat...
In short, a couple factors have made IPOs less appealing: 1. More regulation and reporting requirements 2. Hyper short term investors
The first incurs great costs, and counterintuitively reduces transparency. The second drives heavy gaming of the market. You can't hold a company accountable to day to day events, you probably can't even hold them accountable to month to month growth, it's an unnecessary burden and short term predictability doesn't correlate to long term value growth.
As a result companies wait longer before going IPO, and individual investors (read: the 99%) are no longer able to invest in the growth stage of companies. The implications of this are interesting: 1. Rich get richer, poor can't. Retirement funds and the likes get no real returns. 2. Things like second market, the JOBS act and more will provide real alternatives to the public market. Extend this out 100 years, the IPO market becomes day to day gambling with 0 connection to real growth. People will write algorithms to play this game, and it will roughly be a zero sum game. Private unregulated markets will replace the public market once individuals have the freedom to invest. They'll look like public markets of the past where there wasn't rapid trading and there were less regulatory requirements.
As a company, I would much rather list on a private market where people were only allowed to buy and sell my stock once per quarter. You could design an auction system that allowed the price to be set based on how many shares were requested to be bought / sold (could be similar to the way IPO prices are originally set). I wouldn't have to deal with short term ebbs and flows of the market, and worries of cascading crashes due to day to day events and rumors. Instead I'd get to release a comprehensive quarterly report explaining how the company is doing and why people should buy into our growth, and give a gameplan for how we plan to deal with crisis. Someone should build this, and figure out a way to let individuals invest.
You can look at a tech company like Apple whose shares are some of the most frequently traded shares in the market, and you can see that in the long term, as the company has done better, the share price has gone up. The market still works even in the presence of all the short term trading.
It's fantastic to see a dividend based model being introduced into early round VC fundraising. It's an alternative to liquidity and something that should/can move upstream. Bravo to Buffer for leading the charge.
Edit: I think this is great for the founders and I hope they gave a similar option to their employees who have been with them a long time.
High fives for the massive transparency success of the business while maintaining a positive work culture.
Looks like they did. Up in the article they say they're splitting $2M among the two founders, and later it says that they're taking in total $2,5M for cashing in founder and employee equity. I assume the $0,5M is the employee part. Seems like a small fraction, but I assume most of it goes to the earlier employees (and then only those who opt for it), so it might be a year's salary right there anyway.
Thanks, guys!
Ok, well good for you then!
The best leverage is to not need the financing, and one you get to that point, all sorts of possibilities open up. Great to see a wildly successful company show us what's possible if you have leverage.
Best of luck with completing the round, and with future growth!
Right now, all money raised goes to company, then company buys back shares from early team members - investors still get preferred stock. We're not selling our common stock directly to investors - you're right, that'd be too complicated and not in investors interest.
Would love to answer more questions on this, keen to explain our full thinking!
99% of founders have a goal (it may not be the primary or secondary, but trust me it's there) to be "F you" rich. Maybe 99.9%.
This move doesn't make either of the founders remotely close to that. If the founders checked out now, they wouldn't be able to retire - they certainly won't worry about paying for college for their kids, but they're sipping pina coladas on the beach either.
Taking "just enough" money off the table de-risks the whole operation for everybody. The risks in a startup this size are
a) Founder fallout / burnout
b) Running out of enough runway to really scale the biz and make the right long-term product investments (being cash-flow positive doesn't mean you can do this - plenty of breakeven startups out there just treading water who are one bad product cycle or market shift away from biting it)
c) Inability to hire and retain the right people
This helps tackle all three.
Win-win for everyone.
Everywhere I turned, people mentioned Buffer so I grabbed an account a couple of days ago.
Its a great service that falls in that "why didn't I think of that?" category. Really cool.
I'm happy for them and I hope they can go very far with this venture. They have paying customers and as word spreads around more and more about the need to utilize social media to market your online business (There's a CNN article recently released about it http://www.cnn.com/2014/10/01/world/europe/bloggers-six-figu... ), the need to organize content release is essential.
So, congrats guys at Buffer!
I feel like adding your blurb from the about page + including something about who uses your website along with a bigger button for businesses would at a minimum be worth A/B testing.
Also it seems a bit awkward to navigate with no navbar at the top and for the business landing page you have to go all the way back to the first landing page to go to any of the other pages.
I sent the same post about 25mins after [1] (clearly, I didn't see this one) and I was able to post it. Just reporting the issue.