This article is very poorly researched. UpCounsel isn't shut down - it got acquired by a PE shop and the marketplace is still fully operational.
179 karma · joined September 16, 2014
But I wouldn't say these are the _main_ reason why Bitcoin is going up. More likely reasons:
- Inflation concerns from the massive QE efforts in 2020 - Equities market are very overvalued right now, people are looking for alternate asset classes and fiat isn't a great option (see point #1) - Institutional (more risk adverse) names are getting in. Ex: Mass Mutual bought $100M of BTC last week. Because this was for their general account it needed Fed approval, which is a big milestone. - The idea of BTC as a true alternate store of value to gold is becoming more widely accepted.
Specifically in regard to the point around Bitcoin as an alternative to gold, the market cap of gold is around $9T. If even half of that moves to BTC we'd hit about $130k/BTC.
Straw man argument. 1x participating are standard terms. I'm not sure why any investor would forego using standard terms, even at the early stage, to their detriment.
re: "squeezing"
You're perfectly free to have that opinion. Clearly both firms with extensive investment experience did not feel that way.
re: "illegality"
I have no idea what parallel you're making here, or what "negotiating a price outside the valuation fo the shares" means. Financing documents typically make it very clear what rights each party has upon a financing event and/or exit event. Whether each party chooses to exercise that right is up to them. There is absolutely no reason to believe Josh did anything illegal here.
VC funds have a duty to their LP base to maximize returns, but I would argue the good will generated by moves like this are what protect their ability to get into "hot" companies and thus protect those returns. Pursuing your strategy would likely harm the fund's reputation and their ability to return LP capital in the future.
Also - a point of nuance. VCs are not in the habit of writing off everything, that would be a false takeaway from this article. If the amount invested was bigger or the exit was more like 2x or 3x for the VCs, your points of criticism would be more valid.
It isn't worth it for either of those funds to play hardball over $400k when hundreds of founders will read that, and will ultimately decide if they want the fund on their cap table for the next Uber/Lyft/Data Dog/Airbnb/etc.
I said it before, but it's worth repeating - SV runs on relationships.
- General Catalyst: $2.5B+ in Assets Under Management
- Bessemer: $4B in Assets Under Management
DISCLAIMER: If you take venture capital, you should obviously always do it as a responsible fiduciary of both the company and the capital.
With that said, I'm positive both of those firms will be fine. They're looking for 100x returns, a $400k write-down from a seed investment is nothing. If anything, it's worth doing that on the off-chance Josh goes on to create the next Uber or Salesforce and they want to invest again. SV runs on relationships.
Y Combinator's standard terms are $125k for 7% with an established/trusted brand and deep investor network.
No one should be duped into giving up the same level of ownership for 4% of the capital and (presumably) a less well-known brand.
At least with a normal vesting schedule once you hit a 1 year cliff you're granted a certain portion of the equity. It seems like with the point system you run the risk of every founder just being perpetually diluted, which would ultimately un-incentivize employees.
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Additionally - there has been a recent push in the legal industry to "unbundle legal services." This means that you can use a wide variety of attorneys for individual tasks, rather than one attorney for everything. In short, unbundled legal services give you choice.
An example of what this choice might look like for a startup founder:
Founders can do commonplace tasks themselves, such as writing an employee handbook, and then use an online platform (such as LawGives) to locate a solo practitioner who can review that handbook for compliance with local/state/federal laws. However, when the founders encounter a more complex transaction (such as a round of financing) they are still free to seek out the highly specialized services of a big firm attorney.