It seems to me that the lesson to learn here is to be careful about agreeing to vesting. Pre-series A, the three founders owned most [1] of a company which had a $6M pre-money valuation and was "on track to hit $1M in revenue" for the year. Post-series A, they each owned less than 3% of the company outright, with the rest of their shares vesting over four years [2]. What sort of idiot takes a deal which reduces them from owning stock valued at $1.5M to owning stock valued at $300k and an employment contract which gives them $300k/year of stock if they stay at the company?
Obviously if you're running out of runway, you take whatever terms you can get, since your company is worthless if it goes bankrupt; but if your company is profitable and your only concern is about allowing it to grow faster, why the heck would you take a deal which is practically begging your investors to fire you?
[1] We're not told how much Cambrian Ventures took, but for $250k it presumably wasn't a huge amount. I'm going to arbitrarily guess 25%.
[2] Based on the way the numbers work out, I'm guessing they kept 20% of their stock outright and gave back the remaining 80% to be four-year vested. This fits with the fact that the company was about a year old when they took the funding.
The article pretty much states that it was likely a mistake to take that much funding when they had no idea how much they needed (or if they even needed funding). It seems like there is this messed up idea that a successful startup is when you get a ton of funding, the founders cash out and then who cares if company goes down the toilet (well, except the investors of course). I suppose that is successful in the sense that the founders get rich, but it seems like it's a selfish, thoughtless strategy.
The idea of a lifestyle company is totally unattractive to venture capitalists to the point where you'd think that only total losers would aspire to create a stable company. If it's not a rocketship to the moon, then investors don't want to touch it. But a lifestyle company founder can get equally rich - just not one huge pile of money at one time. They can be paid handsomely though and create a great company that provides a great life for a lot of people instead of burning out and creating a miserable life for everybody except the founder.
Vastly many more people get rich with 'lifestyle' companies than get rich with moonshots.
They won't be as obscenely rich but several million is definitely nothing strange (Euros or Dollars, pick your poison).
VC's won't touch such businesses (and they shouldn't) because the return rate is not worth the hassle for them but that is just a matter of perspective.
For founders the life style businesses are typically a safer bet and a life that is more conducive to having a family and a more or less normal life besides the business.
For a VC babysitting a small but profitable company is just as much work as one that might hit out of the park. And the chance of a return multiplied by the return itself is way larger than it is for a life-style business.
The risk profile of a VC is much different than the risk profile of most business people and they only come out ahead because they make multiple bets, which is something most business people can not do.
> Vastly many more people get rich with 'lifestyle' companies than get rich with moonshots.
Not being combative, but can you justify that statement with data? It just seems implausible to me, given that the moonshot companies tend to employ a lot more people. Yes, relatively few companies become "big deals", but those companies (Adobe, MS, Google, Facebook, Apple) are the ones that actually employ most of the people in the industry.
Aside from 37Signals, what lifestyle businesses are (a) less stressful and (b) more lucrative than a shoot-for-the-moon startup? If it's a technology business, it's something that will be obsolesced rapidly unless you keep moving (e.g Yousendit being obsolesced by Dropbox), so where's the "lifestyle" in that?
It seems that your best options are either (a) join a startup or (b) work for a large company. The no man's land in between seems to be the highest stress and worst returns, with no prospect of your ship ever really coming in.
They are all around you. My business. Gravity Forms. Campaign Monitor. Harvest. Peepcode. Marc-André Cournoyer. WooThemes. Tick. Envato. Beanstalk & Postmark. And on and on and on. These are just some of the folks I know personally, in our space. I could name so many more in other industries. There are so many more, everywhere. You're soaking in it.
Most of these people are too busy making bank to blog about it (or they simply don't care to be recognized as business experts).
Why do you equate headcount with riches? As one of the richest people to ever write a business book, Felix Dennis says "Overhead walks on two legs." It was an important enough statement for him to include it at least 3 times in one little book. That should tell us something.
Employing people isn't a correlation to riches. Employees cost a lot of money.
As for "tech businesses"… Harvest has been virtually the same for years and years. So has my "competitor" to Harvest, Freckle. It doesn't matter. Your model of "tech biz obsolescence" is dependent on a winner-take-all scenario. Real business -- what you call "lifestyle business" -- doesn't operate that way.
To offer another example that occurred to me when I was reading this: HN's Jason Kester has frequently written about how his simple, little app S3Stat allows him to travel the world, rock-climbing and working when he wants to, with S3Stat itself requiring next to no maintenance. See, for example, http://news.ycombinator.com/item?id=1925214
On top of everything you said, folks should step back and realize that VCs or VC-related interests have historically powered all the most-read startup media (TechCrunch, HN, AVC, etc). This has an influence.
According to Dow Jones Venturesource, there were only 522 M&As, buyouts, or IPOs in 2011 among venture-backed companies. 522. By contrast, over 300 people are injured by lightning strikes per year, in the US.
522. By contrast, over 300 people are injured by lightning strikes per year, in the US.
While I appreciate your point, this is a very flawed analogy. There are only a few thousand people in a position to shoot for an M&A each year, and a few hundred million people in a position to get hit by lightning. Relative to the number of adults in the U.S., very few people start companies that could potentially be scalable each year, and out of the ones that do, very few scratch the surface of basic competence. So if you do start one, and you're reasonably competent, your odds are actually pretty good.
I also disagree with the assertion that a lifestyle business is easier than a moonshot. In my experience, both take a roughly similar toll on your life, but a lifestyle business doesn't have the upside to make the whole thing worth it. In a software development industry, a family where both partners are professional can bring in > $250k in salary each year working regular full time jobs, which is a very cushy lifestyle. I see no sense in working 16 hour days for a shot at the same salary. If you work that much, might as well make it a moonshot.
Good points, but I don't see it as a binary proposition in tech. You can't make a moonshot without building something small but useful and then pivoting a bunch of times. In retrospect you see the path of how a company got huge as if it were a foregone conclusion, but the individual choices were not necessarily made in service of a grand vision. True there are many decisions along the way that break one way or another, but when I hear early stage folks talking super huge I just get the impression they are dreamers, whereas the guys who are simply reaching for the next level that's just out of reach can do amazing things over the course of a decade.
To me lifestyle business is more about declaring that your values are in conflict with what you feel would need to be done for further growth for this company, at this time; not because it couldn't be done, and even if it couldn't you really wouldn't know until after you tried.
In retrospect you see the path of how a company got huge as if it were a foregone conclusion, but the individual choices were not necessarily made in service of a grand vision.
This.
To support your statement, it's worth looking into how many of the large companies today started out large -- and how many started out small and incrementally built up. The majority of successful large businesses started small.
That isn't to say they didn't take loans or types of investment to grow faster, once they already had a steady revenue base underneath them. But few succeeding in the jump from zero to 1000 headcount with Other People's Money.
Around the first dotcom boom, one of the characteristics of the destined-to-fail companies was that they tried to copy big businesses "are" like instead of emulating what those big businesses were like when they were small and starting out. Fancy offices, game rooms, huge perks, lots of headcount was a chief indicator of future doom.
A friend of mine played Fucked Company Bingo and used to bet on which companies would fail spectacularly based solely on whether or not they had press/web site touting their foosball table. She did extraordinarily well in the office pool, I've heard.
IMO, it's all happening again.
The poet Basho once wrote, "Do not seek to follow in the footsteps of the wise. Seek what they sought." For startups, perhaps we should amend that to "Do not seek to copy what your target business is doing now. Seek what they sought when they began."
You and I agree that there are only "a few thousand" people in the US in a given year who are "in a position to shoot for an M&A." There are, however, at least 10x those numbers in hopefuls… people who believe that they could do it, even though they never will be able to, and many of those people get funding and end up with nothing to show for it but a few wasted years of life. Meanwhile because of the 522 M&As etc we hear about one just about every day, making it seem so much more likely than it really is.
Let's be clear: It is vanishingly unlikely.
In addition:
"In my experience, both take a roughly similar toll on your life, but a lifestyle business doesn't have the upside to make the whole thing worth it. In a software development industry, a family where both partners are professional can bring in > $250k in salary each year working regular full time jobs, which is a very cushy lifestyle. I see no sense in working 16 hour days for a shot at the same salary."
For a talk I gave at Lessconf a few days ago, I broke down the numbers. Assuming 25% ownership in a startup which reached an $8 million dollar sale (which is much higher than most, as I'm sure you know), that results in less than $2 million post-tax.
I ran the numbers in the talk to demonstrate how much my business, Freckle Time Tracking, a most boring SaaS, would make in the same time period and beyond the 5 & 1/2 years of leisure post-3-year-lock-in. (Assuming a not immoderate spend of $10k/mo and savings of $5k/mo -- remember, if you get lock-in -- and most do -- you will have to work out of the Valley, where everything is expensive.)
My time tracking product alone will bring in significantly more than the buyout after 6 years, nearly triple what an $8 million dollar buyout would over a period of 9 years. And what's more, it keeps earning.
That's just one of the little "lifestyle" businesses my husband & I have going. We don't work 16-hour days. We don't even work 40-hour weeks. We did for about a year, year and a half, but we also took weeks and weeks off in the same time period.
Time tracking, let me repeat. Boring, "saturated," blah blah blah. Time tracking alone will make me us millionaires by the time I'm 30 -- on the side, and better yet, with 100% ownership. :)
And, as I said, we've got other things going as well.
Making an actual business with actual profit is different than what everyone calls a "startup" these days. You don't have to work your ass off. You just have to serve a market which needs serving, and provide more value than you're charging. These are different skill sets than hunting down VC and viral growth. More useful, in the end, and with a higher rate of return for the many instead of a few.
I agree with some of your sentiments, but you'd make a stronger point if you didn't play math games.
You are citing Dow Jones Venturesource exits. First off, they are tracking venture-backed companies. So your denominator in that particular fraction isn't people shooting for M&A someday-- it's a tiny slice of companies that get VC dollars. How many TOTAL VC backed companies exist? 5k? 50k? I honestly have no idea, but comparing it to people getting struck by lightning is just silly.
All that aside, I think this whole argument just shouldn't be happening. I think we're all in agreement that the funded path is higher risk and higher reward.
Speaking of numbers games, you use "median" when we all know that median exit is valueless without information about distribution. Mode is much more valuable. But that data is not available. However, if you pay attention to the publicized acquisitions which happen fairly often, the amounts are most often under $10m.
As for whether my number comparisons make good dialectic sense or not, it doesn't matter. This isn't dialectic, it's rhetoric. It's a tool for thinking about something. There's no point in pretending we're even attempting to approach Absolute Truth here.
As a tool for thinking about something, a contrast of M&As vs lightning strike injuries is quite valuable. Because we all "know" people who have been bought, but very few of us know people who have been injured by lightning. This shows us that we're in a bubble, a slice of unreality, where the availability heuristic skews our deeply felt understanding of likelihood.
Finally, yes. Dow Jones Venturesource tracks only venture-backed companies. Everyone on HN seems to agree that achieving venture funding is not only important for growth, but important for the connections the VC has to people who would buy the startup. Presumably that belief has some grounding in fact. This leads us to the conclusion that an acquisition is more likely when there is VC involved than not.
> Making an actual business with actual profit is different than what everyone calls a "startup" these days. You don't have to work your ass off.
And yet it shouldn't be, because profit-driven tech businesses can still be scalable and have many of the advantages of true "startups". It's still much closer to a "startup" than it is to a brick and mortar operation.
On the flip side, people seeking viral growth probably should not be killing themselves with work either. If you love what you do and you are productive then maybe 60 hours a week is okay, but certainly it's not serving VC interest or anyone else if you're burning out. Personally I think if there were a guaranteed way to use the other 138 hours in a week as personal R&R that would result in an uninterrupted, in-the-zone, 30-hour work week, that would be a good deal for any employer of creatives.
I agree with you that they shouldn't be in conflict. There are only a few outliers (FB) where they truly are, and the chance any one of us has of creating the next one of those are so tiny as to be nonexistent.
When I write about "startups" (with quotes), I am writing a reflection of what most people (at least people who write, talk, and comment) believe. :) Not what I believe ought to be.
"But a lifestyle company founder can get equally rich - just not one huge pile of money at one time."
True. Especially when you consider that investment isn't income. When an investor gives you one huge pile of money at one time, it's not for you, it's for the business.
I heard an interview with the guys from Groupon and they mentioned paying $14,000 for a paper weight and paying $5K to a guy to stand in a clown-suit all day in their office just because they could.
It's this sort of wasteful spending that kind of makes me want them to fail.
I don't know... You should probably subject everyone to vesting everyone at incorporation - to keep people from ditching early with a huge slug of equity. Good investors know this, and will often rightfully insist on some sort of vesting reset - depending on circumstances. It doesn't make you an idiot to take that deal. It makes you a part of the VC machine. It's just how it works.
That said, I've seen people raise (smaller amounts) of money without any vesting provisions at all (i.e. the founders owned their shares outright). That, to my way of thinking, makes the investor the idiot.
EDIT: I don't mean to imply that resets are a given. Only that they make sense in certain situations, both for founders and investors. There is no "standard", but there are "ways things are often done" for a reason.
You should probably subject everyone to vesting everyone at incorporation - to keep people from ditching early with a huge slug of equity
At incorporation, sure -- because at that point the entire value of the company is the work the founders will be doing in the future. But in the case of yousendit, they implemented vesting at a point where the company already had a significant value; the fact that it was able to survive having two of its three founders fired indicates that their contribution was made before the Series A, not after.
It doesn't make you an idiot to take that deal. It makes you a part of the VC machine. It's just how it works.
I'd say that anyone who accepts "that's just the way it works" as an answer is an idiot, but maybe that's just my cynicism showing. :-)
Our series A investors wanted vesting and we said no. They were cool with it. Vesting for founders is insane. Never accept it. Vesting for execs is mandatory and has saved me once already, ironically because our investors demanded it.
Once again I'm surprised at how very very few founders have a thorough knowledge of what they're signing up for and how to get what they want. It's your company. Act like it. You don't need permission and nothing is "standard". Also think hard before you get into bed with A level VC's and angels and make sure you are on your A game because the worlds most skilled investors come with a heavy premium.
If you're bringing real value, there's nothing wrong with saying no.
This depends a bit on the maturity of the company. For example, at the seed stage, where the founders may only have known each other for 3 months of their lives, very credible people are going to tell you that they can name dozens of reasons why you should have vesting. If money first comes into the company around month 5 and you have a seed round closed around month 8, there's quite a window where acrimonious breakups can happen.
In the event of an acrimonious breakup, fast forward four years. In the event you manage to pull the company back from the brink, do you want someone from two lifetimes ago in startup years a) owning ~1/4 of your company and b) looking like Huge Unknown Risk Factor every time you raise a new round or make similarly consequential decisions?
That's why smart people who have seen bad breakups before are going to suggest vesting and it won't really be a suggestion.
Now, on the flipside, if I hypothetically brought on my best friend to work on AR and took investing at the two year mark, any conversation beginning with "You should really give all your shares back" would be pretty darn brief.
Wow, disagree. Team of 3 founders, no vesting, one walks in month 6, the others stay for 4 years, build company; in the end, all three are compensated the same way.
That's a terrible way to allocate equity.
Resetting the vesting clock to zero at funding sounds insane, but if you need the money, the people offering it do set the terms. I know a lot of people who've gotten institutional VC rounds for companies; I believe all of them vested. You're right that it probably can't hurt to push back.
I think the point you're trying to get at here is the same as what I was saying: Vesting should occur over the same time period as the vestees are making a significant contribution to the company. The situation when a company is founded (founders will be building it in the future, and vesting is appropriate) is completely different from the situation where a profitable and rapidly-growing company takes investment (founders have already made a large contribution, and vesting is either inappropriate or should be limited to a relatively small proportion of their shares).
The other half of my point is that in some transactions, "should" and "fair" don't matter. Either the terms make sense for them, or they don't. Terms that make sense aren't fair? Can't reasonably accept them? Ok. No deal.
VCs are professional deal makers. They can't code, they can't round HTML corners, they can't even write copy. Their one skillset is optimizing the problem of allocating other people's money in small companies for optimal return.
Parent commenter is right in that you should push back and negotiate as hard as you can. If you're a better bet than any of the 10 other prospects they're prepared to fund instead of you, you might win. Otherwise, nope. But there's no sense getting angry about it; nobody can reasonably say that a venture capitalist is obligated to fund anyone, on any terms. The sole moral obligation of a VC is to obtain the maximum return for their limited partners. Some of them bend over backwards to try to make things better for company "operators"; in a very reasonable way of looking at things, the VCs who do that may be the ones who are acting unethically.
The other half of my point is that in some transactions, "should" and "fair" don't matter.
I'll give you "fair", but I think "should" has a very real meaning: If for every deal X which does not have property P there is a deal X' which does have property P such that for every participant utility(X') >= utility(X), then the participants should negotiate a deal with which has property P. To take an example I ran into recently: You should never simultaneously buy a life annuity and life insurance (on average they cancel each other; but you have to pay two risk premiums).
This may sound trivial, but it's useful for recognizing dishonest actors: If someone wants a deal which doesn't have the properties you think it should have, their utility function isn't what you think it is. In the above example, if your financial advisor is trying to convince you to buy both a life annuity and life insurance, it tells you that they're thinking about the commissions they can earn, not about optimizing your finances.
Some [VCs] bend over backwards to try to make things better for company "operators"; in a very reasonable way of looking at things, the VCs who do that may be the ones who are acting unethically.
I agree: They're sacrificing the current fund's returns (by making deals which are suboptimal for them) in order to improve their reputation (a personal benefit) and allow themselves to get better deals in the future (thereby improving future funds' returns).
An angel can spend his money to be your friend. A VC shouldn't spend his clients' money to be your friend.
> Our series A investors wanted vesting and we said no.
It's really a noop on their part. They know full well that if a founder ever leaves the company they can recover the ownership by diluting the bejesus out of him after he's gone (and bonus: everyone else who has already left is also diluted to near-zero).
Vesting just saves them the energy they'd have to exert on the backend.
Stock and voting / vetoing rights usually go hand in hand, so it depends on company structure and how well the founders protected themselves against such events.
There are a lot of good business lessons to be learned here but there's a much more important lesson.
In business and life in general you will sometimes make big mistakes and/or just plain get screwed over. This is going to hit most people's sense of self worth and ability to reason like a ton of bricks. You need to be able to recognize when you've been compromised so you don't end up digging a deeper hole like this fellow did.
Sometimes you just have to move on. Revenge isn't going to get you anywhere.
Did anyone else get the impression that this guy is a major slime ball? I'm sure YouSendIt has issues at the top, and it does sound like Kumaran may be a little glory hungry.
But when you happily engage in vengeful DDOS attacks, shitty app spam, and flip apparently stolen websites, it paints a pretty clear picture of your character. I know I sure wouldn't want a guy like Shaikh working for me. Not in a million years.
Ditto. The guy bled for the company yeah, but the reason why I feel sympathy for him is not because he was kicked out despite working so hard. Even though he might have bled for the company and worked with executives with questionable integrity and technical appreciation, he deserved to be kicked out as soon as he stole the switches and put them up on eBay.
No, the reason why I feel sympathy for this guy is that he was so socially inept that he couldn't figure out how to talk with other people, build business relationships, build team relationships, and manage others without being a two-faced jerk (don't take it personally, Mahler, I want to prove to Koon that I care only about success and will sacrifice anyone for it?). The guy was just too out of his element for the battles he needed to face.
He may have been technically very good, despite being socially awkward, and some jerks may have taken advantage of that. But that in no way justifies or accommodates the bad decisions he made. He's essentially taking the stance that two wrongs make a right, and so I think he has a really poor sense of right and wrong.
This is very close to what I feel. While I sympathize with how socially inept he was, he did make those mistakes himself, lack of skill is not excuse.
After all, there are many socially inept people who manage to live happily as they are; there are many more people who made mistake and learned from them.
Many people are socially awkward because they have bottled up rage or antisocial urges and need therapy. Sounds like this guy might have been in that category.
One way is by transferring the domain. A famous case is sex.com. The original owner was awarded $65m (not sure if he got it all), but there was a legal battle more than a decade long:
I really don't get why you'd take money off the table while at the same time growing like crazy and diluting the stock significantly.
Porsches and houses worth well over a million $US within 6 months of picking up $250K funding in a year when revenues were projected to hit 1M makes absolutely no sense.
They should have simply matched growth to income and ridden the growth-curve instead of diluting and splurging on luxury goods.
Lots of bad decisions here, including vesting for founders, a culture of blame and so on.
Totally agree but this is an unfortunately common behavior. During the dot-com boom many people picked up hugely expensive homes based upon the the perceived value of their shares. We all know how that turned out for most.
Even now I hear of people buying homes way out of their means because they have some stock in the currently hot company of the week that has some assumed paper value.
Uh, yes? Spending money you don't have -- I'm not talking about lines of credit here -- is stupid. There's no way to soften it up, it's just a stupid thing to do.
Investors recognize there's a problem there, so there's a trend these days to find ways for startup employees to cash out a bit.
That, however, applies mainly to later rounds. The YouSendIt guys made classic rookie mistakes. They mistook startups for a get-rich-quick scheme, but they aren't; median time to exit for a startup is 7 years from funding. And that's if you're lucky enough to exit at all.
Wow. Who would have known this would all happen at a file sharing site like YouSendIt. It makes you wonder about all the stories out there that you'll hear or know about.
A really nice read. Worth every word. I wish everything were written like this. Straight and to the point. Constantly progressing, no BS, no filler. The writing was transparent and didn't get in the way.
> He says his termination agreement prohibited him from contacting them [other employees]
That pretty much tells you everything you need to know about the management and board. The clowns probably included a one-way non-disparagement clause as well, which is quite humorous in light of this article.
BTW: Standard etiquette in the valley is for the employees to contact anyone who has just left the company, usually in email from the company, so there is a written record of who initiated contact.
The worst company I have ever worked for, Device Anywhere, tried to get me to sign a one-way non-disparaging agreement as a condition on my receiving a 4K severance. I refused.
The CEO was an asshole and was having the company pay for his candy red porsche as well as taking a hefty portion of the sales commissions whilst laying people off due to lack of funds.
I hated that company. Never sign one of these agreements.
2) This seems to be the inevitable consequence of third-tier investors, weird family politics, and founders with less than fully developed ethical sense (which is fine; I would expect young founders and first time founders especially to learn somewhat what things are considered ethical, starting from a personal moral framework -- that's what advisors, lawyers, investors, etc. are for).
3) The Mahler character's first instinct (this will end in tears and disaster) perhaps was right; gut instinct is a good check on decisions like that. Necessary but not sufficient.
4) Wow, now I remember what it was like when people still built stuff on windows. Using linux (or bsd) was a huge competitive advantage 1998-2005 or so; I guess like having the Internet was in the early 1990s. Macs for desktop/laptop use became this in the mid-2000s; what is the current unfair advantage held by anyone competent? Maybe the cloud, and devops vs. individual system sysadmin? Single-command deployment?
> what is the current unfair advantage held by anyone competent
I hate to say it given how much time we waste here, but it's probably reading Hacker News. People here know about node.js, about client-side MVC frameworks, about MongoDB/NoSQL, and the like. Some of those things we even think of as old hat, from way back in 2010 or 2011. Some of them we think of as trendy and without staying power.
But we actually did take the time to look at these technologies, evaluate them, and reject them -- or sometimes, accept them.
Now think about the guys who still think Java is the standard, who might just now be getting around to learning Ruby...all when Ruby is itself fast becoming Blub and the new hotness is actually node + coffeescript (or a more FP language like Haskell/Clojure/Scala).
That's exactly the equivalent of the guys who ran Windows because they just didn't know any better. For better or for worse, competent hackers read Hacker News.
Wow #4 is a really good question. Your examples from the past all sound a little bit like "people using tools that seemed at first like toys but turned out to be really important."
Your guesses for the future don't quite fit that description except maybe the cloud stuff, but that's actually gotten pretty mainstream. It might have been a good example from 5 years or so ago.
Thinking about it some the best thing I can come up with is interpreted/dynamically typed programming languages. It pains me to say this though because I kind of believe in my core that compiled/strongly typed languages are the way to go for large projects. But maybe that's just me holding on to the past? I'm not sure.
Oh, how I wish it were mandatory for everyone to include a "view as single page" button, instead of planting a bunch of tiny clickable digits at the bottom.
These days it happens more and more often that I will not read an article if I can't get it into Instapaper.
In this case I think that Inc paginated correctly, there are 5 pages, but each page is a decent size (15-20 paragraphs), so it's a good compromise between maximizing ad revenue and annoying readers.
But yes, the next page buttons should be bigger for touchscreen users.
It's not the split that's annoying, it's the delay when the page refreshes. If only advertisers and media companies could agree to pre-load articles like in a slide-show, show new pages with javascript, and that each 'next-page' click counts as a refresh.
Honestly, this whole thing looks like a big clusterfark. Lots of mistakes.
Fundamental to them all is the idea that being "funded" equals "arrival." It doesn't. Revenue and customers equals arrival. Ideally it would be best not to be "funded" at all, since OPM == debt.
Yes. The fact that people "celebrate" a funding event is really bass-ackwards when you think about it.
It says that the company couldn't figure out how to grow without bringing in a bunch of financiers, who have a low hit rate (3 go north, 3 go south, 4 turn into the living dead), who provided negative 10 yr returns even with Google in the portfolio, and who take 2-3% + 20% of exit from their own investors.
Definitely an excuse to drink, but not for reasons of celebration.
Wow what a great example of "the law of attraction" E.G. negative people bring negative things, positive people bring positive things. It was clear from the story that he had serious integrity issues and was not great at dealing with people. When I got to the part where they started buying Porches and 700k houses I was like oh great this is going to go downhill FAST. I think that if you're only in it for the Money/Ego I think you might as well become a Lawyer at least then you're just doing what's expected of you.
Ecellent read because it provides an alternate (and ugly) perspective of the often glorified (read techcrunch-ified) world of startups in the Valley.
Shaikh has obviously made some big mistakes but take a minute to feel for the guy. He literally bled for the company to save some money so I can imagine the emotional rollercoaster he must have been on.
I thought the bleeding part was gratuitous pseudo-symbolism. I cut myself fixing the washing machine the other day, but I would never say "I literally bled for the cause of clean clothes."
Symbolism or not, I think there's no denying the fact that he worked very hard during the early stages. My point is to highlight the fact that in light of his struggles, I can appreciate his frustrations. While the attacks are not justified, I can at least see the path of events that led to this act.
Can't help but feel some sympathy for him, but it's tempered by the fact that he doesn't see the big deal with attacking servers to bring down a company. Not even going into the whole part of flipping stolen websites and the app spam.
Ethics seems to be more of a problem for him than the social awkwardness.
So, in theory, he is fired for stealing from the company. But then this happens:
"Eventually, after months of negotiation, Shaikh says, he got a $50,000 severance payment. He agreed to sell his 317,000 shares in the company for $73,000, less than a fourth of what they had been worth in the Series A round."
Does this mean the company was uncertain about whether he was really stealing? I don't think it is normal to pay someone a severance payment when they've been fired for good cause. I think one would have to conclude that the company was unsure of how much it could make stick, and therefore paid some small amount simply to make him go away. Or possibly the severance was in exchange for his agreement to sell his shares at a discount? That would make more sense to me.
The FBI was not involved over this incident. Instead the FBI was involved over this:
"So, on a chilly Tuesday morning in December, Shaikh ran a piece of testing software, called ApacheBench, that flooded YouSendIt's servers with traffic. The servers keeled over immediately. Later that day, a sentence appeared on YouSendIt's Wikipedia page: "Looks like the company may be out of business, their site is down." (Shaikh says he didn't write it.)"
The FBI took this very seriously, and got a friend of Shaikh's to wear a wire and get him talking.
I appreciate that the FBI needs to look into any incident where there has been hacking, but it strikes me this cooperation between the FBI and the various corporations is open to abuse.
I once had a bad breakup with a company, and the ending was frightening to me. This was in 2009.
There was a fellow acting as impresario for a startup. He called himself the CEO, though he also ran a small investment firm, and he had multiple investments that he had to keep an eye on.
The goal of the startup was to build something like Quora, but find a way to get people pay for information (they would pay to ask questions).
The CEO lined up 4 investors who put in a total of $100,000 to get the operation going. 4 programmers were hired, including me. 3 of the programmers were remote, and I was in the New York, where the CEO and project manager were. The other 3 programmers were in the USA and Europe.
We worked hard during the spring and early summer of 2009 to get to the point where we could launch.
Half way through the summer, the decision was made to hire an Indian firm to do the development. They were much cheaper. I would be the technical point of contact. We relied less on the programmers in the USA and Europe and more on the team in India. However, we had very serious problems with the quality of the code coming from India. Almost every time something got checked into Subversion, something broke. I raised my concerns to the project manager, and I cc'ed the project manager on several emails to the team in India, where I tried to educate them on the mistakes they were making. I was inclined to get rid of the team in India, although the CEO and the project manager liked how cheap they were. I suggested we find a different company in India. We all knew that firms in India were of uneven quality -- some good and some bad. If you want to hire a team in India, one often has to do a lot of digging to find a good team.
I tried selling the project manager on implementing unit tests and functional tests, and he suggested that we wait till the site was launched. There was an attitude that we could clean things up once we launched.
There was some funny business with the money that I never fully understood. I was working as a contractor. I was billing at the end of each month, and the company had 30 days to pay, so it was a 60 day cycle from start to finish (from the 1st of one month to the end of the next month).
They only paid me for June at the very end of July, which made me wonder about their money. However, the project manager and his wife invited me to their house upstate, and we spent a week working together, and the project manager assured that there was enough money to pay me. They cooked some wonderful meals and it was a pleasant week and we got a lot of work done. At that moment, I thought of the project manager as a friend, and our work relationship seemed very positive. I was single at the time, and his wife said she had a friend that she wanted to set me up on a date with.
Still, I was suspicious about the money, so half way through August I stopped putting in billable hours. I trusted the project manager, but I did not trust the CEO.
As of September 1st and they had not yet paid me for the work I did during July. This was in violation of the work agreements that we had signed.
I demanded to know whether they had the money to pay me. I wrote to the other contractors and asked if they'd been paid. None of them had. Most of them were only owed small amounts. At this point, the company owed me $10,000. I had been the main programmer for most of the summer.
September gave way to October. For awhile they made vague declarations about paying me part of the money. I began to suspect that they had no intention of paying. I found out that they were still using the team in India, and apparently the team in India was being paid.
In November I had my lawyer send them a letter, urging them to send me the money. I notified the other contracts in Europe and the USA of what I was doing.
After that, everything changed. They had their lawyer write up a counter letter that basically said that all of the bugs on the site were my fault. There was a suggestion that I had maliciously tried to undermine the site, and that I had interfered with the team in India and damaged their ability to move the site forward. The CEO was apparently especially angry about the fact that I'd contacted the other contractors in the USA and Europe, and their lawyer's letter referred to this as tortious interference with their contractors.
The purpose of that counter letter was to frighten me, and to some extent it worked. I realized that if I wanted to get my money, it would involve an ugly fight, with a lot of ugly accusations. I gave up the fight.
I never got paid.
After reading this article at Inc, I have to wonder how far the company could have gone, if they had wanted to take a very aggressive approach with me. On the personal level, I could wonder: If they had made accusations to the FBI, would the FBI have investigated me? What would that entail, and would I have the prove the bugs in the code were not my fault? But aside from the personal level, there is the general issue: companies with aggressive lawyers could potentially use these aggressive tactics to get out of paying contractors. I wish that I could have faith that the folks at the FBI are smart enough to avoid being suckered by these companies, but I don't really have such faith.
You let it go on far too long and you sold yourself way too cheap. 10K for 4 months of work? ridiculous.
To anybody reading this in the same or a comparable position: if your employer owes you back wages walk while you can, the writing is already on the wall and you will likely not get a cent out of them without a protracted fight.
Salaries are paid on time unless there is malice, a bad financial position or both.
Regardless of which it is your first responsibility is to yourself, not to a non-paying company.
I'm sorry if the story is unclear. In the spring, they paid me. They were later and later about paying me as the summer wore on, which caused me to grow suspicious. As I said, I was paid for June at the end of July (the last day of July) which left me feeling somewhat suspicious. I stopped working in mid August. It was about 6 weeks of unpaid work: July and part of August.
As to "far too long" I think a lot of contractors work on a 30 day cycle, billing at the end of the month. I used to use a standard contract that said they had 30 days to pay and then late fees applied. Nowadays I usually insist on being paid within 2 weeks.
It's not an ugly fight. You file with your labor board. They hold a hearing. There's no lawyers involved. The state will collect a penalty for every day late they were in paying you.
Nothing to do with unions, that's a reference to the state labor board that oversees the labor laws. Basically, if you are someone's employee with an agreement that you will do work for compensated, but then do not receive the compensation, the state can help get your wages.
I think WalterBright was responding to what I wrote about my own experience. I think you are talking about the Inc article, where Shaikh lacked citizenship.
Labor laws are not restricted to citizens or employees. Anyone who performs "labor" for someone else is protected by labor laws. However, some types of labor laws (such as overtime restrictions or worker's comp for injuries) may be limited to specific types of workers.
My $0.02 - don't back down. Don't get emotional. Fight for what is owed you - even money that was due from 2009. Its not a black mark on your reputation to have your dispute brought before a court or mediator. Regardless of whether you recover your money, or not, it will be a good experience, and you'll be better informed and prepared in the future.
This was a good read. I try to read one or two startup horror stories for each startup fairy tale I hear. Though I've not yet considered simply abandoning startup life, so perhaps I should up the ratio? :-p
The full article is close to 100 paragraphs. Putting that all on one page would intimidate and lose a bunch of readers. Even choosing to put 15-20 paragraphs on a single page makes it a "wall of text" that will put off many readers.
Of course, the real problem is the short attention span of the Internet age but it's hard to fault them for trying to avoid scaring off users.
Wrong metric. They should care about the number of ads viewed and the click through rate. And the amount of viral sharing and facebook likes and that kind of stuff. They aren't a charity remember.
It would have been valuable to Shaikh if he had someone he trusted who could counsel him to just chill and not shoot himself in the foot. What happened to him at YouSendIt doesn't seem fair to me, but sometimes life is that way. Now he could learn from his experience and give it another go. Good luck to Shaikh and his family.
I get the impression from the story that his second wife was trying to give him exactly that sort of counsel, but he didn't listen. If so, the moral of that story is, when someone you trust advises you to just chill and not shoot yourself in the foot, listen to her.
(Kumaran recalls telling the investor he couldn't speak because of confidentiality and antidisparagement agreements.)
Memo: when writing an antidisparagement agreement, the first rule of antidisparagement agreements is that you agree not to disclose the existence of the antidisparagement agreement.
In fact couldn't it be argued that admitting that there is an antidisparagement agreement is in fact disparagement because you acknowledge that something happened to cause said agreement to be entered into?
I don't think you'd easily win the argument, unless the parties involved generally didn't sign non-disparagement agreements.
I was once laid off from a company that gave me a small (but significant to me) severance check in exchange for signing a non-disparagement agreement. I did jokingly refer to that check as my "hush money", but I had no actual issue with the company or any of my former coworkers. That company did it simply as a matter of course, I imagine to make the laying off process more predictable.
(And I was pretty appreciative of the check itself; between it and my left over vacation days, I made it pretty comfortably to my next position.)
Obviously if you're running out of runway, you take whatever terms you can get, since your company is worthless if it goes bankrupt; but if your company is profitable and your only concern is about allowing it to grow faster, why the heck would you take a deal which is practically begging your investors to fire you?
[1] We're not told how much Cambrian Ventures took, but for $250k it presumably wasn't a huge amount. I'm going to arbitrarily guess 25%.
[2] Based on the way the numbers work out, I'm guessing they kept 20% of their stock outright and gave back the remaining 80% to be four-year vested. This fits with the fact that the company was about a year old when they took the funding.