| > It wasn’t always this way; from 2015-2019, everyone at Gumroad was paid cash, no equity. No one wanted any. Gumroad started in 2011 and raised $8 million. The reason "no one wanted" any equity in 2015 was because they laid most employees off, replaced them with contractors, and the investors wrote their equity down to $1 as a gift to the founder. The founder got to keep the IP, ditch the founding employees, and continue running the company. The founder wrote a couple articles about the experience: https://www.businessinsider.com/startup-failure-gumroad-why-... https://sahillavingia.com/reflecting What's not pictured in these articles is the employee perspective. The founder got to keep his company, got the company's IP handed to him, and I don't know what became of the employees' equity. Probably nothing, given that the company had to be written down to nearly $0 for this transfer. I remember reading a very angry Twitter rant from an ex employee who was burned. I wish I could find it now, but that was nearly a decade ago. It was one of my cautionary tales about taking equity in startups at the time. It hadn't ever crossed my mind that someone could take VC money, pay employees (partially with equity) to build a company, then everyone gets laid off, equity declared worthless, but the founder gets to continue operating the company at a profit. It's also interesting to note that the Tweets embedded in both of those articles above come from Austen Allred, the now-infamous founder of Lambda School. Lambda School was rebranded to BloomTech after their first wave of scandals, which was rebranded again to Bloom Institute of Technology after their recent scandal (which resulted in Austen being banned from all student-lending related activities for 10 years). The two of them are prolific social media users and have an incredible ability to rewrite their own stories through sheer volume of social media postings and articles. |
The founder kept everything because investors expect that their relationship with this person is going to continue and eventually this person is going to “make the fund” in a future venture
That’s the key thing here, as a CEO/founder if you have gotten the stamp of approval from venture/capital class (in the form of a series A conversion on a note, or some kind of liquidity event), as long as you’ve pledged allegiance to returning investors capital above all things, you can “fail” a lot actually, and it’s pretty much ok as a writedown.
Provided that you keep investors legally at the front of the line, they will be willing to continue to invest in you.
This is why you see all these people put “serial founder” in their bios, they want to signal that they are a reliable person for finance to come to