[not_that_noob]

This. Founders are better served maximizing traction at the lowest outside investment possible. If it doesn't become big, then you still hold a large chunk of a small company. And if does, then you hold a fairly large chunk of a large company.

[mikeryan]

I don't know it seems to me that Silicon Valley is littered with folks who've made a shit ton of money by founding companies and taking chunks off the table during funding rounds. Kevin Rose/Digg come to mind. This way if you become huge you still get a payday but even if it doesn't you're still a millionaire (and maybe an angel investor in companies that do become huge, Kevin Rose/Digg comes to mind).

[nostrademons]

You typically need leverage to do this too. Zuckerburg was famous for popularizing the practice, but he could only do it because Facebook was taking off like a rocket ship and everybody wanted in. It's very rare that a startup without traction could successfully negotiate founder cash-outs.

[midas007]

Another SV thing.. being able to fire your board: priceless.

[btrautsc]

This can happen for multiple reasons - but more often (IMO) is being driven by investors who know they need super outsized results, and at some point <insert giant tech co> will come shopping for the portfolio company.

So investors are willing to give founders significant liquidity so they are comfortable (or locked in to) "going all the way" (snapchat comes to mind [1]).

Remember, investors need billion dollar returns to return a fund. So giving founders a few million to pad their pockets, reduce their own risk, and extend their companies timeline is occasionally a simple decision.

1. http://www.businessinsider.com/snapchats-founders-pocket-10-...

[volodia]

What do you mean by "taking chunks off the table during funding rounds"?

[jdavis703]

As in the VC purchases shares directly from a founder, as opposed to from the company.

[mbreese]

I don't know all of the history, but I was under the impression that this was a relatively recent phenomenon. Does any one have any examples prior to Rose?

[jpmattia]

> I don't know all of the history, but I was under the impression that this was a relatively recent phenomenon.

It is. It used to be seen as a sign of lack of confidence in your company that you would take money out, because if you believed that your company was heading for the moon you would want every share possible. BTW, the same was true for earlier investors: Non participation was the kiss of death.

FD: Info from about 10 years ago.

[klochner]

And if it fails?

It's obvious that founders prefer to keep more of the company, however tortured of a phrase you use to express it.

[not_that_noob]

The game is to minimize investment, not starve the company of it. If it's clear it isn't on a hockey stick, then best to not stuff the pig, get diluted to almost nothing, and then sell for a low number. It's a judgement call.

[rrhyne]

Founders need to balance the amount of time it takes to acquire traction on the cheap, vs. via through the acceleration having a larger marketing and dev budget provides. Stagnation can kill and smaller founder equity is better than dead.

[not_that_noob]

That's a false dichotomy encouraged by VCs. More money does not necessarily accelerate. It's making sure you're getting the max value for every dollar spent, something that's quickly forgotten when you raise millions of dollars.

[nostrademons]

Some of the more savvy and founder-friendly VCs actually say the opposite, eg. "Keep the team as small as possible until you reach product/market fit" (Andreesen) or "Perhaps more dangerously, once you take a lot of money it gets harder to change direction" (PG).

I think the overall point is not to never take outside investment, it's to carefully consider where you are in your product's lifecycle and what your market actually looks like before you take outside money. Refusing VC money if your market is huge means that someone else will take it and eat the whole market. Taking VC money when your market is small will kill your company just the same, because you won't be free to make the trade-offs necessary for a small company to succeed in a niche market.

[midas007]

Yup. 100% of nothing is still nothing.