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Hello there,
Ever hear the one about the VC who called a portfolio company's founders thieves? Read till the end...
Is Uber really worth $40 billion?
William Hsu (@willhsu) of Mucker Capital penned a great guest post looking at data on Uber vs eBay to see if Uber's valuation is justified. Yes - actual data and not just the typical useless pontificating. Go read it now and let Will and us know what you think in the comments.
China tech financings in 3 charts
The financing trends, top investors, top deals, and major cities for China's Tech scene in Q1 2015.
Early stage tech boom sees $1 billion as the new normal
Our April early stage tech review highlights:
- Angel deal sizes declining
- The founders of VC's most capital efficient exit in the last 5 years working on their next startup
- $1 billion+ invested in early stage tech for the 8th straight month
- Travel and supply chain as the top 2 industries for investment
- The companies with the most momentum based on Twitter and web traffic
Let's all put our big boy pants on
Google Ventures' founder Bill Maris recently called the founders of a portfolio company thieves. Well actually, in a NY Times piece, he referred to the founders of Secret taking $6 million off the table as part of a $25 million Series B as a "bank heist". But since bank heists are carried out by thieves, you get the idea.
Much of the vitriol after Secret's demise seemed to be directed at the founders for taking some money off the table early and in particular for the red Ferrari that one of them purchased.
While I think buying a Ferrari when you have a young, unproven company is a stupid idea on many levels (I'd get a gold one), the proposal that Maris and others put forward of "I think they should return all the money" is completely inane.
At the time of their fundraising, Secret was a hot company with leverage. VC FOMO (fear of missing out) is at record levels and so the founders capitalized on this and negotiated a sweet deal for themselves with backers Redpoint and Index Ventures. But this was a negotiation and both sides of the transaction signed off on it.
You win some, you lose some.
This also got me thinking of Heidi Roizen of DFJ's recent awesome post entitled "How to build a unicorn and walk away with nothing". One particularly salient part from Heidi's post is highlighted below:
In Heidi's example, the founders of the fictional company get zero in a $250 million acquisition. Is anyone crying for founders here saying that the VCs or venture debt providers should cut the founders or the team in on part of the proceeds of the sale even though, by the agreement they executed, they're due nothing?
Nope.
Instead, as Heidi points out, it was just part of the deal.
Just like the Secret deal. There was no thievery. Investors have portfolio diversification on their side and in term sheet negotiations, a whole lot more experience than most founders.
If an occasional and rare founder gets a Ferrari in a deal, more power to 'em.
Who really gets ignored? Employees
Most of the discussion, like that above, generally focuses on founders. With all the unicorns out there with their lofty valuations and press releases openly bragging about them, what gets lost are employees who don't have liquidation preferences or preferred stock. They see a headline valuation number which is a great PR and recruiting vehicle but fails to tell the story.
Mike on our team put together a liquidation model that employees and founders can use to understand the question "Will my stock options make me rich?"
We hope it's useful.
Have a great week.
Thanks,
Anand
@asanwal
P.S. Keep the Ferrari or not? We're doing a Twitter poll here. Let us know what you think by casting your vote and we'll share the results in a future newsletter.
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