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Comment by pg | Hacker News Reader

It seems very, very unlikely. Dividends have been done before. They were how "startups" used to pay investors back in the railroad days. But the rates had to be set in advance. Without preset rates, investors would have to trust company managements not to skim profits (which there are 101 semi-legit ways to do) and claim there were none to return. And while a railroad could predict profits with reasonable certainty, how could a tech startup?

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If you do not trust management, they can act to detriment of investors even without dividends. All they have to do is pay themselves market wages, for the right value of "market", rather than investing in growth. Or they can run company like it was Japanese, where it exists to buy perks for employees off their own taxable income. (The four star chef is for recruiting! Honest!)

This is a two way street, since investors have an incentive to push for swinging for the fences even when a bunt would be life changing for the founders. Consider a two man team who hits a million in sales, but seems to stall out (say, ran out of channel, but has good ongoing relationships with customers). Pivot and risk company to hit ten million, which would justify exit, or continue executing and make two families rich with little risk? Not hard to see dynamic.

Larger funding rounds include provisions to protect against such abuses. The ultimate of course is the right to replace the CEO if necessary. In practice they seem to work.

Could this be accomplished by paying company management a low but reasonable wage and having them also get paid dividends? That way they'd be motivated to have more profits and get more money through dividends themselves. I suppose in the 101 semi-legit ways there's probably still a way around this.

Makes sense, thanks. Seems a shame that there is no reasonable way to invest in the companies which have good potential for growth and profit, but have no clear exit.

Why would you do business with, let alone invest in, people whom you did not trust?

The problem is the difficulty of the second half of "trust but verify."

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