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Comment by dahdum | Hacker News Reader

I don't think this sounds like a win-win, the founder moved the goalposts and bought the Series A out for the minimum possible (9%) so he could start paying himself.

I read the fluff around core values, but my first thought is that Joel would rather not risk his personal fortune by growing the company further. Better to ride the 25% margin as long as possible, giving himself enough liquidity to retire wealthy, than take a chance on growth.

Maybe I'm too cynical, but I admit I'd be tempted to do the same thing.

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As an operator or employee of a company that doesn't plan to raise further money from a VC, you want them to pay the minimum possible. Every dollar that goes to the VC is a dollar that can't go to the team.

Meanwhile, if the investor didn't want to sell at the number they came up with, they could presumably just say "no".

You are, yes, probably being too cynical here.

"...they could presumably just say "no"."

I wouldn't imagine that's the case. Especially if the investor came up with the number and agreed to it in a legally binding contract. It'd be an uphill battle in court to get around that. (yeah, you still need the funds to defend your company...)

Also, my anecdata says that most corporations have in their corporate bylaws (or whatever the right document is) the provision that they can forcibly recall shares at any time (presumably for current fair market value/409A valuation.)

Huh? No, the investor agreed to an annual 9% interest rate, not a lump sump their equity could be purchased for.

It would be pretty funny if the legal norm among startups was that they can acquire their own equity back from investors based on their 409A valuation.

"...at the number they came up with..."

Maybe I've misread you here. Is this not a number the investors came up with?

As for the 9% interest rate, that starts sounding more like debt than ownership.

Yes. That is the idea. As downside protection, Collaborative Fund's investment was to begin behaving as if it were debt (issuing interest, that is) after 5 years. I assume the expectation was that if Buffer maintained hypergrowth and reached the inevitable Series B, part of the series B negotiation would eliminate that downside protection clause. But they didn't; they charted a course that didn't involve an imminent second round, and so that protection clause was problematic.

Again: it would be really weird if companies could simply demand their equity back. The whole point of investing in a startup is that their equity will end up wildly more valuable --- not 40% more, but 10x more --- than the money put in.

Once the interest (aka "downside protection") kicks in, the shares effectively converted to debt, meaning the company was simply repaying a liability.

Did I miss the part where they said that? The post suggests their counsel said it was a unique clause.

At any rate: they bought out their investors years before interest became due. It was a negotiated sale.

40% is still far more than most of their startups ever did or will get them. Or a conflicted / disaligned relationship with the founders would have.

I bet you can name 20+ big name startups off the top of your head that made their product substantially worse and/or completely folded due chasing growth at any cost.

I guarantee you this has annoyed you more than a few times as a user of their products.

In a market where VC style multi billion dollar exists just isn't going to happen, trying to force it is just going to ruin everything good about your product and company.

And VCs would rather see you ruin it, with a tiny chance of succeeding, than see you have a successful small/medium sized company.

This is a completely legitimate way to run a company. Heck, I wish more did this.

Agreed, but the question is if that is how he sold the company to investors and to employees? Employees at this point all know, or should know that stock grants are lottery tickets. But that said there is a very clear distinction between working for a company for that lottery ticket and working for the same company where management is actively negating the value of that ticket. Not to mention he slashed salaries 8 months ago. The part about getting liquidity for early investors and employees sounds nice but he had definitely better stick the landing on that one if he doesn't want to see a mass exodus. This act while possibly perfectly legit should be a clear indication to employees and potential employees that he has no interest in building the type of company that can turn equity into life changing money.

> Agreed, but the question is if that is how he sold the company to investors and to employees?

Employees obviously I can't know but the article includes him telling investors there might not be an exit.

Cutting pay and firing people isn't great, but would it really be better for them to burn their capital and become another failed venture? That was the path laid out ahead of them, B2B sales isn't just something you can throw money at and get customers from endlessly, its a slow slog to acquire customers as their associates start using your application and start raving about how much better it has made their business.

Buffer is a nice app, not a world changing invention with any kind of technical or business moat. No one went in hoping to become a Buffer Billionaire.

>> Maybe I'm too cynical

Every time I've told myself that, I later found out that I wasn't.

Under capitalism, the world always presents itself as better than it is.

As opposed to the world that freely admits, “yeah, this sucks.”

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