If there is no shame in failure you get WeWork.
If there is no limit in founder control you get Softbank ‘Vision’ Fund.
Fake money, fake growth, fake returns (for too many).
The good news is that most of the big problems seem contained to accredited investors …for now.
The public markets have eaten 30-50 percent declines in some big IPO’s for sure – Slack, Uber, Lyft – but the retail investor that has stayed long the S&P and bought the dips since 2009 has had spectacular returns.
I have no idea how the S&P winning streak and trend ends, but the founder control (one share, 10 votes) and goliath growth fund trends have peaked.
In 2005, investors had way too much control in early stage technology companies. I was just beginning to learn about angel investing and the terms (in general) were terrible for founders and great for venture capitalists.
Flash forward to 2016 and beyond and the terms in venture started swinging too far in favor of the founder.
Timely as always have a read of Fred Wilson’s post right here titled ‘founder control.’ The gist:
If you want to maintain control of your company, focus on running it well or find a team to run it well, and make sure you have plenty of cash to operate your business and that you never find yourself in a position where you are running out of cash and have nowhere to go but your existing investors. Do those two things well and you will be in control for as long as you want to be in control.
I am not here complaining about the game because I still love it. The game is the game.
Just maybe the game has changed forever as the private markets never see illiquidity again and the public markets continue to be politicized to the point where you are insane NOT to BTFD.
I will still play the game the way the way I learned because the board is so big, but I do hope and actually sense that the art of investing versus manufactured investing will see a pendulum swing once again.
The joy of investing in startups (as I see it) for both founders and investors should be optionality and the unknown. Of course ‘sure things’ -like lollipops and balloons – are wonderful, but manufactured investing is an ugly thing that I hope has seen its peak.