Hearing of more founders selling secondary shares.
Some really interesting new incentives to think about:
- Founders don't have to sell to get rich
- Can 'swing for the fences' more
- Less downside in raising beyond means
- Upside in constant raising to 🔼 secondary prices
If I were an employee of a company where the CEO was aggressive at selling secondaries...I'd have a lot of questions.
- Should I be trying to sell my shares?
- Does the CEO believe in this long-term?
- What kind of signal does this put out to the market?
I think we're going to see a class of mega-wealthy founders that built...a fundraising company.
Folks that understand VC dynamics well enough to exploit them.
The result may be something like a "VC Ponzi Scheme."
A co that looks unbelievable on paper, but doesn't do much.
These companies become unicorns rapidly with valuation totally divorced from traction.
Instead, the *last round* is used as validation of the *next round.* No traction, just heat.
Eventually, these companies will reach a size where they either have to...
1. Get bought 2. Go public 3. Make money and justify valuation
Everyone wants #3, but that's hard. And very different than fundraising. So you go to #1 and #2...
Most of these companies price themselves out of being bought.
Who wants to buy a nice landing page that does $500K/year for $5B?
Maybe there's other asset value, but often there won't be.
So either you get #1 at a loss, or...
You consider #2.
But given the traction, that's not viable either...
So what happens?
The Ponzi Scheme breaks.
No new investors. An attempt to attain profitability and self-sustainability. Leadership that's already (partially) cashed out.
Startups have almost always delayed profitability for growth.
But that's a bet *every* stakeholder had to make.
Will CEOs be as set on reaching profitability if they've already amassed a fortune?
We may see more unicorns close for $0, while founders walk away with +$50M.
Ultimately, there's a balance I hope we reach.
Founders *should* be able to de-risk along the way.
But overdoing it (or engineering for it) could screw over your employees, investors, etc.
I hope you enjoyed this random musing.
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Howard Schultz had 2 months to get the money to buy it.
With a month left, one of Schultz's own business partners tried to snipe the deal.
One of my favorite business stories ever 👇
1/
So, first things first:
Howard Schultz did not found Starbucks.
It was started by three college friends who set out to make a great coffee *roaster.* No drinks, no places to sit. Just great beans.
They opened their first location in 1971.
2/
In 1981, Schultz was a young salesman.
He worked for Hammarplast, a co that sold coffee machines & filters. On a business trip to Seattle he discovered Starbucks and became so obsessed, he told the founders he wanted to work there.
There's a fun story about the first money the company raised.
Marcos Galperin was a student at Stanford GSB at the time. One day, the famous investor John Muse came to give a lecture...
2/
To make sure he had a chance to pitch him on his idea for an "eBay in Latin America" Galperin asked if he could drive him back to his private plane after the lecture.