It All Changes When the Founder Drives a Porsche

http://learntoduck.com/startups/it-all-changes-when-the-founder-drives-a-porsche

by bensummers • 16 years ago

182 96 16 years ago

jfb3• 16 years ago

Porsches are gauche. There's some lunatic who parks his DB9 on the street (3rd & King, if you're interested), which is a statement of utter contempt for us proles. "I don't mind parking my quarter-million dollar car at a meter because I have four more just like it at home".

MarkSweep• 16 years ago

Or maybe he just wants to park his car? Why should "proles" feel resentment for his success or parking place choice?

jfb3• 16 years ago

I don't think I'd park an Aston Martin at a meter, particularly in SOMA; I'm perfectly comfortable parking my $4k used Jetta there, but I've seen plenty of cars significantly less awesome than a DB9 vandalized on the street.

tspiteri• 16 years ago

I don't afford a Porsche. But if I could afford to buy one, I would still not buy it unless I could afford to park it anywhere. That is, there is a difference between affording to just buy a Porsche (perhaps as a status symbol), and affording to buy a Porsche and use it without care. I don't think that it takes a lunatic to park his DB9 on the street, just someone who bought the car just because he likes it and can do it. The feeling I get is that you are implying that a Porsche is a status symbol, whereas the owner thinks it's just his car, and does not care what any of "us proles" think.

jodrellblank• 16 years ago

A quarter million dollars? You can get them second hand starting around 60k USD:

http://www.autotrader.co.uk/classified/advert/20104737389528...

jedc• 16 years ago

Seriously, come to London if you want to see this all the time. Walk through Mayfair and you'll see Porsches, Astons, Ferraris, Rolls-Royces, Bentleys parked on the street all over. It's crazy...

Sometimes it's not contempt, it's just what you need to do to get a parking spot. :)

ChaseB• 16 years ago

"Today, Groupon did something that all entrepreneurs, in their heart of the hearts, wishes they could do: spur the big acquisition offer and swing for the fences."

6B isn't a home run these days?

tomjen3• 16 years ago

Goggle made a lot more than that, so while the price is high, even for the Valley, it is not unheard of.

jfb3• 16 years ago

When I heard that I ran a quick EV% calculation and thought ... whaaa?

scootklein2• 16 years ago

not compared to an IPO

nhangen5• 16 years ago

No kidding. I'm wondering if Groupon founders are overestimating the ceiling of that business.

sliverstorm• 16 years ago

Is it possible they don't ever intend to exit? I know that's pretty rare- most startups seem to be aiming for the exit- but can't some simply be trying to be their own business?

ams6110• 16 years ago

I'd say they are. Not something I'd use, personally. But then again I've never been one to clip coupons; I just find it's not worth the time.

hc5• 16 years ago

I don't know if Groupon made a mistake, only time will tell, but this statement irked me a bit:

VC: “Founders make different decisions when money doesnt matter. He doesnt HAVE to sell, so he can wait. He can do what he thinks is right for the business. He can focus on his legacy.”

This can easily be the other way around: the founder chooses to focus on his legacy instead of what is right for the business.

ericb• 16 years ago

One nuance that I would add to your thinking. In the VC's eyes "right for the business" really means "swing for the fences." In a VC's eyes, taking risks that will kill a business 85% of the time but give 30x returns the other times are probably doing "what is right for the business" because of the structure of how they invest. In VC land, the big big wins pay for everything else. In that case, I would argue they should be strongly in favor of cashing out founders nicely when a business takes off. It is much easier to swing for the fences when you're not worried about striking out.

mixmax• 16 years ago

"I have worked hard to get my founders as little as $25,000 to pay off credit cards and student loans. Or, in a small deal that closed this week, I was able to get a founder the money so he can pay for his wedding and not have to worry about taking on debt."

Am I the only one who finds this despicable, and probably bad business too? The one person in the company making the most sacrifices, taking the biggest risks and working the hardest is the one that can't even pay for his own wedding. Even when there are millions floating around in VC money.

mgkimsal2• 16 years ago

In some ways it's not a sacrifice for those people. If someone got me an investment and paid for my wedding so I wouldn't have to, while getting to work on a project with VC connections, have I 'sacrificed' all that much?

I get where you're going - there's plenty of 'entrepreneurs' (see earlier trending article) who give up stable jobs/raises/etc with no guarantee of a payoff. But the people who are getting VCs to pay off student loans aren't the ones making sacrifices (imo).

One could turn this around from an investor's point of view too. If this kid can't manage her finances well enough so that they need a $20k 'quick fix' to pay off their credit cards, why should I invest my money in her idea, or even her as a person? How are they going to run a business? If I as an investor have to put up the money and put up the 'experience', perhaps I can find someone else with better financial skills.

nhangen5• 16 years ago

Many times those credit cards are used to pay for basic living expenses and/or even to bootstrap the business.

Having high cc debt does not mean they've been irresponsible.

Seems to be a double standard here...

Founders are expected to pour every ounce of their life into the business, which means they can't work a 9-5 to pay the bills.

Yet having debt is considered a bad thing.

shrughes• 16 years ago

$20k is hardly an irresponsible amount of debt. That's not something a year making software won't easily pay off.

staunch• 16 years ago

It's fair that the founders get a return on their investment when the investors do. Nothing despicable about.

I do agree that letting founders cash out can be good though if it helps them aim higher.

tptacek17• 16 years ago

The founders personal problems have nothing to do with the business. Venture capitalists are investors, not life partners. You are rewarded for success, not effort.

nickpinkston7• 16 years ago

J/w Have you ever taken angel/VC money and poured your soul into your company? I suspect not because regardless of what rationally might tell you - it's all VERY personal and any investor worth their salt knows how much stress you're under and that reducing that burden, even in little ways, helps so much. I've lived this and have given even a little more a month to good people because they needed to pay off bills, etc. Just FWIW...

alextgordon• 16 years ago

Soylent green is people.

The founder's personal problems have everything to do with the business. If a founder's life falls apart, then it's the business that will suffer. Keeping founders poor is a great way to make an investment more risky.

nhangen5• 16 years ago

PG has stated many times that he's investing in people just as much, if not more, than their ideas. It seems to me like part of investing is people is making sure their personal life is in order.

keeptrying2• 16 years ago

In my mind this should even be on termsheets. Especially when VC is involved as it increases the incentive for an entrepreneur to go for the biggest possible exit instead of settling for something in the 10's of millions so that he can fill up his bank balance which is tending to $0.

tptacek17• 16 years ago

First, an 8-figure exit is a outlying success for an A-round funded company. It is the king-high straight of startup outcomes. Twitter drew quad jacks; Facebook got a straight flush. You aren't going to draw a straight flush. Don't benchmark outcomes that way. A $900,000 dollar (gasp!) payday would be enormously tempting to most startup founders.

Second, you can't settle for a crappy exit your VC doesn't believe in. You sold them board seats. They will stop you, and then they will fire you. Are there companies with terms that make this less likely? Yes; they also got dealt pocket aces. Did you?

My point? Why would VC's include cash-out terms for their typical investment? The whole investment is predicated on the idea that you're going to make their numbers.

sp4rki• 16 years ago

Despicable in what way? If someone is putting millions on the line to help realize your dream (for profit of course) you should respect the fact that they're investing to keep the company afloat, not to make your life (as a founder) easier.

People seem to equate not letting the founders cash out early with not letting them see a dime, which is not the case. They're getting paid (sort of) and in situations in which the company is no longer surviving on ramen they might even be well off in the grand scheme of things.

Think about it this way. Why should you, the founder, be given say 20k to pay for a wedding, while a early employee has to pay for it out of his own pocket. This is not a case of investors not being 'fair' and their decisions being despicable, it's a case of investors making a judgement call on good faith for the benefit of the company (for profit...).

Investors are not going to pay for your wedding as a founder because they're kind hearted or because it's the 'non-despicable' thing to do. They're going to invest in your personal life because it's a benefit for the business - plain and simple. No investor should feel they need to invest on you because it's morally correct (which is probably erroneous anyways), but if said investor feels there's a benefit to paying for your wedding/debt/porsche they will do it as a extra bit of investment on the company as a whole and not because it's a nice thing to do for your money making machine.

My solution: Get married when you do have money to pay for it. Most people save for months if not years to do so, regardless of if you're living on pizza boxes or fancy restaurants.

daemon• 16 years ago

It's possible they were turning down the terms of the deal. If someone offered me 1M for my site, I'd take it in a heartbeat. If someone offered me 1M and I had to dance nude in the lobby for a year... I'd still take it. But some people wouldn't and observers would say they turned down 1M.

rhizome• 16 years ago

What if your $1MM site was giving you like $10K/mo and was still growing?

asanwal• 16 years ago

For folks thinking of working at a startup where stock options (and their potential) are part of the decision criteria, it is important to ensure that there is at least high-level alignment of goals and incentives between employees and founders.

flyosity• 16 years ago

The title of the entry put me off to the overall premise, which, I think, even the author may have missed.

Basically, the article should've been titled "It All Changes When The Startup Is Making A Lot Of Cash". Supposedly Groupon is making nearly $2 billion a year in revenue. The decision to turn down an acquisition has more to do with "we're a real company making a TON of cash and we don't need to sell" than the founder thinking about their legacy.

What's the point of an exit? Mostly it's to get a gigantic payday. If your startup-turned-cash-machine is already making a ton of cash every month, the founders are already getting a payday... all the time.

If you're already making FU money from the revenues of your business and someone offers you more of it, the benefit of the FU money is you can say FU to the offer.

patio11• 16 years ago

One of my surprisingly life lessons from 2010: "revenue makes money less attractive" is true at numbers much, much smaller than 6 billion, too.

vaksel2• 16 years ago

yeah if you have a real a business, making real revenue, then selling really isn't a huge priority, and you can work on making something really huge.

However, I do think that Groupon is an exception to this. You can't build a long lasting business, when your business model relies on tricking people into throwing a ton of money down the drain. Once the whole hype ends, and all business owners realize what a bad business proposition Groupon is, they'll lose their market...and will regret not taking the offer.

klbarry• 16 years ago

If you've studied the rise of the department store, John Wanamaker and Macies, I think you'll find Groupon is following a pretty great and old formula of style and group buying dynamics. The idea it's based on, people getting excited about good deals that are trendy, is solid.

binarybits• 16 years ago

Um, you realize that newspapers generated billions of dollars in profits over more than a century by "tricking people" into using coupons, right? Coupons are about helping businesses attract customers they wouldn't have gotten otherwise. The specifics are a little different in the Internet age, but there's no reason to think Groupon is any more a flash in the pan than the advertising supplements in newspapers were.

scootklein2• 16 years ago

I disagree - the title is spot on. Groupon's monthly revenue isn't directly related to the personal finances of the founders. The point of the post is to show that a founder's bank going from 5m to 500m doesn't have as much of an effect as it does from 10k to 5m (or 500m).

5m to 500m is actually so inconsequential that they willingly turned down a lucrative acquisition in order to go it alone and make their impact as they see fit.

JabavuAdams• 16 years ago

> 5m to 500m is actually so inconsequential

It's only inconsequential if you lack imagination.

Would you rather be the guy who started another discount chain, or the guy who made space travel practical?

Julianhearn• 16 years ago

$2bn in revenue does not mean you are "making a TON of money" they could be losing money. I don't know what their yearly profit is but it will take them many years to make $6bn in profit, therefore it was a very good offer from google and they should have taken the money.

mkramlich4• 16 years ago

The most recent profit number I heard was $50m. Not sure if that was for 2009 or per some recent quarter, or for 2010.

tntr2• 16 years ago

> Supposedly Groupon is making nearly $2 billion a year in revenue.

Of which somewhere between $1 and $1.5 billion are pass-through, going to local merchants.

Assuming actual revenue is the more widely-reported $500m, I'm not sure how far that goes when you have 3000 employees.

Recall that MySpace was putting up similar revenue numbers but with only a single profitable quarter, making something like $10m.

Revenue alone is meaningless. I can increase my revenue at any time by selling things at a loss. What's the profit?

I assume GroupOn must have real profits in order to turn down that much cash. We've seen just as often though that companies are deluded, like PointCast or Digg. It would be easy to settle this point by looking at profits. Curious how companies jealously guard that information but loudly trumpet "Revenues!"

That alone should be enough to convince anyone how meaningless revenues are.

steve19• 16 years ago

I remember seeing the words "profit is fallacy, cashflow is king" on a poster in an accountants office.

Profit is an accounting construct. Positive cashflow is real and can sustain a business for a long time.

(Note: cashflow != revenue)

SteveC• 16 years ago

While not related to the content of the article, the title reminded of Eagle Computer. Its CEO, Dennis Barnhart, bought a Ferrari and accidentally drove over a cliff and was killed on the day of their IPO.

http://en.wikipedia.org/wiki/Eagle_Computer

piney• 16 years ago

the rest of us are scrambling up the slope to get to $5m, then we can relax. Founders who reach that goal and still command the helm and less inclined, nowadays more than ever, to jump ship and sit at a cafe with their laptop, trying to look busy and tweeting about their comeback. Its cold outside baby!

whatusername• 16 years ago

And when you drive your own custom branded supercar -- we all know that you're never going to cash out: http://zondahh.com/

tptacek17• 16 years ago

Pretty sure DHH is in a continuous state of "cashing out". He has no VC, in the sense being discussed here (they have a strategic investment from Bezos, but that isn't a VC relationship).

al3x• 16 years ago

I'm kind of surprised that this conversation is solely about founders (well, and which Porsche to buy). There's only a few founders out there, and a lot more regular ol' employees.

Here's the thing about the scenario in this post: the founders and investors that are swinging for the fences and taking big risks probably have their nest eggs in place. But what about their employees? A modest exit could mean security for them. That exit may not cement the founder's "legacy", but it might give a few, a dozen, or even a big group of people a stable financial footing for the first time in their lives. What's more important? What has the most utility? I'm honestly not sure.

Having been an employee in that scenario and now a founder, I can see both sides. Personally, I'm glad to see more investors making sure that early employees get an opportunity to get a bit liquid if their founder bosses decide to shirk acquisition offers and spin the wheel of IPO fortune.

blahedo• 16 years ago

But, and this is important, this isn't an alternative between "exit with fat sacks of cash" vs. "exit flat broke", for either the founder or the employees. Presumably, in the "founder drives a Porsche" scenario, the startup is not in imminent danger of collapse and the employees are not subsisting on ramen. So if the founder decides not to cash out, the employees have the "stable financial footing" of having a job that, presumably, they like and are good at. On the other hand, if the buyout was a talent buyout aiming for the founders or a shutdown buyout, if the founders decide to cash out, the employees may have some $$ in hand but are back on the job market. That's not exactly the most stable of positions.

mkramlich4• 16 years ago

Indeed. Say you were an employee with a mere 1/10 of 1%:

$6b * 0.001 = $6m

I'd say $6m would be life-changing for most employees.

Dylanlacey• 16 years ago

If security is something the employees are worried about, they should not have joined a start-up for whom an exit is their best chance.

Startups are volatile environments with risky financial conditions, hopefully driven by people for whom making the best impact in their chosen area is the most important thing. It should all be about the product, making the best decision for the product, championing the product.

Employees are valuable and necessary. I would never argue that employees contribute less then management in general. However, it's not a founder's place to make sure they get security via an exit... It's their place to make their product fantastic, which as a side-effect, should keep the employees employed.

If they want security, they should bet on a stable job in a stable market. It's boring, it's not as challenging... But it's safe.

WillyF• 16 years ago

Not that it's actually relevant to the point of the post, but Andrew Mason rides a Vespa and lives in Ukrainian Village (not the most expensive real estate in Chicago). Apparently his big splurge was on a grand piano.

Source: http://chicago.timeout.com/articles/shopping/90800/groupon-2...

CamperBob• 16 years ago

Never invest in a startup where the parking lot is full of Porsches and Ferraris... and don't ask me how I know.

danwolff• 16 years ago

When the author implied that driving a Porsche means not caring about money is exactly when I lost interest in his opinions.

The most interesting and successful (same traits, different present situations) owners in the Porsche communities I participate in cringe at the type of people who see it as a status symbol. It's about the connection to the planet/universe that you get from driving such well designed and engineered machines.

To the author's point, though, if they're driving it for the purpose of that alone, yeah, I'd question their integrity, too.

edit - spelling typo

It All Changes When the Founder Drives a Porsche

Related Stories