This is actually pretty stupid. There's a literal 0% chance that Tony Hsieh got a bad deal here. The guy's a successful repeat entrepreneur who had been through the whole thing before and was dealing with a top-notch VC firm. He knew the game way too well to be getting burned by participating preferred or some absurd liquidation preference. Hell, I knew the game well enough to have avoided that before I even got in it, just from Googling around. (Thanks PG!)
He may have been forced to sell perhaps, but he gave up that right when he took the money and he knew it was a very real possibility. He also knew that if it happened, he'd be making a bundle off of it. If he feels screwed right now, which seems highly unlikely, it's his own fault.
VCs don't hate entrepreneurs, most of them love them. They just have a business to run and look out for themselves. The good ones, like Sequoia, do it by aligning their interests with the founders as much as possible.
Matt, yours is an opinion that I hold in high regard, and am a frequent reader of your blog. I am not in any way insinuating that the cash out deal for Tony is bad. What I am suggesting is that perhaps this wasn't the deal he wanted. It sounded like he wanted to stay the course and try to go public, which would have yielded a far higher pay day (presumably) and would have allowed him more autonomy than a sale to Amazon.
True he gave up the right to block a sale (I say this without any knowledge of the definitive documents) when he took the money, but I don't think it's too far afield to suggest that Tony thought he was getting a partner that would allow him to see this through.
The VC in this case was most likely acting in economic self interest, but not in the interest of the entrepreneur (or so it would appear).
The VC in this case was most likely acting in economic self interest, but not in the interest of the entrepreneur (or so it would appear).
This is a far cry from your headline that VCs "hate" entrepreneurs. VCs have a fiduciary responsibility to act in the best interest of their LPs. The best VCs work to align the interests of all parties involved, but when they conflict, the VCs have a duty to act in the best interest of their investors, just as entrepreneurs have a duty to act in the best interest of theirs. Using phrases like "VCs hate entrepreneurs" is beyond sensational and distorts the relationships and responsibilities of all parties.
For the record, I'm not a huge fan of the VC model, but for entirely different reasons.
VCs, if they sit on the board, have a fiduciary responsibility to the shareholders - all of them. If they took a deal that benefitted themselves to the detriment of common shareholders, well, draw your own conclusions.
It would seem that the deal in question offered the same benefit to all shareholders: an exchange of their stock in the company for Amazon stock. IANAL, but I doubt that the fiduciary responsibility includes ensuring that the founders get to keep their brand independent, especially when it makes more financial sense for the shareholders to sell.
Well, what was all that junk about liquidation preferences? That seemed to be insinuating the cash out deal could have been bad.
But the bigger point is that stuff isn't VCs hating entrepreneurs. If that rumor is true, it's just them doing exactly what Tony expected them to (or at least realized they would strongly consider) when he took the money.
You could similarly say Tony hates VCs because he didn't want to sell and give Sequoia a huge 5-10x, but that would be equally untrue.
Fair point. Perhaps the title would have been better as "VCs don't care about you as much as you want them to"?
The junk about liquidation preferences will have to serve for a later post. Liq pref is a device of which I am not a huge fan, having been on both sides of deals. I think they create really bad incentives, and when they are not understood, they are accepted by entrepreneurs well before the understand the implications of them.
Nonetheless, it's just VCs doing what's in their best interest. Hsieh, if he wants to continue on independently (which is still only rumor) only wants to do so because he feels it's in his best interest.
Why is the entrepreneur acting in his best interest correct, and the VC doing so wrong?
He may have been forced to sell perhaps, but he gave up that right when he took the money and he knew it was a very real possibility. He also knew that if it happened, he'd be making a bundle off of it. If he feels screwed right now, which seems highly unlikely, it's his own fault.
VCs don't hate entrepreneurs, most of them love them. They just have a business to run and look out for themselves. The good ones, like Sequoia, do it by aligning their interests with the founders as much as possible.