Thursday, December 21, 2006

Founders starting to get some money in their pockets?

Allan Leinwand (with VC Panorama Capital, founder of Vyatta, CTO of Digital Island) has a post at GigaOM on " VCs, the new liquidity providers".

In it he talks about how VC's that want to put money to work in the new environment where its becoming easier for startups 2 get off the ground, cheaper and faster. Often some of these interesting companies get "quickly acquired by the big players in the space for both the technology and the team". 

"One method that seems to be getting more popular is to have the venture capital go toward providing liquidity for the founders (buying secondary shares). This method can serve multiple purposes:

1) It gives the venture investor the desired ownership;

2) It providers some liquidity to the founders who may be living on sweat equity; and

3) It aligns the financial interests of the company and investors."
Certaintly founders are nearly always interesting in getting some money in their pockets (particularly if they have been struggling for some time running the company and not drawing any salary) but at what price?  

VC and angels are only coming in on the basis they can get a (large) return on their money/investment. Putting some of that investment straight into the founder's pockets is often a big No-No. Be interesting if this is starting 2 change and what % of valuation is viable as a founders 'share'.

Paul Graham also has a piece on this and how the landscape has changed with some companies getting acquired before an A round.


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