Kennet Partners reposted this
Managing Director at Kennet Partners. Investing in bootstrapped and capital efficient technology business
💰💰💰 Taking Cash Off the Table 💰💰💰 VCs typically do not favor founders selling secondaries, viewing it as a negative signal in the founder's belief in the business's future. VCs worry that the founder might want to relax on a beach somewhere 🏖️🏖️🏖️. At Kennet Partners we have the opposite view. We actively encourage founders to take some cash out as part of a deal. Why? 🙋♂️⁉️ - **💼 All In**: Founders, particularly bootstrapped and capital-efficient ones, have usually invested everything into the business. - **🏠 Lifestyle Sacrifices**: They have made significant lifestyle sacrifices along the journey. Some cash out allows for things like mortgages and school fees to be paid off. - **💸 Wealth Concentration**: The business often represents nearly 100% of their personal net wealth. - **🛡️ Risk Mitigation**: As the business scales, founders can become risk-averse. Taking some cash out enables them to feel comfortable with the next stage of the journey. It’s actually pretty uncommon for a founder after selling secondaries to start to take it easy. Usually, it's the opposite – once they get a taste of success through a “mini secondary based exit” their drive to succeed actually increases. There are a bunch of other scenarios where we believe secondary sales make sense: - **👥 Co-Founder Departures**: Facilitating smooth transitions by selling the shares of departing founders, allowing the remaining founders to continue driving growth. - **💰 Employee Liquidity**: Offering liquidity to early employees who have been with the company for a long time, ensuring they are rewarded for their contributions. - **📈 Investor Returns**: Providing returns to early investors and angels who have been with the company from the beginning, aligning interests across the cap table. At Kennet, we believe that these scenarios, when managed correctly, can strengthen the company and align everyone's interests for long-term success 🚀🚀🚀
How do you know when an investor has been a founder? This. I’m always curious to know how much hard cash GPs have put in the fund and what percentage of their wealth (not just liquid) that they have committed. My thinking runs something like what is good for one side must be good for the other side (alignment). But I’m probably wrong on all counts.
Done all of that. All in, i own a decent car, TV and an old desktop pc. All other funds have gone to the business, and I've been two hours from personal bankruptcy.. twice. I live in a shitty apartment for free that another local entrepreneur owns. I will keep doing my thing until it crashes and burns and takes me with it, but I refuse to give up because I know my idea is great.
Many founders, like I did, put their home at risk when they raised the initial money. They day I took some money off the table and paid off the mortgage on my home was a huge moment in my life. I could then double down on my efforts in the business, knowing my family were no longer at risk. A VC fund doesn’t run the risk of losing their home.
Speaking as a founder I agree with the sentiment of this article 100%. My personal view is that helping the founders achieve some basic levels of healthy (physically, mentally, financially) is in everyone’s interest. Sometimes just a little bit off the table can make a huge difference. Thank you Hillel Zidel for raising the topic and big shout out to Kennet Partners for walking the walk! P.S. Not too much though or at the wrong time; I think with the right investor and the right founder there is an implicit sense of proportion and timing.
Very thoughtful take that moves to the merits and realities and beyond gut decisions (often without real data or data analysis). VCs diversify to manage risks. Founders also manage risk every single day and often for years. Their efforts to manage risk intelligently should not be reflexively rejected. Climbing mountains isn’t for everyone. It is much easier for stupid mountain climbers to die. I don’t think I’ve ever heard another investor say directly how can I do what’s best for my founders to optimize for their personal success and demonstrate alignment with them in the way you have made this effort. Bravo. Bias to action doesn’t mean reflexive autopilot based decision-making. The simulation is real for the founders and likely not a repeat play game without any personal skin in it.
Can be completely transformational and vital to success. If an investor is so bad a judge of character that they take comfort in keeping founders struggling financially, they should find an alternative career.
💯- especially when bootstrapped like we did. When getting breakeven it is always a question of growing slow but safe or increasing speed for a risky ride.
Couldn't agree more Hillel, the passion and faith in their company founders have, literally in many cases betting the farm should actually give investors more confidence. Part of the investor scenario should be considering how founders can take an element of cash and more importantly and element of time. Time to reflect, timeout with family who no doubt didn't get to see much of the person they once knew. Time out helps rebalance, revisit parked ideas which in turn leads to future IP and potential revenue drivers.
This is not unusual.
Managing Director at Kennet Partners. Investing in bootstrapped and capital efficient technology business
1moAbsolutely Lee Britton! Thank you.