...Now 33, McFarland has a 3-year-old and a newborn and no longer has to think about his student loan: His company has US$17.75-million in venture capital investment. While he doesn’t consider himself retire-now rich, his piece of the company affords him what he calls “breathing room” and what other people might call wealth...
...Scribd took off and now has millions of dollars in funding...
I know this has become a meme, but it's being done here much more blatantly than I've seen in other articles.
It doesn't have to be said (but I'll still say it): Venture Capital funding does not by itself mean that either A) the founders are millionaires or B) that the company is successful.
It's a vote of confidence. It's a chance to be successful. And it's exciting and can be a great step along the path of success.
But the notion that "raising VC is the goalpost of startup success" is a notion that probably does more harm than good.
>It doesn't have to be said (but I'll still say it): Venture Capital funding does not by itself mean that either A) the founders are millionaires or B) that the company is successful.
How does that work, then? I mean, if I'm managing tens of millions of dollars in someone else's money, I'm going to want some compensation for that. You can afford it.
Hell, personal financial advisers generally take 1%, right? that'd be north of $177K right there. And surely a startup founder does more work than a personal financial adviser.
I mean, I don't have insight into what founders of funded companies get paid... but I find the idea that they are worrying about student loans, well, to be pretty unlikely.
> How does that work, then? I mean, if I'm managing tens of millions of dollars in someone else's money, I'm going to want some compensation for that.
When somebody invests in your fledgling company, it's typically not a congratulations for getting out of the starting gate. It's money that allows you to grow your business. You could have payroll, marketing, servers, office space, legal fees, etc. and depending on the business, you can burn through millions extremely quickly.
Not to say you can't pay yourself a decent salary, but you're probably not living high on the hog. If you're stashing the money in your personal bank account (and I'm sure some have), that's likely to make people very unhappy.
And, yes, a startup founder might work more than a personal financial advisor. But he also stands to gain much more for his work, if all goes well, down the line.
$17.75 million invested is probably beyond the stage of "fledgling". Perhaps "middling"? I will agree that founders' large salaries should come from profit, not investment.
Also, you have to imagine that the valuation of the company is somewhere in the neighborhood of 3-4x the amount invested, if not more depending on how recently the last round was. And as a founder it seems reasonable to assume around 10-15% equity remaining after a couple rounds, also assuming a couple other founders with similar stakes. That pegs his shares' value anywhere from $5-10 million. It may just be on paper, but you still count it in "net worth", a term readers of the Financial Post are probably most interested in. And definitely warrants, if the product is successful in its own right to any degree, feeling a bit of "breathing room".
>Hell, personal financial advisers generally take 1%, right? that'd be north of $177K right there. And surely a startup founder does more work than a personal financial adviser.
An underground coal miner works "harder" than a financial adviser too, but I doubt they're earning more. Comparisons aside, the investment is for the company, not the founder. The founder may have a decent salary, but income is not wealth and that income stops if the business fails.
>but income is not wealth and that income stops if the business fails.
Sure, sure, I'm just saying, that "decent salary" ought to make the student loans a non-problem.
At a minimum, if I'm investing that much in a company, I want to pay the founders enough that they focus on the company, not on personal finances.
More to the point, well, if you are a good enough negotiator to talk investors in to letting you control that much money, well, you are probably a good enough negotiator to negotiate a little something-something for yourself. I mean, I'm not saying millions a year, but certainly enough that things like student loans go away.
Perhaps they don't collect luxury items as status symbols because to start, scale and sell a successful company is the ultimate status symbol of them all.
It's a silly anecdote, but long before I sold my first company, when I was just another college dropout eating from the dollar menu and paying for gas with spare change, I really, really wanted a brand new BMW M3. To say I lusted after that machine would be an understatement; to me, that sexy car epitomized success and oozed the kind of vibe I wanted to send out.
Once real success arrived, however, I was surprised to find I really didn't care any more. I ended up with a used Toyota Camry because I could drive it around the city without worrying about scratches and dents.
I've noticed this too. As I get closer to 'buy whatever car you want' kind of money, I dream less of the shiny new muscle and I'm getting more interested in a used Miata I can beat up on a track.
fwiw i find that "well set up for the track" means "unpleasant as a daily driver" - i'm trying to set up a car that i can drive to the track and back. i am fast enough that i need harnesses, which aren't compatible with the regular seats, etc etc etc.
“The typical software engineer isn’t dreaming of the day he can quit the rat race. They use their money instead to gain a little bit of control over what they work on and what they do.”
The more money you save, the more leverage you have in avoiding work that sucks.
>>>These children of the boom 90s also aren’t so into conspicuous consumption.
Except that. .
>>>Also, there’s a bit of a focus on cars, but in a smart way. Merrill Lynch’s Hogan says, “I had a client come in and say that he bought a Tesla car – but he had also bought shares in the company. And he told us that he made enough profit on the shares to cover the cost of the car.”
So if I buy a 100K car and invest in the company, then that's smart? Otherwise, it's considered "conspicuous"?? If you drop 100K on a car, it doesn't matter how you bought it, it's still a 100K purchase on a car.
Hedging would be prudent, balancing risk and wagering on the other horses. If your horse loses, then you can limit your losses with your other winnings. If it wins then you can cover the money you put on the wagers. Over the long term that's smarter than putting everything on one pony.
It's interesting how <100% change in annual salary (50k to 100k) is the ultimate hallmark of 'doing well' across the country, when the cost of life can vary >400% from one place to another.
“The whole idea from the 80s — that you’d make some money and use that money to make more money — this current generation isn’t looking at money that way,” says Nash.
Yeah, I remember those crazy, reinvesting 80s. Interest, dividends, buy low sell high. WTF were we thinking??
This Nash guy has really convinced me that I should entrust my financial future under the auspices of his Wealthfront.
For context, most of the clients I talk to are focused on being entrepreneurs, engineers, designers, lawyers, etc. They believe they'll make their fortunate by focusing on creating value through their profession, not by beating the market.
Wealthfront is a solution for people who don't have the time or inclination to manage their investments themselves, and who want an inexpensive & trustworthy solution.
I know both Trip and Josh -- I don't think this article reads well on either one. My guess is Wealthfront needed some quotes from people and they are friensd with the WealthFront team.
This whole story reads like a PR job. All the stats were just too convenient (and useless).
33 comments
[ 2.6 ms ] story [ 82.2 ms ] thread...Scribd took off and now has millions of dollars in funding...
I know this has become a meme, but it's being done here much more blatantly than I've seen in other articles.
It doesn't have to be said (but I'll still say it): Venture Capital funding does not by itself mean that either A) the founders are millionaires or B) that the company is successful.
It's a vote of confidence. It's a chance to be successful. And it's exciting and can be a great step along the path of success.
But the notion that "raising VC is the goalpost of startup success" is a notion that probably does more harm than good.
How does that work, then? I mean, if I'm managing tens of millions of dollars in someone else's money, I'm going to want some compensation for that. You can afford it.
Hell, personal financial advisers generally take 1%, right? that'd be north of $177K right there. And surely a startup founder does more work than a personal financial adviser.
I mean, I don't have insight into what founders of funded companies get paid... but I find the idea that they are worrying about student loans, well, to be pretty unlikely.
When somebody invests in your fledgling company, it's typically not a congratulations for getting out of the starting gate. It's money that allows you to grow your business. You could have payroll, marketing, servers, office space, legal fees, etc. and depending on the business, you can burn through millions extremely quickly.
Not to say you can't pay yourself a decent salary, but you're probably not living high on the hog. If you're stashing the money in your personal bank account (and I'm sure some have), that's likely to make people very unhappy.
And, yes, a startup founder might work more than a personal financial advisor. But he also stands to gain much more for his work, if all goes well, down the line.
Also, you have to imagine that the valuation of the company is somewhere in the neighborhood of 3-4x the amount invested, if not more depending on how recently the last round was. And as a founder it seems reasonable to assume around 10-15% equity remaining after a couple rounds, also assuming a couple other founders with similar stakes. That pegs his shares' value anywhere from $5-10 million. It may just be on paper, but you still count it in "net worth", a term readers of the Financial Post are probably most interested in. And definitely warrants, if the product is successful in its own right to any degree, feeling a bit of "breathing room".
An underground coal miner works "harder" than a financial adviser too, but I doubt they're earning more. Comparisons aside, the investment is for the company, not the founder. The founder may have a decent salary, but income is not wealth and that income stops if the business fails.
Sure, sure, I'm just saying, that "decent salary" ought to make the student loans a non-problem.
At a minimum, if I'm investing that much in a company, I want to pay the founders enough that they focus on the company, not on personal finances.
More to the point, well, if you are a good enough negotiator to talk investors in to letting you control that much money, well, you are probably a good enough negotiator to negotiate a little something-something for yourself. I mean, I'm not saying millions a year, but certainly enough that things like student loans go away.
career freedom seems to be the major theme.
It's a silly anecdote, but long before I sold my first company, when I was just another college dropout eating from the dollar menu and paying for gas with spare change, I really, really wanted a brand new BMW M3. To say I lusted after that machine would be an understatement; to me, that sexy car epitomized success and oozed the kind of vibe I wanted to send out.
Once real success arrived, however, I was surprised to find I really didn't care any more. I ended up with a used Toyota Camry because I could drive it around the city without worrying about scratches and dents.
Not letting your possessions own you :)
I think fantasizing about cars might be more fun than owning them.
also, check this out: http://sfbay.craigslist.org/eby/cto/3985270257.html
it's nice to pass people. it's more fun when you can do it with 200 less horsepower.
The more money you save, the more leverage you have in avoiding work that sucks.
Except that. .
>>>Also, there’s a bit of a focus on cars, but in a smart way. Merrill Lynch’s Hogan says, “I had a client come in and say that he bought a Tesla car – but he had also bought shares in the company. And he told us that he made enough profit on the shares to cover the cost of the car.”
So if I buy a 100K car and invest in the company, then that's smart? Otherwise, it's considered "conspicuous"?? If you drop 100K on a car, it doesn't matter how you bought it, it's still a 100K purchase on a car.
Yeah, I remember those crazy, reinvesting 80s. Interest, dividends, buy low sell high. WTF were we thinking??
This Nash guy has really convinced me that I should entrust my financial future under the auspices of his Wealthfront.
"Yes, sir."
"Are you listening?"
"Yes, I am."
"Financial derivatives."
For context, most of the clients I talk to are focused on being entrepreneurs, engineers, designers, lawyers, etc. They believe they'll make their fortunate by focusing on creating value through their profession, not by beating the market.
Wealthfront is a solution for people who don't have the time or inclination to manage their investments themselves, and who want an inexpensive & trustworthy solution.
This whole story reads like a PR job. All the stats were just too convenient (and useless).