Comments on: Money Changes Everything http://www.allpeers.com/blog/2005/12/14/money-changes-everything/ The official AllPeers blog Tue, 30 Sep 2008 23:36:53 +0000 http://wordpress.org/?v=2.2 By: Matt http://www.allpeers.com/blog/2005/12/14/money-changes-everything/#comment-6137 Matt Thu, 15 Dec 2005 13:18:03 +0000 http://www.allpeers.com/blog/2005/12/14/money-changes-everything/#comment-6137 Yes, I agree that it would take a very confident entrepreneur to choose #3 over #2. My point was more that VCs are unlikely to go for this. Of course, they can try to weed out unscrupulous characters, but I can't see why they would want to create this problem in the first place. Yes, I agree that it would take a very confident entrepreneur to choose #3 over #2. My point was more that VCs are unlikely to go for this. Of course, they can try to weed out unscrupulous characters, but I can’t see why they would want to create this problem in the first place.

]]> By: Mike http://www.allpeers.com/blog/2005/12/14/money-changes-everything/#comment-6134 Mike Wed, 14 Dec 2005 22:36:20 +0000 http://www.allpeers.com/blog/2005/12/14/money-changes-everything/#comment-6134 VC's should be able to weed out the unscrupulous entrepreneurs, or they aren't doing their job and deserve their fate. Consider being an entrepreneur faced with three options: (1) quick decent cash through an early sale for $10M split among the group, angels, etc.; or (2) giving up 25% for $2.5M ($1.5M into the company and $1M to founders (say $200K to each the founders to make them comfortable but not rich), then the company shoots for the moon; (3) $2.5M into the company for 25%. Which do you take? #2 limits your downside, like a collar on your options. It can be a good thing. If you have a business model with real revenue (potential revenue) you might go for #2 or #3, but #2 is more comfortable. Still huge upside but at least you won’t lose your house if it flops. Real entrepreneurs manage risk. To take a few chips off the table and still have upside makes sense. VC’s should be able to weed out the unscrupulous entrepreneurs, or they aren’t doing their job and deserve their fate.

Consider being an entrepreneur faced with three options: (1) quick decent cash through an early sale for $10M split among the group, angels, etc.; or (2) giving up 25% for $2.5M ($1.5M into the company and $1M to founders (say $200K to each the founders to make them comfortable but not rich), then the company shoots for the moon; (3) $2.5M into the company for 25%. Which do you take?

#2 limits your downside, like a collar on your options. It can be a good thing. If you have a business model with real revenue (potential revenue) you might go for #2 or #3, but #2 is more comfortable. Still huge upside but at least you won’t lose your house if it flops. Real entrepreneurs manage risk. To take a few chips off the table and still have upside makes sense.

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