I give Buffer a lot of credit. They seem to deeply internalize the idea of "realistic expectations" and it sounds like the buy-out was a win-win solution where everyone got (mostly) what they wanted.
As he says, the investors might not have been happy about it, but at least he has the backbone to resist trying to squeeze growth out of a market where there's none to be had (in the short term). Most CEOs wouldn't be as courageous, preferring to try to spend like crazy in the search for growth, which just torches investor capital even as it adds little long-term value to the business's equity.
In short, a bold move by a very honest guy who's in it for the long term.
It's not just a return for the VCs, but all the contributors that gave their money to the VCs to invest, like your university's endowment fund, retirement and pension funds, etc.
The interesting question, if the intention was to stick it out in the long term, is whether raising VC money in the first place was a good idea. Bootstrapping the business would have probably been closer in line with the vision and allowed him to retain control without eventually souring relationships
It's easy to have 20/20 hindsight. The situation was different when Buffer was formed. There weren't as many examples of successful bootstrapped companies and Joel (the founder) was much less experienced.
I don't want to say getting VC was a mistake for Buffer because I can see it might have had an upside of connections and advice for what was an inexperienced team, and I think at that time the management team was more bought into the VC model. Buffer has definitely transitioned away from the VC model, though, and buying out the investors now is the right decision IMO.
A lot of comments in this thread are quite harsh. I applaud Joel for having the courage to honestly share his experiences so others can learn from them.
It's not clear to me why a VC would invest in a business that did not want commit to a liquidity event. Maybe the VC didn't have a better deal to invest in at that time?
Fair play to them. I'd take this any day over "This is an exciting move for customers as we limit what we give them for more money" or the other corporate bollocks that gets spewed on the regular.
I don't think this sounds like a win-win, the founder moved the goalposts and bought the Series A out for the minimum possible (9%) so he could start paying himself.
I read the fluff around core values, but my first thought is that Joel would rather not risk his personal fortune by growing the company further. Better to ride the 25% margin as long as possible, giving himself enough liquidity to retire wealthy, than take a chance on growth.
Maybe I'm too cynical, but I admit I'd be tempted to do the same thing.
As an operator or employee of a company that doesn't plan to raise further money from a VC, you want them to pay the minimum possible. Every dollar that goes to the VC is a dollar that can't go to the team.
Meanwhile, if the investor didn't want to sell at the number they came up with, they could presumably just say "no".
I wouldn't imagine that's the case. Especially if the investor came up with the number and agreed to it in a legally binding contract. It'd be an uphill battle in court to get around that. (yeah, you still need the funds to defend your company...)
Also, my anecdata says that most corporations have in their corporate bylaws (or whatever the right document is) the provision that they can forcibly recall shares at any time (presumably for current fair market value/409A valuation.)
Huh? No, the investor agreed to an annual 9% interest rate, not a lump sump their equity could be purchased for.
It would be pretty funny if the legal norm among startups was that they can acquire their own equity back from investors based on their 409A valuation.
Yes. That is the idea. As downside protection, Collaborative Fund's investment was to begin behaving as if it were debt (issuing interest, that is) after 5 years. I assume the expectation was that if Buffer maintained hypergrowth and reached the inevitable Series B, part of the series B negotiation would eliminate that downside protection clause. But they didn't; they charted a course that didn't involve an imminent second round, and so that protection clause was problematic.
Again: it would be really weird if companies could simply demand their equity back. The whole point of investing in a startup is that their equity will end up wildly more valuable --- not 40% more, but 10x more --- than the money put in.
I bet you can name 20+ big name startups off the top of your head that made their product substantially worse and/or completely folded due chasing growth at any cost.
I guarantee you this has annoyed you more than a few times as a user of their products.
In a market where VC style multi billion dollar exists just isn't going to happen, trying to force it is just going to ruin everything good about your product and company.
And VCs would rather see you ruin it, with a tiny chance of succeeding, than see you have a successful small/medium sized company.
Agreed, but the question is if that is how he sold the company to investors and to employees? Employees at this point all know, or should know that stock grants are lottery tickets. But that said there is a very clear distinction between working for a company for that lottery ticket and working for the same company where management is actively negating the value of that ticket. Not to mention he slashed salaries 8 months ago. The part about getting liquidity for early investors and employees sounds nice but he had definitely better stick the landing on that one if he doesn't want to see a mass exodus. This act while possibly perfectly legit should be a clear indication to employees and potential employees that he has no interest in building the type of company that can turn equity into life changing money.
Cutting pay and firing people isn't great, but would it really be better for them to burn their capital and become another failed venture? That was the path laid out ahead of them, B2B sales isn't just something you can throw money at and get customers from endlessly, its a slow slog to acquire customers as their associates start using your application and start raving about how much better it has made their business.
Buffer is a nice app, not a world changing invention with any kind of technical or business moat. No one went in hoping to become a Buffer Billionaire.
I give Buffer a lot of credit. They seem to deeply internalize the idea of "realistic expectations" and it sounds like the buy-out was a win-win solution where everyone got (mostly) what they wanted.
As he says, the investors might not have been happy about it, but at least he has the backbone to resist trying to squeeze growth out of a market where there's none to be had (in the short term). Most CEOs wouldn't be as courageous, preferring to try to spend like crazy in the search for growth, which just torches investor capital even as it adds little long-term value to the business's equity.
In short, a bold move by a very honest guy who's in it for the long term.