Could someone explain to me why someone who stands to turn $1,000,000 into $4,000,000,000 would ever find it wise to cash out a measly $300,000,000 out?
Perhaps someone remembers how many paper millionaires got their houses repo'd the last time the market got very exuberant in Silicon Valley.
I get a sense that people want Groupon to lose, largely for the reasons that crabs like to pull down any crab attempting to leave the bucket. Groupon was the hottest game in town, based not on whimsy but on demonstrable revenue growth to hundreds of millions of dollars (!) in a brief period of time.
Everybody wanted in on that deal. If a condition of that was that founders/employees/etc walked away rich regardless of what happened to the company, oh well, capitalism happens to investors, too. "You make us all rich then you get rich, or you end up in the poor house" is not a law of nature or moral arrangement we should aspire to, it is a market condition caused in one time and place by the market favoring people with lots of money instead of with growing companies. With regards to Groupon, the market swung in the other direction.
Everyone knows that if a VC invests several hundred million into a company and that company blows up, the VC still walks away rich, right?
Everyone knows that if a VC invests several hundred million into a company and that company blows up, the VC still walks away rich, right?
No, really: you all know this, right? It's absolutely true. Not because they were already rich. No, because the usual arrangement is, they get paid either way.
VCs invest the money of limited partners, who are typically wealthy families or institutional investors like universities or pension funds. The compensation structure of a VC looks something like this: we make 20% of returns and 2% of the committed fund size every year as a management fee.
If a VC pours $100 million into a company and, four years later, it blows up, the VC has moved about $110 million from the investor's pockets into a) $100 million into the company and b) $10 million into their own pockets. (Less their operating expenses, which are not nearly on that level. Often times their operating expenses get paid out of that $100 million, too -- e.g. VCs charging the company they invest in for the legal expenses associated with doing the investment.)
Perhaps someone remembers how many paper millionaires got their houses repo'd the last time the market got very exuberant in Silicon Valley.
I get a sense that people want Groupon to lose, largely for the reasons that crabs like to pull down any crab attempting to leave the bucket. Groupon was the hottest game in town, based not on whimsy but on demonstrable revenue growth to hundreds of millions of dollars (!) in a brief period of time.
Everybody wanted in on that deal. If a condition of that was that founders/employees/etc walked away rich regardless of what happened to the company, oh well, capitalism happens to investors, too. "You make us all rich then you get rich, or you end up in the poor house" is not a law of nature or moral arrangement we should aspire to, it is a market condition caused in one time and place by the market favoring people with lots of money instead of with growing companies. With regards to Groupon, the market swung in the other direction.
Everyone knows that if a VC invests several hundred million into a company and that company blows up, the VC still walks away rich, right?