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MV #031: 🤯 Three stories about crazy startup capitalism, VCs and what it means for founders.
Startup land is full of weird dynamics. There are a lot of great lessons for founders in there.
👋 I'm Semir, and I write More Value to help my readers get smarter on (1) startup-building, (2) B2B SaaS and (3) Go-To-Market (especially Sales). No fluff. All value. Subscribe now!
👋 Hi All
Seismic shifts in startup land this week and a great opportunity for me to dive into the dynamics of startup capitalism, examining its triumphs, pitfalls, and the lessons they impart on aspiring founders.
Welcome to an edition of More Value full of weird startup and VC capitalism stories.
Story 1: OpenAI fired Sam Altman, the Founder and CEO who had no equity and took no salary
Sam Altman, the CEO of OpenAI, the maker of ChatGPT got fired.
His exit from OpenAI, the pioneering AI firm behind ChatGPT, serves as a stark reminder of the fragile nature of founder control in the high-stakes world of VC-backed startups.
In an unexpected turn of events on Friday evening, he was let go as the board lost confidence.
In a tweet shortly after this he jokingly said, that if he does anything off, the board should come after all his OpenAI shares. It’s a known fact, that Sam Altman owns 0% equity in OpenAI, even though he’s a co-founder. And he also takes $0 salary.
Here are his last few tweets as of Sunday noon.
It didn’t take the inexperienced board long to have a serious reality check. The power is with those who have the money.
Who knows what happens until Monday but the fact that this could even happen in the first place was extraordinary.
I mean Sam founded OpenAI, achieved an $86bn valuation, and built the most impactful startup of the decade. But he forgot a key rule for founders in startup land: don’t give up control!
It’s a good idea to keep enough control so that investors can’t fire you (there are a lot of different ways to do this), but beyond that, it’s important to bring in other people and trust them to help you build the company.
The quote above serves as a warning for all founders. It’s from an essay written by - you’ll laugh - Sam Altman. You can read the full text here.
For a detailed history of OpenAI’s board, please read this insightful breakdown by:
➡️ My take: if you’re a founder, be extremely careful how you structure your board and the control of your company. No matter what, once you give up control, anything could happen.
Story 2: WeWork & Adam Neumann
Remember WeWork? The once all-star real estate startup has fallen far from its glory days. Even though I still have my nice black card to book a desk at any of its hipstery locations, times for the company have changed drastically.
The company filed for bankruptcy just a few days ago.
The stock is down 99.7% and here’s the shocker, its founder Adam Neumann walks away with a cool half billion dollars. Along the years he made a few deals. Some of those are known to the public and I’m sure some are not. But yep, that almost half a billion is real. Here’s how that works:
First, Softbank has given him about $200 in cash back in 2022 according to the Guardian (here). But that’s not enough.
According to Fox Business (here), he also got a loan from Softbank for about $430m. The way he got this was by giving up some WeWork shares as collateral.
One concession was a roughly $430 million loan from SoftBank to Neumann that had a key feature: Neumann wasn’t personally on the hook for paying it back. Instead, if he stopped paying, SoftBank would be able to seize his shares in WeWork as collateral.
I guess he’ll just not pay back his loan at this point and let Softbank have the WeWork shares. Left them holding the bag…
➡️ My take: we are truly coming out of a crazy zero-interest frenzy. Startup builders are building differently today. But despite that, greed will always flare up and lead to absolutely crazy situations like the WeWork story.
Story 3: Finally, the bad guys go to prison. FTX
Finally, some good news too. It’s too often that the bad guys walk free, right?
I mean, how many people end up in prison for insider trading, financial fraud and similar white-collar crimes? Very few. Even after the global financial crisis in 2008, there isn’t anyone notable that comes to mind who served a prison sentence.
Well, the story is different in FTX’s case. Sam Bankman-Fried was found guilty and the whole world knows it. He’ll serve prison time. A lot. Kind of feels good to know that the justice system works.
It doesn’t seem like investors cared very much at the point when they invested. Most - even top-tier VCs - did very little diligence. I mean, according to Business Insider: Sam Bankman-Fried was once caught playing the video game 'League of Legends' during a pitch meeting for FTX.
Meanwhile, some founders at pre-revenue startups are being asked for 3-year financial plans…I tell you startup capitalism can be so crazy.
At least, we know that FTX is now worth $0.
Unless, its investment in Anthropic, an AI company competing with OpenAI, pays off and it can make its creditor whole. You can’t make this up.
➡️ My take: We live in very fast times. The scale and speed of FTXs rise and downfall is shocking. The internet, globalisation and social media make hypes and crashes come and go much faster than ever before. Brace yourselves - turbulence is normal going forward.
🧐 Parting Thoughts
The recent report bysheds light on the challenges facing late-stage startups in the current economic climate. But first…
A big 👏 to the VC who took the time to get all those logos on the slide. You really earned your carry.
There’s basically a huge traffic jam of software companies who thought they could go public one day. Most will run out of gas by the time the jam unlocks or they will realise that all spots by the parking lot are taken by the time they get there.
The report is worth reading, check it out here.
➡️ My take: Tough times are ahead for many late-stage (not so much) growth companies.
If I was someone looking for a job now, I’d say clear of anything Series D+ received a unicorn valuation between 2020-2022.
Unless you have a deep insight into the strategy, metrics and market, I would much rather bet on an early-stage company that is growing up efficiently or a public SaaS co with good control of their business.
👋 Have a great weekend and see you all soon!
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🙏 That’s it. Have a great Sunday and see you in August!
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