Re: Making the case for cash out deals

Andrew Romans — Thu, 04 Dec 2008 08:03:02 -0000

I agree with the approach of the Founders Fund and as an entrepreneur myself I would welcome a cash out into my own pocket, however, the venture capital asset class in Europe is probably performing at about negative 5% overall. When a founder raises €10M and uses €2M of that to buy a house and a new car, the eventual sale of that house and car do not go back to the fund and will not help to move the needle of the Internal Rate of Return (IRR) of the fund in the right direction.

So cash-outs do not directly put money to work in the companies entrepreneurs and VCs are building.

I propose a new model of cash outs that does not drag down the needle on the investors’ funds and still solves the problem of aligning the interest of the founders and the investors to hold out for the really big exit.

I founded The Founders’ Club which enables founders of VC backed companies to basically pool 5 to 10% of their future exit into a Limited Partnership. We are cherry picking the best deals backed by the top performing VCs and building portfolios of 30 VC backed companies per portfolio. The result is that if a founder raises VC funding from a tier I VC he agrees to pay 5 to 10% of his / her exit into the Club and that cash is distributed among all the members of the club. So each time any of the other 29 companies crystallize an exit, each founder gets paid cash. www.The-Founders-Club.com.

Re: Making the case for cash out deals

Chris H — Mon, 01 Dec 2008 07:58:33 -0000

Absolutely correct - couldn't agree more. I've been through various stages of a start-up and one of the big issues for us was that the first offer we had on the table enabled us to have a level of security.

Don't get me wrong, we weren't looking to drive Porsches or pay off mortgages, but it was tempting to not have to worry about bouncing school fees that month.

We didn't take the offer and a few years later, when trading was tougher, we all had to bail sooner than we would have liked, as personal agendas changed.

I think that there is no "one size fits all" solution but the idea that the founders, especially those who may be older and have commitments, can afford to live on baked beans for three to four years is short-sighted.

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Re: Making the case for cash out deals

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