If you were Silicon Valley wunderkind Peter Thiel, you’d be experimenting with a novel type of stock offering — the FF class (eponymously named for Thiels’ notorious Founders Fund). Without getting into the more arcane nuances of convertible stock, the offering is “for founders who want to cash out a small percentage of their stake in a company so they don’t have to wait until the company is sold or goes public” — and it has established venture players in a tizzy.Why you might ask? Esteemed angel investors like Ron Conway argue that this is an attempt by “third rate VCs” to steal away deals from more established players, to the detriment of the start-up’s chances for success. They argue that all the company’s seed money belongs in the company, and that only when the company makes a successful “exit” (IPO or acquisition), should founders be paid. Entrepreneurs in turn, bemoan, legitimately, the financial strain sometimes placed on them. In fact, this class of stock was created in direct response to Founders Fund partner Sean Parker’s own frustrations in co-founding Napster and Plaxo.
In the end, both sides are right - ultimately, it’s about striking a balance between the needs of the start-up with its founders. It’s about respecting legitimate financial vehicles meant to address legitimate financial concerns. It’s also an experiment in the venture capital greenhouse that you’ll hear much more about in 2008.
Leave a Reply