The Case for Founder Liquidity
Unless you are living under a rock you probably heard that the Snapchat founding team just turned down a $3 billion dollar offer from Facebook.
Everyone seems to have an opinion on how stupid this decision was, even Barstool sports covered it.
Let’s back up to late June 2013 when Snapchat raised a $60 million dollar round. Part of this round included two $10 million dollar checks to the founders of Snapchat.
Now in a world of trillion dollar markets and billion dollar valuations; 10 million per person is peanuts. But step outside of the valley and we realize that 10 million is “set for life” money. 10 million dollars in a CD gets you ~100,000 per year for nothing. Again, set for life.
Founders have the responsibility to act in the best interest of their company, not themselves. Again, the best interest of the company, not themselves.
So the founding team is sitting in a spot where their business has soared to unimaginable heights (somehow without earning a dollar) and they are asked to give up control of their baby for $3 billion dollars.
Had the liquidity not been present I would have understood the buyout.
Building a startup is hard, especially when you are bringing in $0. The founder liquidity changes the paradigm. I believe that the liquidity in the earlier round allowed them to focus on Snapchat’s long term future and continuing to build instead of cashing out fast.