I'm claiming that you can't pretend that your goal is an IPO when that's not even realistic. It's faking a dilemma when the only real exit opportunity for YC companies is through an early acquisition for technology/talent. You can't have a "late acquisition" or IPO when you don't generate money.
One more reason to stay a subchapter S Corporation if you don't need to raise VC money:
- There is a special election you can make when you sell the company that allows you to sell the assets instead of the equity which is something you can get the acquirer to pay more for because they can get a stepped up basis at market value and then depreciate it to create tax savings.
I don't remember the exact research, but I believe subchapter S corporations that undertake the election sell for 10% more than companies that cannot or do not take the election with all other things being equal.
Paul, it's funny how you choose to pick out areas to attack while you totally ignore my arguments in other areas. It really fascinates me how you just ignore certain arguments conveniently.
As to your response, to IPO a business requires a lot of revenue. Many of the businesses that YC are spinning out don't seem to have a revenue model. They may come up with one, but given a typical VC firm's portfolio duration, it doesn't seem likely that they will come up with a revenue model AND hit the revenue milestones required to go public.
Of course it's in your "interest" to have YC companies go public but that's a very low-probability scenario; far lower than the probability that a regular early-stage VC firm's portfolio companies will go public.
I would be interested to see the reasoning that could lead to an IPO for even 25% of YC companies.
You're most welcome. The best entrepreneur's legal guide is called "Entrepreneur's Guide to Business Law" published by Thompson / West Law written by Bagley and Dauchy. I bought it when I was doing my first start-up and I'm sure they have an updated version. I just found one at Amazon:
In general, I think too many young entrepreneurs give up too much equity too quickly because they fall for the "oh we're making the pie bigger so giving us a huge percentage is fine" fallacy.
There are so many things to take into account when taking VC money. Too many VC firms replace young CEOs quickly at which point the founders get heavily diluted. Also be careful of VCs that try to reserve too large of a pool for management they want to recruit.
Management team members recruited by your VC work for the VC, not for you, the CEO. When push comes to shove, they will side with the VC because they know the VC will find them another job if your start-up goes bust.
The golden rule of VCs is this: He who has the gold makes the rule.
That's convenient of you to pull out one phrase from a larger argument. I would think your behavior is more indicative of trolling than mine is. The entire thread was making fun of "Clown CO." and not really providing any arguments to support their views.
Providing arguments seems to only be favored when it's used to support the "I love this site" viewpoint but seems to be disfavored when knocks are to be made on Microsft, News Corp, ___ (insert large company disliked by "hackers" here).
I think you need to consider the difference between trolling and someone who is trying to actually bring up opposing viewpoints. I suppose if you like going unchallenged and having your word taken as gospel, then you don't want to hear other viewpoints.
Thanks. I appreciate your candid feedback. If you look at most of my posts, I'm trying to be helpful in guiding other entrepreneurs (e.g. LLCs vs. S Corps vs. C Corps).
The reason most attorneys advise Delaware is that the precedents are strongest there. Furthermore, it makes long-term legal costs lower because most corporate lawyers are familiar with Delaware's nuances.
All corporations are C by default. You have to file a special from with the IRS to become an S Corporation. S Corporations are flow-through entities which are not taxed at the corporate level. The reason VCs require you to be a C Corporation is two-fold:
1. VCs like to have unilateral rights and terms to give them downside protection such as liquidity preference and preferential stock classes such as Preferred Shares. S Corporations are simpler entities which only allow a maximum of 40 shareholders - as your company grows and you give stock grants or options, this won't work. LLCs only allow 75 shareholders.
2. VCs will claim that a C Corp structure gives you more flexibility. This is marginally true, but LLCs give you the same flexibility with slightly higher administrative cost but you can maintain the flow-through status which is advantageous.
The real reason is they want preferred shares and special rights. Stay an LLC or S Corporation if you don't need institutional investors. Angels are happy to invest in well structured LLCs or standard subchapter S Corporations.
The sample I'm looking at is the sample of what's out there. "Most" implies over 50%. You've mentioned 4 companies out of over 30. I'd appreciate a clear listing showing the revenues of these companies and their profitability. Having a revenue model by no means implies profitability. YouTube has a model, I doubt that it's profitable.
It's interesting that fanboy posts which have no logic or intelligence are perfectly acceptable but when someone who says something negative comes along, the question of "banning" users comes up. That doesn't sound very democratic or intelligent.