Compounding Life

Paul Graham is well known in the start up world, probably not as much in the value investor world. Paul has a bunch of great essays on his site. One that I really enjoy is “How to do what you love” .

While they are all good this post was inspired by reading “How to Fund a Startup”. I think this essay is very informative on a couple of different levels.

Value investors are generally not interested in Initial Public Offerings of startups, for good reasons. I still think its important though to understand the process that most startups go through in their quest to get acquired or go public. Not to say that either of those two are the goal of all startups but in a lot of cases that is the exit plan. Its also interesting to note just how early on the differences between company managers and investors start to manifest. Of course in these early stages the founders usually do have a major stake so they are of course shareholders as well but not always “investors” meaning they do not have as much capital in play.

A great quote from the essay:

I don’t mean to suggest that our investors were nothing but a drag on us. They were helpful in negotiating deals, for example. I mean more that conflicts with investors are particularly nasty. Competitors punch you in the jaw, but investors have you by the balls.

I find this comical because in a lot of cases after the company has gone public and the original investors have cashed out the tables can be turned rather quickly to a situation where people running the company can have the investors “by the balls”.