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Secret’s investors should be fired for gambling away their fund’s money.

AAnonymous ·April 30, 2015 ·18 answers

So with a “heavy heart” Secret’s founder David Byttow decided to “return” their investors money rather than attempt a pivot.

Sounds like a noble move, until you realize that during their last round, the two founders were allowed to cash out to the tune of $6M.

Normally astute investors put in liquidation preferences that should a company fail to get a decent exit, they would be the ones who get the money out first as they should.

Only in this case, they get their money out LAST. Out of whatever was remaining in the last round, the founders got $6M, and the investors got whatever was left if any.

Way to go Kleiner Perkins and Index Ventures! Your investors must be so proud of you.

18 answers from the community

AAnonymous· Apr 30, 2015

The investors allowed the founders to realize secondary liquidity. Whether that was a sound choice is certainly questionable. Once that decision was made the liquidation preference part is irrelevant.

These things happen in a bubble. An app without a revenue model and nothing more than buzz becomes a "hot deal" and the fear of missing out kicks in. The funding marketplace is, on the whole, a bunch of overpriced lottery tickets.

Given VC's public pension LP base, we taxpayers are indirectly subsidizing and backstopping this nonsense. Oh well.

"Frustrated LP"

AAnonymous· May 4, 2015

Seconded

AAnonymous· May 12, 2015

Thirded with a cherry on top!

AAnonymous· May 1, 2015

How do you fire an investor ?

AAnonymous· May 2, 2015

You fire the partner that made the decision to give $6M to the founders.

AAnonymous· May 1, 2015

I'm hardly defending Secret, but I would point out that perhaps the early cash out is why Secret was willing to return the considerable amount of unspent funds rather than ride it into the ground.

The early cash out also may have been due to Secret successfully playing the "hard to get" game with investors.

AAnonymous· May 1, 2015

According to NYtimes the cash out poisoned the culture in the company with the employees seeing that the founders were no longer aligned with them and they started leaving soon after.

AAnonymous· May 1, 2015

That is possible, but I doubt anyone creates a company just to cash out a little and then fail publicly.

I actually know an ex-Secret employee - they left because of a Whisper-like situation.

AAnonymous· May 1, 2015

is this what happened to Zynga >?

AAnonymous· May 2, 2015

I don't think you can compare Pincus' post IPO Zynga cashout with Secret's cashout. For one thing, Pincus' cashout was 100x or larger. Secondly, IPO!

Secondly, the Secret founder presumably did have some investment into Secret before it got funded, so his $3M secondary was at least partly a repayment.

There are definitely circumstances which would change my mind - if the cashout happened after it became clear that Secret wasn't going anywhere, then that is a legitimately suspicious timing - either a cashout because the end was nigh or even a bribe to gracefully exit.

AAnonymous· May 3, 2015

As written above: According to NYtimes the cash out poisoned the culture in the company with the employees seeing that the founders were no longer aligned with them and they started leaving soon after.

Very similar to Zynga.

AAnonymous· May 2, 2015

You know you are in a bubble when $6M for ~1 year's worth of work, is considered a "little cash out"..

AAnonymous· May 2, 2015

Start ups are crashing and burning everywhere.

The cream rises to the top. I don't think we're in a bubble.

AAnonymous· May 3, 2015

The bubble is starting to crack, look at LinkedIn's stock crashing.

Whose next?

AAnonymous· May 3, 2015

It's called a "correction"

AAnonymous· May 4, 2015

no bubble this time. lesson has been learned. but the over-supply of startups means an even higher failure rate than normal. most will die unnoticed.

AAnonymous· May 4, 2015

agreed. but there are too many startups with weak biz models getting funding.

AAnonymous· May 2, 2015

I don't know about that. Why don't you get 35 million users and do the same? Then we'll know.

Secret’s investors should be fired for gambling away their fund’s money.

18 answers from the community

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