Founders cashing out

Filed in archive Venture Capital on August 11, 2005

Always well informed Mark Brooks leads me to this story about eharmony's latest round:

'WHEN Neil Clark Warren and Greg Forgatch, the founders of eHarmony, a popular online dating site, were making the rounds last fall looking to raise venture capital, they weren't merely seeking money to bankroll a big TV marketing blitz.

They also wanted to raise money - lots of it - to put into their own pockets and the pockets of the company's early investors and some of its employees.

Rather than wait for eHarmony to go public, which might never happen, or for some bigger company to acquire it, which also might not happen, the company's founders decided to look for venture capitalists willing to cash out some of the stake they and others held in the company.

Of course, most people in start-ups work hard, and many do it in hopes of the big payout. Sometimes they're lucky enough to work for a company like Google, where a tiny stake in a privately held company turns into company stock worth millions. But sometimes, years of hard work, long nights and frenzied deadlines amount to little more than a regular salary and a modest stake in a 401(k).

Increasingly, entrepreneurs are looking to reduce that risk. They're using venture deals to cash out some of their equity without the bother of a public offering or an acquisition. Other recent examples of such deals have involved the antispyware company Webroot Software, based in Boulder, Colo., and Fastclick, an Internet advertising company based in Santa Barbara, Calif."

I think it is only fair when founders have the chance to cash out on parts fo their stocks. Don't forget setting up a company takes a long time of unpiad work before the company is up and running and often meagerly paid jobs when teh company struggles to find it way. Stocks in a company are at some point just an investment like any other and as long as there is just a small part of shares going over the counter there is nothing wrong in using a venture round for the transaction.