Troubling to whom? You have to read the article to find out:
this is a new phenomenon, at least at these multimillion-dollar levels. And it's a very troubling one in the eyes of some investors.
Not troubling in general, nor even to investors in general. Just troubling to some investors. What's bad about the balance of power shifting toward founders when it was so unbalanced the other way for so long? Let's remember where the pendulum is swinging in from: a few months ago there was a video of Silicon Valley in the 70s with stories of entrepreneurs giving up 98% of their companies in order to raise any money at all. The real story here is the long-term trend.
Is there evidence to support the claim that these deals diminish companies' long-term prospects? There isn't any in the article.
Goldhaber said it sends a signal that entrepreneurs don't believe in the long-term prospects, and makes VCs question whether they should.
Obviously not the VCs who just signed the deal. Seems like markets behaving like markets to me.
If it's only the execs (founders I assume) then this may create unhealthy tension within the company.
Think about the company's employees. Especially the ones who joined early on. They are usually working nights and weekends hoping for an IPO or a buyout. How do they feel about this?
But this is an argument not that the trend is bad, but that it should go even further and benefit not just founders but early employees as well. I'm inclined to agree. No doubt investors who feel this way are advocating strongly for employees' interests while structuring deals.
Actually, the trend does seem headed this way. Just as the balance between founders and investors has been shifting, so it is shifting between founders and early employees. Scarcity in the hiring market for top talent is one indicator. It is bound to be exacerbated by the fact that creative people who want to work at a startup can easily just found one themselves. We may see the line between founders and early employees blur over time.
None of this seems very troubling. It looks to me like creative people being rewarded more, and earlier, for value they add. Perhaps it is more troubling if one has nothing to add but money. But even that seems short-sighted. Why not maximize the total value created?
I can see one upside of founders taking cash early; their treatment of the early employees foreshadows how they will treat them when the actual equity event happens.
Otherwise, an early employee would have to wait/work years longer for the actual equity event (if it ever comes) to find out how they will be treated.
Don't be naive. Markets behaving like markets created a dot-com bubble, Enron, and a housing bubble. Just because the market is behaving like a market doesn't make that behavior good.
Besides that, I just don't have any sympathy for founders who don't want to wait a few more years to make their millions. The point of starting a company should be to do something useful for society. It shouldn't be a race to the exit.
No market fundamentalist here. My point is that this is one case where the market seems functional. Investors who make these deals will lose, if they're so bad. So what do their competitors have to complain about?
Edit: Your tone seems a bit bitter, no? There are many ways to be useful to society. Helping people travel cheaply to cool places, for example. I don't really want to be told why I should start a company, though. Demand that I benefit society and I will probably just play punk rock instead. But damn it there might be social benefit lurking in that too!
Bitter? Not really. Skeptical? Absolutely, and admittedly for not terribly well-defined reasons.
I just don't think the trend of having founders being able to extract more millions sooner from their companies is a good thing. It just invites more greed from Wall Street types into the Valley.
this is a new phenomenon, at least at these multimillion-dollar levels. And it's a very troubling one in the eyes of some investors.
Not troubling in general, nor even to investors in general. Just troubling to some investors. What's bad about the balance of power shifting toward founders when it was so unbalanced the other way for so long? Let's remember where the pendulum is swinging in from: a few months ago there was a video of Silicon Valley in the 70s with stories of entrepreneurs giving up 98% of their companies in order to raise any money at all. The real story here is the long-term trend.
Is there evidence to support the claim that these deals diminish companies' long-term prospects? There isn't any in the article.
Goldhaber said it sends a signal that entrepreneurs don't believe in the long-term prospects, and makes VCs question whether they should.
Obviously not the VCs who just signed the deal. Seems like markets behaving like markets to me.