Ryan Deiss explains how a company can sell for a seemingly healthy price (example: $60M) yet founders walk away with little or nothing. Through a step-by-step scenario — raising at high valuations, subsequent down rounds and dilution, loss of control, incurring debt, and liquidation preferences plus transaction costs — the speaker shows why investors may be paid while founders receive nothing. Practical advice: avoid outside capital when possible, or raise only at valuations you can realistically grow into.
Chapters
My company sold for $60 million. Investors got paid, employees got paid. I walked away with nothing. This is one of those dirty little secrets of fundraising. And unfortunately it happens all the time. How does a company sell for $60 million and the founder gets nothing goes something like this. They raise $20 million at let's say $120 million valuation, which means the founder and the team, they still own around 80% of the company. But let's say growth slows, they don't quite grow into that valuation, so they've got to raise a little bit more money at a worse valuation. So diluted even further, maybe they also lose majority control of the companies. They don't have control of the board anymore. Fast forward a year or so. Now they need to take some more money. Maybe they got to take $10 million in debt to survive. And the founder at this point gets kicked out of their own company because again, lost control, which means that half of their stock doesn't even vest. There's still no growth. So eventually the founders force a sale for that $60 million because they just need to get their money back out. They've got to return it to their LPs. Out of that 60 million, the 10 million is first going to go out in debt. That's got to get paid out. So now you're at 50 million bucks. Next, the investors get their money out because they came in and they got preferred stock. Preferred stock means that they get paid first, so they're going to have that liquidation preference. So out of that 50 million, there's maybe 10 to 15 million dollars left. But you still got to pay attorneys fees, there's cash held back in escrow, other closing costs. So in reality, it's a lot less than that. Again, the founder's deluded, partially vested, has no real leverage. So yeah, it's a $60 million exit and the founder walks away with basically nothing. Employees probably didn't make much either. They at least got paid along the way. Good headline. This happens a lot. So how do you avoid it? Really simple. Don't raise outside capital. And if you must raise, raise at a reasonable valuation, raise at a valuation that you know that you can grow into. If you raise too much money, and if you raise it too early, you might build a great exit for everyone. But you.
