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Deal-sharing is Caring

November 22, 2021

I wrote the other day how a corporation, rather than a startup, resembles a zero-sum game for its employees. This is one of the reasons why startup cultures are typically different than that of corporations. If the company succeeds, all of the employees succeed. Elbowing your way to a promotion is not the only way.

The interesting thing is that for financing, the dynamics are quite different. It's more common for a corporation to be public. Here, anyone can participate and if the share price does well, everyone wins. The market is liquid and the shareholder base is broad, so everyone gets their way. Those who want to invest can invest, while those who do not can sell or stay out.

For a startup, it doesn't work that way, since all VCs want to get in on the "hot" startups, but not everyone can. This is the nature of the share issuance. The founders don't want to get diluted more than, say, 20% per round, so they are keen on not increasing the round size even though there is demand.

For many parts of finance, where deals are scarce and markets are illiquid, there is no cooperation. But the VC community has quite the pay-it-forward culture. The general culture in firms is keeping things quite transparent. I believe it is a (positive) spillover of the typical culture of openness that startups embody. Many of the VC:s were in startups before switching, and they bring the culture with them. That's probably a good thing.