Facebook and the changing rules of venture funding [Update]

Facebook demonstrates a new way for entrepreneurs to get paid.

The old world truly is changing. It used to be that entrepreneurs got to cash out of their startups after everyone else (or, at least, at the same time). Not so with Facebook's founder Mark Zuckerberg, as Valleywag reports, who recently cashed in $40 million of his stock. Cha-ching....

But it's not really Facebook that is behind th change. It's Peter Thiel, founder of PayPal and president of Clarium Capital:

From his offices in San Francisco's Presidio, [Peter Thiel has] set about changing the rules of how startups get funding and how founders make their fortunes. Through his Founders Fund, he has begun issuing "Series FF" shares to the entrepreneurs he backs, giving them the right to sell shares alongside their companies to new investors. Thiel, who felt unjustly treated as the cofounder of PayPal, wants to let his protégés build companies without worrying about how to make rent.

Is this wise? Not sure, but I know who I want to help fund my next startup. I like the idea of intermediate payouts. I'm not sure, however, whether most VCs would agree, as it could make for slothful entrepreneurs for whom $40 million might actually be a material amount of money. I'm sure there are one or two for whom that's true. :-)


UPDATE: Turns out the Valleywag rumor was wrong. Even so, I still like the idea of Series FF shares.

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About the author

    Matt Asay is chief operating officer at Canonical, the company behind the Ubuntu Linux operating system. Prior to Canonical, Matt was general manager of the Americas division and vice president of business development at Alfresco, an open-source applications company. Matt brings a decade of in-the-trenches open-source business and legal experience to The Open Road, with an emphasis on emerging open-source business strategies and opportunities. He is a member of the CNET Blog Network and is not an employee of CNET. You can follow Matt on Twitter @mjasay.

     

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