If I was a founder and I found out a VC would hedge their bets by investing in other startups besides mine, I would drop them in an instant. A VC should guarantee they will put their full faith in only my startup. /s

Exactly the response I wish every founder has ready, when they hear this line of objection from their VC.

So diversification is only for the investors but never permitted for the founders? Financial security for me, but financial risk for thee? I guess I shouldn't be surprised, that's the financial system as a whole; people who have property moving risk onto people who do the actual work at every turn.

I don't see this as any different than a founder who is also an angel investor, which many successful startup founders are when they go for their second company. They even cross invest.

If you look at the YC founders who have exited and gone on to found a second company, many many of them are also investors in other YC companies, sometimes even from their own cohort, if they did YC again. It's pretty common.

Diversification is a smart move. In this case a founder with less capital is investing something they do have, equity in their own startup.

I don't think people should be downvoting you. Whether or not they share the sentiment or disagree, this is a worthy opinion to raise for discussion. And refute if appropriate, but not downvote.

I think the main argument against it is that there's many, many unexpected factors that could derail any small company's ambitions. This is just like an insurance policy. It's not meant to signal you doubt your own capabilities (though some of course, do -- and that's where there need to be safeguards).

I agree. Just because someone's opinion is in the minority doesn't mean well-articulated arguments like this should be downvoted, but rather praised for stating the contrarian viewpoint.

Not advocating for the pool idea but that reasoning is generally incorrect. Decreasing personal capital/timing risk actually increases founder risk tolerance for bigger outcomes for their startup. Investors should want founders to be hungry for big capital, not small.

Yup, all that excessive risk incentives founders to do is to take a guaranteed early exit rather than go for a big future payout. And a VC who wants that probably shouldn't be a VC as they lack the risk tolerance.

Well said. This safety net is meant to help founders make better long term success decisions.

You may have missed the community aspect; the vested interest in mutual success among founders. Pooling is one of the most requested features by YC grads, including founders of unicorns. After demo day, mutual activity among the batch practically dies.

As mean as that might sound, that is exactly what I assumed the VC reaction would be. I also thought equity agreements heavily restricted how employee-shareholders can sell their stock, and you can't just promise away shares to others without consent of the investors as if that somehow bypasses the restriction?

Hard transfer ban clauses are rare, usually they are ROFRs. Some boards may push back, but they do see the benefit of the founder having an aligned support network and we believe many will let this happen.

We believe that this exception to the ROFR or transfer restriction becomes a standard clause built into most term sheets in the future.

+100

And on top of all this, what happens to the voting of this pool, share holder agreements, etc? I can only fathom the shenanigans that can occur. An acquiring firm can press hard on this 1% if they're playing ball.

This comes out of the founder's vested shares -- not the company stock -- transferrable only if there's ever an exit event. It's arguably more desirable for investors, the board, and acquirers than if the founder sold shares on the secondary market.