Whisper is an anonymous app that has raised $US60 million from investors. Its last round valued the startup at about $US200 million.
At Business Insider’s annual IGNITION conference, we asked Whisper CEO Michael Heyward how much of that $US60 million he’s been able to keep for himself.
His answer: $US0. Excluding salary and stock options, of course.
When a startup’s funding round is particularly hot, sometimes founders ask investors if they can keep a few million dollars for themselves. If they’re first-time founders, they may want to buy houses, support families, and take some risk out of running a startup.
Investors allow founders to do this when it aligns with their interests. Sometimes, investors are so desperate to put money into a company that they will cave to a founder’s demands. Other times, offering founders a few million dollars can be a smart way to keep them incentivized. A founder will be less likely to accept an acquisition offer if he or she is already financially stable, and an investor’s goal is to back startups that will grow as large as possible, independently.
For example, Snapchat co-founders Evan Spiegel and Bobby Murphy were allowed to take a few million dollars off the table when they raised a round of financing at a $US7 billion valuation. The first-time founders rejected a ~$US3 billion offer from Facebook, and now the company is worth ~$US10 billion. Spiegel and Murphy recently purchased their first homes with some of the cash (Spiegel had been living at his father’s house).
Whisper is smaller than Snapchat, which likely has a 100 million+ active users. Tens of millions of people use Whisper every month. But a much smaller Whisper competitor, Secret, was able to take $US6 million off the table during a $US25 million fundraise that valued the startup at about $US100 million. It’s unclear why investors let the founders do that — they had only been running the company for a few months, and the buzz around Secret has died down since.
Michael Heyward, CEO and founder of Whisper, says he has no need for millions of dollars right now. He doesn’t have a family to support or loans to pay. He also says he believes in his product so he doesn’t want to swap equity for cash. It wouldn’t be smart since he believes his company will be worth much more in the future.
Heyward’s first institutional investor, Lightspeed’s Jeremy Liew, says it’s rare for founders to take money off the table. If an established entrepreneur is asking to pocket millions of dollars, it can be a warning sign to investors that the founder isn’t serious enough about building a big business.