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PBwiki raises $2 million

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Yesterday, we publicly announced the news. We’ve raised $2 million from Mohr-Davidow Ventures and a couple of private investors for PBwiki, and I wanted to let you all know here, too. If you wonder why sometimes I don’t post for a few days, this is pretty much why.

PBwiki Small Logo

The funny thing is yesterday, we were looking at our bank receipt, and there’s like a $4.25 charge for Doritos (or something), $18.00 for Target, then a Very Large Number with a Lot of Zeros.

The basic way venture capital works is this: Some professional investors come along, decide they like your company, and offer to give you money in exchange for a percentage of the company. The percentage they take is the result of negotiations between the company and the VC to determine the valuation. In general, early-stage VCs hope to make ~10x their money back in a few years, but they also assume that out of 10 companies, maybe 5 will fail, ~3 will trade sideways (i.e., basically do nothing), and maybe 1 or 2 will be a big hit. This is after seeing hundreds of companies and investing in only the chosen few. But the return of that One Big Company is enough to take the risks of investing in these very, very early-stage companies like us. And it allows us to hire people to execute on things we want to do. That, plus buying BENZES FOR EVERYONE!!!! No, not that.

As an interesting sidenote, here’s a little-known fact about venture capital: The average VC underperforms the market, just like a mutual fund. (Data taken from some research done at UCLA a couple years ago that I can’t find right now, but I can.) This doesn’t apply to top-tier VCs, who usually crush the market. When you tell VCs this little tidbit, their faces turn into what may most closely resemble a pumpkin after having hydrochloric acid poured on it. It’s quite funny. I didn’t try this with our VCs, though. Yet.

I probably won’t post too much about venture capital on this blog since it’s pretty esoteric and I’m still learning a lot of it, but I thought I’d let you know what else I’m up to. And congratulations to our whole PBwiki team for getting this far. There’s nothing like working with people who are the best at what they do.

Related: And then what?

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27 Comments

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  1. Congrats (guys). You deserve it. I can’t wait to see what you do with all those zeros. ;)

  2. Congratulations Ramit. I use PBWiki for our team on a near-daily basis. Love the rich-text editor

  3. I would be interested to know some of the non-proprietary information you can share about the discussion you had. For example, I suspect they asked you explain your market advantage over free wikis as well as socialtext.com. If you could respond here, or in a new posting I would find it quite interesting.

  4. Congrats Ramit & the PBWwiki team!!
    I would love to read more about Venture capitalism & Entrepreneurship on this blog:)

  5. Congratulations! Now you can go buy another new BMW :)

    There’s two models of getting rich that seem to prevail in blogs – the scarcity model where you live like a hermit and save your way to wealth and the prosperity model where you create new value (and wealth). I prefer the later and you seem to also.

    Good luck (BTW – I have several wikis in PBwiki and love the site)

  6. Congrats Ramit. I hope PBWiki is one of the homeruns for MDV, because that means you’ll probably be stinky wealthy too.

    You mentioned that VCs decide they like your company. I used to help entrepreneurs make VC pitches in the old days. It was rarely the case that the VC found you, mostly the entrepreneur had to chase the money. Was that the case here? The other thing is that sometimes the VC really took over parts of the business. Is the money coming in with few strings attached or will they replace/augment your management team and drive product direction?

    Would be neat to hear about that kind of insider, non-secret news; maybe in a different blog I guess.

  7. Congratz Ramit and PBwiki.

    I wonder with VCs how many are really in it for the money? I figure that most of the people in the job really want to make a ton of more money, but from what I understand, you don’t really get to be a VC partner until you’ve already hit is big and have plenty of money and personal success. So, that makes me think that a large portion of being a VC is helping others like you before you made it big climb up that ladder. Most won’t make it, but the enjoyment of working with that type of person is enough to compensate when the average VC doesn’t. Just a thought.

  8. Congrats! I’m so happy for you and your team — well deserved :).

  9. I feel like I’ve told you this myself earlier today, but in case I haven’t, congrats! You guys deserve it, and few people know better than I do how hard you guys have worked to get to this point.

    “So, that makes me think that a large portion of being a VC is helping others like you before you made it big climb up that ladder. Most won’t make it, but the enjoyment of working with that type of person is enough to compensate when the average VC doesn’t. Just a thought.”

    That’s a mighty generous view, but I’m going to hope you’re right, because I’m always cheered by the prospect of people aiding each other like that.

  10. I read about this on TechCrunch and remembered you were involved. Way to go, that’s a big break through. Now why do I need a Wiki again? Haha, best of luck, not that you need it.

  11. 2mil. Mmmm … that’s a lotta peanutter sandwiches.

    congrats on the awsome break!

  12. Ramit:

    That’s an area I am interested in (VC). It would be great if you could post VC jargon in plain english, just like in this post?
    Can individual invest in a private company without having VC backing?
    I have read there are different kind of stocks within the companies? Series A?
    How do stock get allocated within the company before the company goes public?

    Thanks,

  13. Congratulations! I am glad to see you walking the Entrepreneurial walk as well as talking it. Now go make gobs of revenue and be an inspiration us all!

  14. Great news! Your summary of VC returns was pretty interesting. Good luck with your new Benz..

  15. good news ramit…I thought you were part of it…i asked them on techcrunch

  16. Congratulations to you and your PBWiki team, Ramit.

  17. Hmmm. From what I read in the book “Raising the Bar” by the creator of the clif bar: http://www.amazon.com/Raising-Bar-Integrity-Passion-Business/dp/0787986712/sr=1-1/qid=1172441273/ref=pd_bbs_sr_1/102-7800236-2676137?ie=UTF8&s=books
    Making a deal with a VC firm is like making a deal iwith the devil. They typically want 51% ownership in the company plus 25% a year on the loan amount for a set period of time (usually 5 years) At the end of the 5 years they want an exit strategy, usually sell the company privately or IPO and cash out. How is this similar or different for a web-based VC funded project?

  18. Thanks, I’m really starting to put PBWiki to use in film preproduction.

  19. Hhhmmm…no posts since Thursday. I’m thinking Ramit really is out spending the cash. LOL

  20. Responding to Badddriver:

    Making a deal with a VC firm is like making a deal iwith the devil. They typically want 51% ownership in the company plus 25% a year on the loan amount for a set period of time (usually 5 years) At the end of the 5 years they want an exit strategy, usually sell the company privately or IPO and cash out. How is this similar or different for a web-based VC funded project?

    VCs are not the devil, they only want money, just like most businesses. They look for potentially big ideas, buy a piece of them, then try to make money. The ideas they like are:

    3) Ideas where they can get control (that’s your 51%) because usually the inventor is emotionally involved and not a good business-person. They BUY this percentage so it isn’t a loan. They are in the risk with the inventor. If the inventor is also a good business person or they work out some arrangement then the VC could easily go in for less. Keep in mind that VCs also have a preferred deal size. Very few VCs will invest $50K for example.

    2) Ideas that have an exit strategy like, as you said, IPO or buyout so they can get their profits. No sense investing $2M in a business that won’t pay back.

    1) The biggest point for good VCs are businesses they can actually help. Inventors really benefit from “smart money”. That is, VCs with a lot of contacts and business resources to help grow the idea fast.

    $2M seems like a fairly small amount for a “venture capital” phase. 3 Stanford grads with good connections might have been able to round that amount up on their own through their network. That they didn’t tells me that PBWiki is going to benefit from the experience and contacts along with the money being invested.

  21. Actually, dealing with with VCs is not like dealing with the devil. Quite the contrary. It’s like dealing with really savvy business people. That’s all. Savvy business people (such as VCs) will trump a new entrepreneur any day.

    VCs don’t control 51% of the company if the company doesn’t keep asking for more funding. A typical early stage round requires anywhere from 20 and 30% of the company. Now, if you want more money, you would have to keep giving up the stake in the company. This is why it’s essential to make sure your idea is worthy and not a BS product.

    VCs don’t need 51% to control the company. They will control the company even with 1% of the company because of common vs. preferred stock. It gives them all the control they need – the control to block an acquisition, remove current management, fire original founders etc.

    And $2 million is about typical for a early stage company.

    Everything is very normal from what Ramit tells us. Congratulations to Ramit and the PBWiki team.

  22. [...] recently PBWiki received $2 million in VC funding as announced by Ramit in the post PBWiki raises $2 million.  The site caters to educators, businesses and any individual who can benefit from the power [...]

  23. Congratulations, indeed.

    Nice when you can do the things you write about! :)

    And a special thank you — the link to the PBWiki blog announcement introduced me to Hello Boss coffee. Awesome!

  24. [...] Paul pointed out in my post about PBwiki raising venture money, There’s two models of getting rich that seem [...]

  25. [...] I wrote about how PBwiki raised $2 million in venture financing. Now we’re looking for a superstar to lead our support efforts. I’ll give you an [...]

  26. I don’t know much about wikis and don’t care much either. But I just wanted to commend Paul’s comment on the two models of wealth in the PF blogger universe – i.e. the scarcity model and the prosperity model. Unfortunately it seems that 99% of the PF blogs out there focus on the scarcity model, as you say live like a hermit and save every penny they can until they’re old and grey. It annoys me to no end. Sure saving is important, that much is obvious. Everyone that doesn’t live below their means KNOWS its wrong, does this really need to be repeated endlessly on PF blogs? The relatively meager amounts of money most PF bloggers focus on gaining through little things are meaningless when compared to the money you could be earning if you applied yourself more. I work in finance, and like Ramit, me and most of my friends went to top Ivy League schools, though on the east coast and instead of going to Silicon Valley we went to Wall Street (I’m Indian also). Most of us are in our mid to late 20s or early 30s and I’d say most have salaries between $300k to over $1MM. Most of us also have an entrepreneurial goal as well but we want to be very liquid first. Alternatively you can just stay in this business and amass millions, its very common. Silicon Valley offers similar opportunities, while salaries don’t compare to Wall Street, there is always the opportunity of making millions (or billions) through a startup, whether its yours or just one that you join early and becomes successful. From my readings of PF blogs they typically have a cynical attitude towards people who make a lot of money, you constantly read comments from the bloggers suggesting people who make a lot also spend all their money which is just retarded. I feel sorry for the typical PF blogger, they come across as total hermits who load up on cheap pasta and cringe at the thought of spending money for a kick-ass night out on the town. What’s the point of living if all you’re doing is preparing for retirement?