The Dumbest Thing
Teen Auctioned Her Future Income to Fund a Startup
UPDATE: This was a hoax.
A teen auctioned her future income to fund a startup (WHAT!?). In case you’ve missed the news, here is a recap:
- This 19-year-old just auctioned off 10 percent of her salary for 10 years to fund a startup
- Teen developer funds startup by auctioning 10% of her future income
Basically, a young (19 years of age) woman, Sarah Hanson, has auctioned 10% of her future income on 32auctions to pursue a startup life. In my humble opinion, this is crazy and super stupid, both from her and from the investors’ perspectives. In our TechCrunch over-hyped society, where we celebrate raising VC funds like something amazing, this will require some explanation on my part.
Let’s start with our teen developer. She stated in the interview with VentureBeat that she doesn’t like the idea of getting a normal job, doesn’t want to have a boss and doesn’t want to get a traditional education — because she thinks that it won’t be useful in real life. How much can a 19-year-old know about real life? :-) Also, now she has not one but many bosses (a.k.a. investors), and that’s even more demanding. Not getting a normal job seems more like a good excuse not to work hard and enjoy startup life as it’s portrayed in movies (e.g., The Social Network).
As for the investors, this is even dumber than blowing money at the casino or on lottery tickets. Sarah doesn’t have a proven record of social, business, or technical skills (her project Senior Living Map has no thrills and will take a typical HackReactor student a few hours to put together). The best bet for the investors to get their money back is contradictory: it’s when/if Sarah quits her startup and gets a six-figure job as a developer at a Silicon Valley/San Francisco startup. In fact, 10 years by 10% by $100,000 equals $100,000, which is around break-even for the $125,000 investment.
Most likely, Sarah will live on Ramen noodles and no income for a few years trying to get her startup off the ground. So, there will not be any income during that period. Furthermore, it takes an average three to five years for a startup to pick up in sales and/or traction. On the other hand, let’s imagine that Sarah’s startups takes off quickly and brings her a good revenue and income. She can trick investors by keeping her personal income low — bad for investors, which, with traditional convertible note or series A vehicles, can get 2–100x upside. They are stuck with just 10% stretched over ten years.
Maybe the article doesn’t mention the intricate edge cases that are stated in the agreement to protect both sides. What’s more, I love the fact that there are available capital and people willing to invest. In addition, it’s wonderful that some wantrepreneurs are getting creative in their fundraising efforts. However, all these don’t mean that common sense should be abandoned. Starting a business is hard enough already, and by default, chances are against founders. Why would you complicate your life by taking an unsecured credit against your future income in a high-risk and low-reward scheme? To me, this is a bad idea all around.
