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As a result, for a non-founder, a 1% early-stage stake in the exit of a billion dollar "unicorn" is quite likely to come out as a nice annual bonus at a "normal
by alain94040 11y ago
As a result, for a non-founder, a 1% early-stage stake in the exit of a billion dollar "unicorn" is quite likely to come out as a nice annual bonus at a "normal" firm: $10k to $100k. The one-two punch of dilution and liquidation preference eats up employee equity.
Your math has to be completely off. If you started with 1% of a company, even after a lot of dilution and liquidation preferences, a $1B exit will give you north of $3M. Not $10k to $100k.
- hapless 11y agoIt is entirely possible for a $1B exit to leave you with literally $0. Let's say your company has accepted $500 million in funding, with a 2x LP, at a $1 billion valuation. The company exits for $1 billion. Investors take a their 2x LP, for the entire $1 billion. Founders and employees get $0, despite a "billion dollar exit." This is the trivial case. It is not even considering dilution, founders retention of "preferred" shares, the complicated ownership structures that can result from 3-5-10 rounds of funding, or lengthy employee lockouts after an IPO.
- aetherson 11y agoNobody raises $500M with a 2x liquidation preference at a $1B valuation. And if they did, they wouldn't exit at $1B. This is a complete fantasy scenario.
- mahyarm 11y agoWell there is one company relatively recently that has raised $300M on a $1B valuation. I don't know the liquidation preference, but it happens.
- aetherson 11y agoI guarantee you their liquidation preference is not 2x (or indeed above 1x). And 30% is not 50%. Even if for some unfathomable reason the liquidation preference was 2x, and even if for some even more unfathomable reason the company promptly exited at $1B, that would leave $400M to be distributed to everyone else who had stock.