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Startup L. Jackson has a good tweet about it: > 4/ You'd likely do better financially, on average, joining a Series A company, AND have more career upside. >
by birken 11y ago
Startup L. Jackson has a good tweet about it:
> 4/ You'd likely do better financially, on average, joining a Series A company, AND have more career upside.
> Source:
https://twitter.com/StartupLJackson/status/655154254722691072 https://twitter.com/StartupLJackson/status/65515425472269107...
Why anybody would want to be an employee at a unicorn company is crazy to me, especially in the world of ultra-inflated valuations.
If you join a huge public company you'll get liquid stock, at a real valuation, along with lots of salary and perks. The stock can't 10x, but companies will generally give you pretty large grants so if the stock goes up 20-50% you'll probably get a nice bump in your total compensation.
If you want to join a startup, you are much better off joining a ~10-20MM one. You still get a salary, though maybe not as high as at a unicorn or public company. However, it is much easier for a ~10-20MM company to 10x in value than a 1B company, and if the smaller company does 10x you'd be a somebody at a ~100MM company rather than a nobody at a ~10B one.
- pbreit 11y agoYou're missing how startup equity works. At these multi-billion dollar companies, employee shares are priced way less than the valuations you are seeing published in the media. So you're almost guaranteed a nice payoff even if the company merely treads water.
- birken 11y agoA low strike price only matters if there is some eventual liquidity for the shares. For common stock this means IPO, acquisition or some other share buyback. Both IPOs and acquisitions generally don't apply to companies "treading water", only the extremely successful and growing ones manage to IPO (and even then it doesn't work out so great for shareholders: see YELP or BOX) or get acquired. Get acquired for less than your ultra-inflated valuation? Then the common shareholders get killed by liquidation preferences. And as for other share transactions, you'll need to find a buyer. Most savvy investors aren't going to be willing to pay huge valuation premiums for common stock. And if they aren't going to pay a premium, then you really haven't gained anything by issuing common shares at a lower strike price. So basically, common shares have lower strike prices because they are worth less.... It isn't some magic trick that automatically benefits employees.
- pbreit 11y agoBoth YELP and BOX made a lot of people very rich.
- adventured 11y agoBox clearly did not make a lot of people very rich. They made a tiny group of people richer (very early investors). Employees have not done well, as the stock has been a disaster. All of the big rounds that Box raised basically valued them at or above where their stock is now. They're worth $1.6 billion and raised $558 million; their last round was at $2.5 billion. Their latest quarter they did $73m in sales and lost $50m, with rapidly slowing growth. Even worse, they're bleeding significantly on an operating basis, implying the business may never be capable of making money. They might be lucky if they have four or five quarters of cash left before disaster hits. The near future returns for employees holding stock, is not likely to be pretty. Even the primary founder didn't get very rich in SV terms, after he had to be diluted down to a sliver of ownership to keep the lights on.
- pbreit 11y agoEven the late stage investors probably made money. The only employees who didnt make money are the handful hired at the very end when the common valuation finally meets up with preferred.
- pbreit 11y agoAny equity compensation depends on future liquidity which unicorns have much more of.
- adrianmacneil 11y agoIncorrect. The employee shares are priced lower because they are for common stock. If the company merely "treads water", then ends up getting acquired for lower than its previous valuation, it's likely that your shares will be worth little if anything (after preferred stock liquidation preferences).
- LukaAl 11y agoThat assumes that the company reaches the IPO and its value holds. And still I don't get how lower they must be priced to be comparable to a growing startup, even risk adjusted. (And consider that the IRS could have something to say...) If the company doesn't reach the IPO and get acquired, well check what liquidation preference means. Check this post to understand better how stocks in a startup works: http://heidiroizen.tumblr.com/post/118473647305/how-to-build-a-unicorn-from-scratch-and-walk http://heidiroizen.tumblr.com/post/118473647305/how-to-build... (it is focused on founders, but employee get the same treatment).
- pbreit 11y agoIRS wise, it's easy to demonstrate that common stock, which doesn't having voting rights and preferences, is much less valuable. The secondary market for unicorn shares is pretty vibrant these days.
- kzhahou 11y agoJust a couple of days we all dissected Square's upcoming IPO. Valued at $6 billion, the average employee () stock value is at $294K, or $73.5K per year of vesting. Not super awesome. () Not a founder or executive/director, who'll get up to 5000x that.
- hkmurakami 11y agoAverage employee seems like a poor metric, considering that employee count increases exponentially. I'd be interested a breakdown based on "joined at funding stage X". From what I understand, if you joined Square in 2011, when it was already super hot, you're doing pretty well and could sell your stock on the secondary markets for a handsome windfall even well before this IPO.
- kzhahou 11y agoI agree -- typical pitfall of average. Do you have any sense of what the equity numbers would have been like at year 0, 1, 2, 3... based on your general knowledge of startups (not necessarily Square)?
- hkmurakami 11y agoexponentially decaying.
- AndrewKemendo 11y agoHow is that not super awesome? All of those employees had market wages well before the IPO.
- freditup 11y agoAgreed, if the employees negotiated fair cash compensation, a bonus equivalent to a $70K bonus/year for four years in a row is solid. If employees were told that the stock options were a significant portion of their compensation and thus salaries would be lower, it's less great, but probably still not unreasonable.
- prostoalex 11y agoTypically employees get options for common stock, which is discounted to preferred. Media report of valuations, though, typically multiplies the per-share price of latest preferred round by total number of shares outstanding, ignoring the layers upon layers of liquidity preferences, board seats or ratchet provisions thrown into the deal.
- andreyf 11y agoWhat do you mean common stock is discounted to preferred? If all goes to plan, does liquidity preference matter?
- bcherry 11y agothey mean that the purchase price is discounted. a company with 5M shares outstanding might sell 1M shares for $5 each to Series A investor. Now they have 6M shares and a "30M valuation". But they're still giving common grants at a $1 strike price because common shares aren't as valuable as preferred shares at this stage. In sufficient liquidity, the gap will close.
- prostoalex 11y agoThe strike price for common stock is lower. So a company whose valuation might had been trumpeted in the media as $50 bil would issue common stock at, let's say, $15 bil valuation.
- lmm 11y agoUrgh that's not a source, that's just literally those words. I thought you meant the link was going to substantiate that claim. If you join a Series A company your stock may well 10x on paper. But what're your chances of actually getting to cash that out? If you join a "unicorn" they can quite probably match the salary and perks you'd get at a large public company, and are likely to give you more stock, which probably still has better odds of getting a decent bump than the large public company stock does. Heck, apart from anything else, the "IPO bump" is a thing.