3 ms·

A part of the article I disagree with is that I don't see Goldman and BlackRock’s involvement as a good sign. These late stage investors have terms that no emp

by poof131 11y ago

A part of the article I disagree with is that I don't see Goldman and BlackRock’s involvement as a good sign. These late stage investors have terms that no employee gets. [1, 2] Employees who joined late are going to get screwed as ratchet clauses kick in. The PE folks are showing themselves to be better negotiators than the founders who focus too much on valuation and the happy path. The large number of unicorns and the numerous late stage deals will probably be one of the notable things about this bubble. It’s the worst of both worlds for employees, no upside of joining early and no government / regulatory protections found in a public market. As more people get screwed we may see a shift from ‘unicorn’ being a positive recruiting tool to a negative, which could push companies to IPO earlier despite the supposed Sarbanes Oxley fears. The brunt of the late stage startup risk is on the employees. The founders have taken money off the table, the VCs have their win, the PE firms have their ratchets, while the employees joining late get a handful of options at a fictional valuation. [1] http://www.businessinsider.com/investors-who-got-in-square-at-a-6-billion-valuation-2015-11 http://www.businessinsider.com/investors-who-got-in-square-a... [2] http://www.bloomberg.com/news/articles/2015-11-19/square-employees-find-some-of-their-stock-options-under-water http://www.bloomberg.com/news/articles/2015-11-19/square-emp...

dawhizkid 11y ago
You're assuming all late stage startups have ratchet clauses and using a single tech company (Square) to make your argument against joining any late stage startup. At a certain valuation, many late stage pre-IPO firms do start awarding RSUs vs. options (i.e. Facebook), which eliminates major downside risk to employees. If anything, I would be more weary of joining a mid-stage tech startup that is >$1 bil valuation with little revenue, nowhere close to an IPO, and still awarding options vs. RSUs. The inherent risks of other investor clauses (i.e. liquidation preferences) goes to 0 the closer a company is to an IPO.
_yosefk 11y ago
One big question I didn't discuss is how to evaluate the prospects of the employing company, and I didn't discuss it because I didn't come up with good advice. Companies differ tremendously. In particular, I personally was spoiled working for a company where the founders are very good negotiators, apparently even better ones than the various i-bankers they dealt with. For instance, they never took any VC money, presumably under the assumption that VCs might decide to gut the company if it doesn't become profitable in a time frame which for them seemed too short. They also made sure to raise tons of money years and years before running out of already-raised money; the conventional wisdom is you're not a bank and you should only raise capital when you absolutely need it, you shouldn't have stashes of idle cash, but the problem with this approach is that you raise money when you're desperate and this diminishes your bargaining power tremendously. Raising money long before it's really needed resulted in really good deals for them. I was also spoiled working for a company with a simple business model and pretty predictable revenues so it wasn't that hard to put a conservative lower bound on its future value. Anyway, I only addressed the really wrong arguments that I heard a lot, that after a late-stage investor gets on board the stock "can't possibly rise any more" (meaning, the late-stage investor is at best going to not lose money but can't possibly make any, so they're much dumber than you are); and, "even if it rises, it'll just rise a little" (which neglects the arithmetic of how your capital gain is calculated.) Your argument is different and I confess that I don't have any stats to either support or refute it.

by poof131 11y ago

dawhizkid 11y ago

You're assuming all late stage startups have ratchet clauses and using a single tech company (Square) to make your argument against joining any late stage startup. At a certain valuation, many late stage pre-IPO firms do start awarding RSUs vs. options (i.e. Facebook), which eliminates major downside risk to employees. If anything, I would be more weary of joining a mid-stage tech startup that is >$1 bil valuation with little revenue, nowhere close to an IPO, and still awarding options vs. RSUs. The inherent risks of other investor clauses (i.e. liquidation preferences) goes to 0 the closer a company is to an IPO.

_yosefk 11y ago

One big question I didn't discuss is how to evaluate the prospects of the employing company, and I didn't discuss it because I didn't come up with good advice. Companies differ tremendously. In particular, I personally was spoiled working for a company where the founders are very good negotiators, apparently even better ones than the various i-bankers they dealt with. For instance, they never took any VC money, presumably under the assumption that VCs might decide to gut the company if it doesn't become profitable in a time frame which for them seemed too short. They also made sure to raise tons of money years and years before running out of already-raised money; the conventional wisdom is you're not a bank and you should only raise capital when you absolutely need it, you shouldn't have stashes of idle cash, but the problem with this approach is that you raise money when you're desperate and this diminishes your bargaining power tremendously. Raising money long before it's really needed resulted in really good deals for them. I was also spoiled working for a company with a simple business model and pretty predictable revenues so it wasn't that hard to put a conservative lower bound on its future value. Anyway, I only addressed the really wrong arguments that I heard a lot, that after a late-stage investor gets on board the stock "can't possibly rise any more" (meaning, the late-stage investor is at best going to not lose money but can't possibly make any, so they're much dumber than you are); and, "even if it rises, it'll just rise a little" (which neglects the arithmetic of how your capital gain is calculated.) Your argument is different and I confess that I don't have any stats to either support or refute it.