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With Snap’s IPO, Los Angeles Prepares to Embrace New Tech Millionaires

40 points by lnrdgmz 10y ago

askafriend 10y ago
Realistically, with all the various ratchet terms in Snap's financing, how many of the 2k employees will see very significant income from the IPO? By very significant, I mean >$150-300k per year in wealth creation adjusted for # of years it took to vest. I honestly suspect not too many. A majority of the money that people will earn will just offset the difference in salary between Snap and larger more established companies that give out liquid RSUs - like Google. Plus Snap significantly backweights their equity. So the people who can cash out on all of their equity are a small percentage of the 2k employees (since it's still such a young company) and most employees probably haven't vested the full 4 years. Still, the IPO will have an impact on the local economy - but probably not as much as is being purported. Maybe someone with more experience in large financial liquidity events like this can chime in?
- GuiA 10y ago
  Zach Holman recently blogged about this: I saw GitHub’s valuation move from sub-$10M to more than $2B; beyond that, GitHub is turning a decade old this year. Traditionally, this would be a great point where lots of little companies get spun off from this created wealth, and employees and former employees would be able to help with that. In reality, I can probably count on one hand the number of people from GitHub who are in a financial position to become true angels. This is far from a problem unique to GitHub; the entire industry is concentrating its cash in a select few. https://zachholman.com/posts/slow-exits https://zachholman.com/posts/slow-exits HN discussion: https://news.ycombinator.com/item?id=13655855 https://news.ycombinator.com/item?id=13655855
  - econner 10y ago
    I thought his point was just that GitHub is still private. Snap going public is a different situation.
  - abalone 10y ago
    Holman was writing about slow exits, and how they keep employees illiquid and even claw back equity from those that leave. Snap is not a slow exit. It may or may not produce a bunch of millionaires but it's definitely not what Holman was complaining about. In fact he would probably praise them for going public ASAP, like the old days.
    - GuiA 10y ago
      Mmh. Yes, but I think the two are two sides of the same coin. Not only are exits rarer, but the companies who do exit produce fewer people who are then in a position to keep the innovation cycle going. Holman touches on a few reasons why in his post: "...concentration of wealth, and legal stipulations like gnarly 90 day exercise windows".
      - abalone 10y ago
        The exercise window is a non-issue after a company goes public. That's his main complaint about what's keeping wealth tied up.
- bogomipz 10y ago
  Can you elaborate here on what you mean? I didn't follow this sentence: >"A majority of the money that people will earn will just offset the difference in salary between Snap and larger more established companies that give out liquid RSUs - like Google." I agree with you though, its not even just the full 4 year vesting schedule either because there's usually a 1 year cliff before the 1st year of vesting begins. And then of course for worker bees there's a 6 month lockup period where they can't sell while the fat cats are getting rich by selling on the day it opens.
  - econner 10y ago
    The idea is that employees accepted a lower salary in exchange for the chance to earn more through stock from an eventual liquidity event. They're arguing that the gain from the liquidity event is just enough to make up the difference in salary.
    - bogomipz 10y ago
      Sure, that makes sense. I guess I didn't understand was comparison to Google and RSUs. Is it that Googles RSU are more like incentive bonuses?
      - Game_Ender 10y ago
        They are so liquid and predictable they are essentially just more salary. So a startup needs to not just have good equity, but great equity.
  - askafriend 10y ago
    I'm basically saying that for the majority of employees at Snap who accepted a far more risky (illiquid) compensation compared to Google/FB's entirely liquid compensation - this IPO for Snap will simply make up that difference more or less. If someone is good enough to get a $1mm stock option package at Snap, then if you divide that by the 4 years that it takes to vest, the difference between taking a job at Snap and pulling in a big Google compensation package isn't too far off. $1mm/4 = $250k per year - $Tax = something that RSUs at Google could have accomplished with far less risk. The real life changing amounts of money are going to very few people in the org.
- hkmurakami 10y ago
  With a $20B valuation, With straight up ownerships having a couple of bps would do it. How many people out of the 2000 have 0.02% of the company after its dilution? Maybe 150--200?
- harryh 10y ago
  My understanding is that Snap's financing terms have actually been very good. The 2 co-founders each still own over 20% of the company each which is pretty exceptional. I'm fairly certain that some of their financing even involved selling common (not preferred) stock. A 20B+ exit (assuming that's where it ends up) is a pretty phenomenal success. That's 2 million bucks (well above your target) per basis point. A pretty huge chunk of the org in traditionally highly compensated roles (product, design engineering, and kind of management roll, etc) will do very well. You are underestimating how big of a success this is (again assuming that the IPO goes well) for Snapchat stockholders.
  - econner 10y ago
    These numbers make sense to me. What I wonder though is if Snap goes the way of Twitter and winds up halving in valuation by the lockup period expiration. Is it still $1 million per basis point? Or will ratchets kick in that further dilute employees and drive the value down?
    - harryh 10y ago
      Any unusual financing terms almost always get resolved at the time of exit/ipo. Also, again, my understanding is that Snap had very clean financing rounds so this isn't a big concern here to begin with.
    - hkmurakami 10y ago
      All the preferred shares convert to common at IPO so no.
  - giarc 10y ago
    VCs and directors (14 people) own 58% of Class A, 30% for Class B, and Evan and Rob have 100% of Class C stock. I'm not sure what was in the option pool for early employees. Evan and Rob took some money off the table in earlier rounds I believe.
- abalone 10y ago
  About 80% of Snapchat's employees were added in the past 18 months, so you're setting a pretty high bar by implying most need to see >$150K/year to be better off than joining Google. The earlier employees that took on significant risk are a lot more likely to see that kind of money, and thus become the next angels.
adamnemecek 10y ago
Out of the 1900 employees, how many are actually going to become millionaires at a company like Snapchat?
- Cyph0n 10y ago
  Snapchat has 1900 employees? That's way more than I expected. For comparison, that's 5x the size of Valve, and around 2x the size of Riot Games. Snapchat is doing nowhere near the amount of work being done at either Valve or Riot, as far as I can tell at least. So is this just a case of "growing because we have money", or is there in fact a legitimate reason behind such a large workforce?
  - 40acres 10y ago
    Why are you comparing Snapchat to video game developers? They are a social media company and advertising platform and are pioneers of a new technology (AR). They should be compared to their peers.
    - nailer 10y ago
      I guess because physics based lighting engines with online realtime interaction are more complex than social networks and messaging.
      - nemothekid 10y ago
        lol. Is there anyone at Valve currently writing physics based lighting engines? I'd imagine scaling social media messaging pipelines are a bit more complex than designing new hats and weapon skins.
        Cyph0n 10y ago
        It's confirmed that Valve has multiple games in development, so yes, there are people working on physics engines. Not to mention that there are in fact people there who understand physics engines, or else how would they fix bugs in their existing games? On top of their games, they have Steam, which I'd argue is more complex to scale than a "social media messaging pipeline".
empath75 10y ago
Those who do not remember pets.com are doomed to repeat it. This IPO is going to wipe out the unicorn bubble. The valuations for this company are utterly delusional. It's being pumped on all the investment forums by people who seem to honestly believe that the embarrassingly dorky Spectacles are going to be the next iPhone, even though investors seem to be the only people who have even heard of the thing. This IPO is going to tank.
- adamnemecek 10y ago
  People said that about FB in 2012. And I dislike FB as much as the next guy. Why do you think it's overvalued? And pets.com was in a fundamentally different situation. So fundamentally different that you might as well compare it to Enron. I think that you are overestimating the speed at which the stock market corrects itself esp when it comes to tech. Look at Twitter. It's technically dying but it wasn't a fast death.
  - tbrock 10y ago
    Well Facebook built some actual technology. They aren't just making picture filters for genetalia.
    - drewblaisdell 10y ago
      > They aren't just making picture filters for genetalia. And therein lies a wildly inept understanding of Snapchat that is so common among people outside of its main demographic.
      - king_magic 10y ago
        Is it really wildly inept though? I truly cannot wrap my head around what value Snapchat brings the world, outside of maybe yet another way to ultimately advertise to young people. Just to be clear I'm not saying you're wrong, I just don't get it.
        10y ago
Apocryphon 10y ago
Not everyone is happy with the changes. Gentrification has pushed artists and working families out of Venice. Some restaurants have shut down because they can no longer pay soaring rents. In response, some politicians and residents in Venice have pushed for density restrictions, said Emil Schneeman, a real estate agent at Berkshire Hathaway Home Services. Why has no community adequately planned for this sort of tech boom? Looks like the tragedy of the Bay Area housing crisis is going to replay itself, again and again. Seattle and Austin have already faced similar challenges.
- codemac 10y ago
  Why would one? What community would spend time preparing for someone, literally overnight, to have more wealth and leverage than your entire community as a whole?
  - Apocryphon 10y ago
    If tech is truly eating the world, and tech companies have been setting up shop in your neighborhood for nearly fifteen years (MySpace was founded in 2003, and it's hardly the first major SoCal tech story), then you probably should pay attention to how tech industries have affected other cities.
- s0rce 10y ago
  I think its largely due to selfish residents in these cities. Other than a few property developers who would benefit from building lots of condos most of the residents benefit from keeping development at bay. They enjoy increased housing values, fewer new homes built keeps the "character" of the city the same and less new people who can afford to live in the area maybe results in less traffic (probably not as people just commute long distances and its worse but residents are often delusional).
  - rtpg 10y ago
    Not all residents, but just home/land owners, I think. I think current renters have reasons to want price pressure to stay down as much as new ones.
riffic 10y ago
Los Angeles already has an established and healthy "tech scene" although it's not a tech industry per se. Film and aerospace industries require extraordinary tech resources.

40 points by lnrdgmz 10y ago

Realistically, with all the various ratchet terms in Snap's financing, how many of the 2k employees will see very significant income from the IPO? By very significant, I mean >$150-300k per year in wealth creation adjusted for # of years it took to vest. I honestly suspect not too many. A majority of the money that people will earn will just offset the difference in salary between Snap and larger more established companies that give out liquid RSUs - like Google. Plus Snap significantly backweights their equity. So the people who can cash out on all of their equity are a small percentage of the 2k employees (since it's still such a young company) and most employees probably haven't vested the full 4 years. Still, the IPO will have an impact on the local economy - but probably not as much as is being purported. Maybe someone with more experience in large financial liquidity events like this can chime in?

GuiA 10y ago
Zach Holman recently blogged about this: I saw GitHub’s valuation move from sub-$10M to more than $2B; beyond that, GitHub is turning a decade old this year. Traditionally, this would be a great point where lots of little companies get spun off from this created wealth, and employees and former employees would be able to help with that. In reality, I can probably count on one hand the number of people from GitHub who are in a financial position to become true angels. This is far from a problem unique to GitHub; the entire industry is concentrating its cash in a select few. https://zachholman.com/posts/slow-exits https://zachholman.com/posts/slow-exits HN discussion: https://news.ycombinator.com/item?id=13655855 https://news.ycombinator.com/item?id=13655855
- econner 10y ago
  I thought his point was just that GitHub is still private. Snap going public is a different situation.
- abalone 10y ago
  Holman was writing about slow exits, and how they keep employees illiquid and even claw back equity from those that leave. Snap is not a slow exit. It may or may not produce a bunch of millionaires but it's definitely not what Holman was complaining about. In fact he would probably praise them for going public ASAP, like the old days.
  - GuiA 10y ago
    Mmh. Yes, but I think the two are two sides of the same coin. Not only are exits rarer, but the companies who do exit produce fewer people who are then in a position to keep the innovation cycle going. Holman touches on a few reasons why in his post: "...concentration of wealth, and legal stipulations like gnarly 90 day exercise windows".
    - abalone 10y ago
      The exercise window is a non-issue after a company goes public. That's his main complaint about what's keeping wealth tied up.
bogomipz 10y ago
Can you elaborate here on what you mean? I didn't follow this sentence: >"A majority of the money that people will earn will just offset the difference in salary between Snap and larger more established companies that give out liquid RSUs - like Google." I agree with you though, its not even just the full 4 year vesting schedule either because there's usually a 1 year cliff before the 1st year of vesting begins. And then of course for worker bees there's a 6 month lockup period where they can't sell while the fat cats are getting rich by selling on the day it opens.
- econner 10y ago
  The idea is that employees accepted a lower salary in exchange for the chance to earn more through stock from an eventual liquidity event. They're arguing that the gain from the liquidity event is just enough to make up the difference in salary.
  - bogomipz 10y ago
    Sure, that makes sense. I guess I didn't understand was comparison to Google and RSUs. Is it that Googles RSU are more like incentive bonuses?
    - Game_Ender 10y ago
      They are so liquid and predictable they are essentially just more salary. So a startup needs to not just have good equity, but great equity.
- askafriend 10y ago
  I'm basically saying that for the majority of employees at Snap who accepted a far more risky (illiquid) compensation compared to Google/FB's entirely liquid compensation - this IPO for Snap will simply make up that difference more or less. If someone is good enough to get a $1mm stock option package at Snap, then if you divide that by the 4 years that it takes to vest, the difference between taking a job at Snap and pulling in a big Google compensation package isn't too far off. $1mm/4 = $250k per year - $Tax = something that RSUs at Google could have accomplished with far less risk. The real life changing amounts of money are going to very few people in the org.
hkmurakami 10y ago
With a $20B valuation, With straight up ownerships having a couple of bps would do it. How many people out of the 2000 have 0.02% of the company after its dilution? Maybe 150--200?
harryh 10y ago
My understanding is that Snap's financing terms have actually been very good. The 2 co-founders each still own over 20% of the company each which is pretty exceptional. I'm fairly certain that some of their financing even involved selling common (not preferred) stock. A 20B+ exit (assuming that's where it ends up) is a pretty phenomenal success. That's 2 million bucks (well above your target) per basis point. A pretty huge chunk of the org in traditionally highly compensated roles (product, design engineering, and kind of management roll, etc) will do very well. You are underestimating how big of a success this is (again assuming that the IPO goes well) for Snapchat stockholders.
- econner 10y ago
  These numbers make sense to me. What I wonder though is if Snap goes the way of Twitter and winds up halving in valuation by the lockup period expiration. Is it still $1 million per basis point? Or will ratchets kick in that further dilute employees and drive the value down?
  - harryh 10y ago
    Any unusual financing terms almost always get resolved at the time of exit/ipo. Also, again, my understanding is that Snap had very clean financing rounds so this isn't a big concern here to begin with.
  - hkmurakami 10y ago
    All the preferred shares convert to common at IPO so no.
- giarc 10y ago
  VCs and directors (14 people) own 58% of Class A, 30% for Class B, and Evan and Rob have 100% of Class C stock. I'm not sure what was in the option pool for early employees. Evan and Rob took some money off the table in earlier rounds I believe.
abalone 10y ago
About 80% of Snapchat's employees were added in the past 18 months, so you're setting a pretty high bar by implying most need to see >$150K/year to be better off than joining Google. The earlier employees that took on significant risk are a lot more likely to see that kind of money, and thus become the next angels.

adamnemecek 10y ago

Out of the 1900 employees, how many are actually going to become millionaires at a company like Snapchat?

Cyph0n 10y ago
Snapchat has 1900 employees? That's way more than I expected. For comparison, that's 5x the size of Valve, and around 2x the size of Riot Games. Snapchat is doing nowhere near the amount of work being done at either Valve or Riot, as far as I can tell at least. So is this just a case of "growing because we have money", or is there in fact a legitimate reason behind such a large workforce?
- 40acres 10y ago
  Why are you comparing Snapchat to video game developers? They are a social media company and advertising platform and are pioneers of a new technology (AR). They should be compared to their peers.
  - nailer 10y ago
    I guess because physics based lighting engines with online realtime interaction are more complex than social networks and messaging.
    - nemothekid 10y ago
      lol. Is there anyone at Valve currently writing physics based lighting engines? I'd imagine scaling social media messaging pipelines are a bit more complex than designing new hats and weapon skins.
      - Cyph0n 10y ago
        It's confirmed that Valve has multiple games in development, so yes, there are people working on physics engines. Not to mention that there are in fact people there who understand physics engines, or else how would they fix bugs in their existing games? On top of their games, they have Steam, which I'd argue is more complex to scale than a "social media messaging pipeline".

empath75 10y ago

Those who do not remember pets.com are doomed to repeat it. This IPO is going to wipe out the unicorn bubble. The valuations for this company are utterly delusional. It's being pumped on all the investment forums by people who seem to honestly believe that the embarrassingly dorky Spectacles are going to be the next iPhone, even though investors seem to be the only people who have even heard of the thing. This IPO is going to tank.

adamnemecek 10y ago
People said that about FB in 2012. And I dislike FB as much as the next guy. Why do you think it's overvalued? And pets.com was in a fundamentally different situation. So fundamentally different that you might as well compare it to Enron. I think that you are overestimating the speed at which the stock market corrects itself esp when it comes to tech. Look at Twitter. It's technically dying but it wasn't a fast death.
- tbrock 10y ago
  Well Facebook built some actual technology. They aren't just making picture filters for genetalia.
  - drewblaisdell 10y ago
    > They aren't just making picture filters for genetalia. And therein lies a wildly inept understanding of Snapchat that is so common among people outside of its main demographic.
    - king_magic 10y ago
      Is it really wildly inept though? I truly cannot wrap my head around what value Snapchat brings the world, outside of maybe yet another way to ultimately advertise to young people. Just to be clear I'm not saying you're wrong, I just don't get it.
      - 10y ago

Apocryphon 10y ago

Not everyone is happy with the changes. Gentrification has pushed artists and working families out of Venice. Some restaurants have shut down because they can no longer pay soaring rents. In response, some politicians and residents in Venice have pushed for density restrictions, said Emil Schneeman, a real estate agent at Berkshire Hathaway Home Services. Why has no community adequately planned for this sort of tech boom? Looks like the tragedy of the Bay Area housing crisis is going to replay itself, again and again. Seattle and Austin have already faced similar challenges.

codemac 10y ago
Why would one? What community would spend time preparing for someone, literally overnight, to have more wealth and leverage than your entire community as a whole?
- Apocryphon 10y ago
  If tech is truly eating the world, and tech companies have been setting up shop in your neighborhood for nearly fifteen years (MySpace was founded in 2003, and it's hardly the first major SoCal tech story), then you probably should pay attention to how tech industries have affected other cities.
s0rce 10y ago
I think its largely due to selfish residents in these cities. Other than a few property developers who would benefit from building lots of condos most of the residents benefit from keeping development at bay. They enjoy increased housing values, fewer new homes built keeps the "character" of the city the same and less new people who can afford to live in the area maybe results in less traffic (probably not as people just commute long distances and its worse but residents are often delusional).
- rtpg 10y ago
  Not all residents, but just home/land owners, I think. I think current renters have reasons to want price pressure to stay down as much as new ones.

riffic 10y ago

Los Angeles already has an established and healthy "tech scene" although it's not a tech industry per se. Film and aerospace industries require extraordinary tech resources.