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GitHub Founders Will Own More Microsoft Stock Than Its CEO
- aroman 8y ago50% of a $7.5 billion sale is going to 3 people? insane. what about the employees?
- sparky_ 8y agoI might choose a stronger word - gross, for instance. I'm all for founder success, but that sounds a lot to me like the employee equity pool suffered.
- deleted 8y ago[deleted]
- darawk 8y agoWhy? 50% of 7.5 billion is still a lot of money. Github doesn't have that many employees. In fact, they have 745 employees. That averages out to 4.6 million per employee. Now, there's probably a good bit of VC money in there diluting that, but i'd bet not by more than 50%. I think the employee equity pool did just fine here.
- aetherson 8y agoYou think that the employee equity pool was 25% of the company? That's pretty high. Not maybe completely unprecedented, but I'd expect considerably lower.
- kjksf 8y agoFounders apparently got 50%. GitHub had 2 funding events. https://www.crunchbase.com/funding_round/github-series-b--49182d09 https://www.crunchbase.com/funding_round/github-series-b--49... $250M at pre-money valuation of $1.8B i.e. 13%. https://www.crunchbase.com/funding_round/github-series-a--832c3557 https://www.crunchbase.com/funding_round/github-series-a--83... $100M at valuation of $650 i.e. 15% So ~28% to VC, 50% to founders, which leaves 22% How much of that was actually allocated, I don't know.
- adventured 8y agoGitHub has, what, 600-700 employees? Most of those have probably been hired in the last five years. Ownership distribution was likely relatively slow, given the way GitHub proceeded as a business (slow ramp, only took on a series A four years after the founding). Gates had 45% of Microsoft after its IPO after a similar length of time (a decade) that GitHub has existed. His position rapidly diluted after that with increased share-based compensation and Microsoft's size ballooning. Allen + Gates + Ballmer probably had 65% of Microsoft after the IPO. Larry Ellison still holds 27% of Oracle after 40 years. I don't think the GitHub distribution outcome is particularly historically unusual. One could argue obviously that from a strictly subjective moral basis that it's still not enough distribution. The only thing historically unusual, is that the venture capitalists got such a small share of the outcome, courtesy of GitHub not drowning themselves in funding across a decade. In most cases these days, the VCs would be taking up a far larger portion of the founder's 50% position. I'd guess the employees are getting 20%-25% of the $7.5 billion. That's maybe $2.25m to $2.75m average per employee, assuming a 600-700 employee range.
- ramen-san 8y agoI understand your visceral reaction here, and agree that equity pools need to be increased in general. But isn’t that really a reflection on all the folks who choose to join a startup for the prevailing equity packages offered today? The reality is unless you have founder or very early employee equity, it will take a Facebook size outcome to Be truly life changing. Having been part of a billion dollar acquisition myself, I can attest that for the vast majority of people (myself included), it was equivalent to a nice bonus. Perhaps more people need to realize that and internalize that before they forego the higher compensation, and easier workload of an established company? The only thing that will realistically get founders to share more equity is for the market to demand it. Personally I would not sign up for another startup journey unless I felt there was substantially more upside on the table. Otherwise, you’re better off joining BigCo or go further and start your own thing and get founder equity. FWIW, I wouldn’t begrudge the Github founders... they’ve done an amazing job over a very long time. They rolled the dice and made it happen. Hats off to them!
- tomp 8y agoJust keep in mind that it's not just about the money. For example, in an early-stage, rapidly-growing startup, you're also bound to gain much more experience (managing, sales, operations, etc) much more quickly than in many established companies. So even if you just get a nice salary and a nice bonus, your career could still be leaps ahead of a corporate worker-bee.
- bordercases 8y agoAlmost like it was too good to pass up. What does Microsoft see in a Github acquisition?
- tjr225 8y agoThey won the lottery on the backs of their employees. Unfortunate, but also unfortunately acceptable in today's climate.
- darawk 8y agoYou mean the employees who chose to work there understanding the terms of their deal? The employees who probably just made a ton of money themselves from this deal? What exactly is unfortunate about this? Are you upset that some people made a lot of money?
- sdiupIGPWEfh 8y ago> You mean the employees who chose to work there understanding the terms of their deal? As if anyone can just choose to be working for a company with the right terms, in a position to make a multi-billion dollar sale, and also somehow not get screwed out of what they thought their terms guaranteed.
- darawk 8y agoSo, you are positing that the employees were screwed here? Do you have some evidence for that claim?
- sdiupIGPWEfh 8y agoOnly if you're suggesting that the employees chose to work there because they thought they had the right terms and were expecting a multi-billion dollar sale from which to benefit. If you have evidence for that, I expect you've freely chosen to work for such a company yourself and that you're entirely confident in your situation. (Or else the money just doesn't matter that much to you. That's ok too!)
- Trundle 8y agoyou're right, people can't. If you want shot at a significant chunk of a multi billion dollar sale you start your own company. As the github founders did. If you want up be paid $x a fortnight right from the get go then you get a job. I don't see how the success of people who chose to do A means people that did B got screwed, just because they both worked on the same project. The decisions they made and context of their choosing to work on it were still different things each with their own pros and cons Unless there was some more to it. Like share /options shenanigans that might not be legally fraud but fraud in spirit. No one seems to be saying that happened here though.
- hkdobrev 8y agoThey've bootstrapped for some time.
- dpatru 8y ago> what about the employees?! Presumably the employees were paid salaries.
- paulie_a 8y agoI wouldn't want stock options. Just pay me more. I am too old to want to deal in lottery tickets.
- parvenu74 8y agoWhat do you mean "what about the employees?" Were they not paid? Or do you assume anyone who profits from the sale of a company is automatically immoral? Lots of founders lose everything when they attempt a startup; the employees of those companies got paid up through the end and much more than the founders in many cases. Let's celebrate the success of those who hit a home run rather than sniping at them for not sharing their wealth with the people who risked less in the venture than they did.
- perfmode 8y agolet’s not sit here and pretend it’s that simple. there is certainly a gulf in the present day equity split between even the least helpful founder and the most instrumental employee.
- parvenu74 8y agoIt certainly is that simple. I know a lot of serial contractors who would rather take the guaranteed $150/hour instead of $95/hour+equity because the latter is a crap shoot. Sure, there will be cases where they could say "If I had taken the equity deal on GitHub/Instagram/Fabulous Startup I could retire now".... they can dry their tears with the realization they are still in the top 2% of all income earners even without the equity millions.
- perfmode 8y agolet’s face it: the distribution of equity is about leverage and convention. as a community, we anchor each other by saying things like what you’re saying. if more people felt the way i do, as a community, we would not accept the status quo. it sounds as though your stance is founded upon a just-world hypothesis.
- partycoder 8y agoMany employees do much more than what they're asked to do. Stay longer hours, postpone their families and many times take salary hits, refuse job offers, give away intellectual property... many even put their health and marriage on the line. And without that sacrifice on the part of employees, many companies would never have made it out of a vast pool of mediocre nondescript companies. This is not the case for every employee or every company, but I think you need to balance your world view a little bit.
- jonas21 8y agoThe fact that the founders still own 50% of the company means there was less dilution from investors. Less dilution is better for employees too (especially the early ones).
- bitmapbrother 8y ago>50% of a $7.5 billion sale is going to 3 people? insane. They'll need to be frugal to remain members of the 3 comma club.
- Apocryphon 8y agoEach of the three could receive about 12.3 million Microsoft shares, assuming they control equal stakes in GitHub. A 0.16 percent holding would give each of them about 10 times more shares than Chief Executive Officer Satya Nadella, and roughly 14 times more than President Brad Smith. Among insiders, only co-founder Bill Gates’s 1.34 percent holding would exceed theirs, according to data compiled by Bloomberg. Imagine an Apple buys NeXTSTEP styled coup by acquisition.
- caymanjim 8y agoApple only bought Jobs and some ideas. NeXTSTEP was worthless. Yeah, it turned into OSX, but they could have started with Linux or BSD just as easily. This analogy only holds if the GitHub founders stick around, and they've already announced a new CEO.
- redial 8y agoConsidering the value Apple has extracted from NeXTSTEP, they certainly underpaid for it.
- CameronBanga 8y agoI’m not sure I’d call anything that turned into iOS “worthless”.
- megablast 8y agoI think they are saying there was so much work involved in getting it to that stage, they could have built on any OS and not spent any more time doing it.
- candiodari 8y agoYou mean a huge company could have released 1000 PM's and hundreds of millions of dollars, 99% of which would be spent on political infighting and empire building ... Wait weren't we trying to build a product ? NO ! I NEED MORE HEADCOUNT NOW ! Buying can be far more effective than building, especially for large companies.
- deleted 8y ago[deleted]
- spiderPig 8y agoSo jealous of the founders. Making it this big at such a young age. This is generational wealth. OTOH, anyone else think Microsoft has massively overpaid for Github? Feels like Satya's Nokia moment to me.
- wyldfire 8y ago> OTOH, anyone else think Microsoft has massively overpaid for Github? Feels like Satya's Nokia moment to me. I have no idea about whether the valuation is sane, but combining a powerful, intuitive tool (GH Enterprise) w/MS's sales channel is likely to drive a lot of new revenue. Lots of companies stick with IBM's revision control products because companies like Github might not be taken seriously by decision makers.
- bryanlarsen 8y ago"has massively overpaid" Certainly seems like it, but I was spectacularly wrong when I said that about Google's purchase of YouTube and about Facebook's purchase of Instagram, so I've learned to stop saying that.
- imh 8y agoYoutube is the weirdest one for me. I still don't get it, even though I'm already clearly wrong. ¯\_(ツ)_/¯
- kinkora 8y agowhat do you not get specificaly? I was in the same boat until I talked to someone working directly with youtube and that conversation cleared a lot of my questions. Allow me to do the same for you. :)
- bryanlarsen 8y agoYoutube is responsible for ~10% of Google's revenue, according to analysts.
- 8y ago
- swyx 8y agointeresting that the stock grant was based on monday's close price. is that common? or accurate? because if true they would technically want the stock to TANK on the announcement so they could get more shares? :) just fun to think about. they deserve it for the risk taking and management. github is a once in a decade, maybe century, company.
- zpr 8y ago> assuming they control equal stakes in GitHub That seems like a pretty big assumption. And as mentioned in other comments, what about the employee stock pool? That must account for some chunk of it also.
- netvarun 8y agoOh what sweet irony. http://tom.preston-werner.com/2008/10/18/how-i-turned-down-300k.html http://tom.preston-werner.com/2008/10/18/how-i-turned-down-3...
- twax2 8y agoThat's a good story, but I wouldn't exactly call it ironic. Tom Preston turned down the Microsoft offer because he "wanted to work on something he truly loved", not because he was opposed to working at the company. And he succeeded, no matter who he sold Github to.
- arthurcolle 8y agoThis is such a tragic outcome for GitHub. Microsoft is a joke. Immediately plan to migrate all my projects off thr platform, no matter how painful that'll likely be
- is_true 8y agoMSFT is one of the companies that contributes the most to open source.
- voltagex_ 8y agoHave you ever heard the phrase "cutting off one's nose to spite one's face"? I don't see the need to migrate immediately, even if that need becomes evident later (I don't think it will, but yeah, it could happen). I understand the reaction, but I thought we all migrated off Slashdot and spelling Microsoft with a $ a while ago.
- yla92 8y agoAndreessen Horowitz invested $100 million into the software startup in 2012, the single largest check it had ever written. The firm owned about 13 percent of the company after that deal, according to Pitchbook, and made sure to take its pro rata rights — or right to follow up with more investment at a later date — when Sequoia Capital valued the company at $2 billion in its own deal in 2015. Those were the only two times that the 10-year-old company ever raised money. [0] So, the other two winners are a16z and Sequoia? [0]: https://www.recode.net/2018/6/4/17424664/github-microsoft-sale-andreessen-horowitz-returns-billions https://www.recode.net/2018/6/4/17424664/github-microsoft-sa...
- ramen-san 8y agoInteresting that Microsoft paid with shares. They effectively just issued $7.9B in equity without having to go to the public markets for it. Granted it’s only ~1% of their $780B market cap... but this also suggests they believe their shares are perhaps a little richly valued.
- kbutler 8y agoThey are using previously allocated $30 billion share buyback to repurchase the shares from the open market. So they are still planning to purchase more shares than this $7.5B issue. https://seekingalpha.com/article/4179322-github-deal-fits-new-microsoft https://seekingalpha.com/article/4179322-github-deal-fits-ne...
- ramen-san 8y agoYes, it's true they have a stock buyback plan, so net-net it will be a wash. But the marginal decision remains the same - should we pay cash or shares for Github? If they really felt their shares were undervalued, why not just pay cash? Stock buyback plans are heavily pre-meditated programs with relatively rigid rules. It's not like they added an extra ~8B to the last buyback plan in anticipation of this exact event.
- sireat 8y agoMost big cap tech stocks seem a bit richly valued by classical measures. I'd love to see more discussion on the acquisition valuation here. Considering that Github had sales of around 200M last year and is losing money, the 7.9B is a pretty rich multiple. Sure Github is a nice fit for Microsoft (more perhaps than something like Minecraft is). Still, this seems more like mindshare or perhaps defensive purchase.
- ramen-san 8y agoAgreed - definite 'strategic' rationale for the purchase. Can't get there by any conventional valuation method. But to put things another way, do you believe that having Github as a Microsoft property (or the insurance that buys) is worth 1% of the company? Not too hard to get to big numbers when we're talking about a 3/4 trillion dollar company. This one kind of feels like Skype, in that it felt like they overpaid there as well (I remember thinking that Silverlake had performed a masterful coup with Skype) ... only time will tell whether Github loses their mojo as in the Skype situation. I'm not a skype user, but my general sense is that the service has been completely eclipsed by everything else in that space.
- kristianp 8y agoThey're going to be selling a lot of those shares come tax time!
- stankypickle 8y agoGood for them! GitHub is a great tool. Just hope microsoft doesn't screw it up.
- stealthmodeclan 8y agoIf you want the world to be equal. Do not help someone succeed. Do not join startups where founders get 50%. Employees of this startup just made the world more unequal.
- tomhoward 8y agoGithub's founders became billionaires by making powerful developer tools available to everyone at low or zero cost, thus making millions of developers more productive and wealthy. Bill Gates and Steve Jobs became billionaires by making personal computers and software available to billions of ordinary people, making them more productive and wealthy. Larry and Sergey became billionaires by making information and smartphones available to billions of people, and in doing so helping some of the world's poorest people lift themselves out of poverty. What do you prefer: a world in which a handful of people are vastly more wealthy than the rest but where everyone's material wellbeing is improving, or a world in which everyone is equal but we all have little wealth and little technological progress?
- stealthmodeclan 8y agoThat's the basis of socialism vs capitalism.
- tomhoward 8y agoI don't like to wade into black vs white ideological debates, but it's worth noting that every economic system has had wealthy elites and a relatively much poorer majority. I'm all for discussing ways in which society's wealth can be distributed more fairly and how the worst-off can be helped to live more comfortable and optimistic lives. But the evidence would suggest that when you constrain the wealth-generating capacity of the highest-achievers to reduce the overall wealth being created by a society, the people at the bottom are the first to suffer.
- ionised 8y agoWhat evidence?
- zulrah 8y agoHow much influence with his stock will the github founder have in this case?