5 ms·

Employee Equity

68 points by DanielH 16y ago

hyung 16y ago
"If the founders are the top managers in the company, then the typical "non founder employee ownership" will tend to be between 10% and 20%." Does this mean that all the "non founder employees" would split the 10-20% of the equity?
- 3pt14159 16y ago
  That is what he is saying, yes. Although I think this varies greatly with region, because in Toronto it is more like 4-11% for an ESOP.
  - ojbyrne 16y ago
    "Employee ownership levels are higher in well developed startup cultures like the bay area, boston, and NYC. They are lower in less developed startup communities"
    - 3pt14159 16y ago
      Yeah I saw that, I just wanted to give people an idea of how much it can range.
- deleted 16y ago
  [deleted]
- earle 16y ago
  Yes, the "10-20% of the equity" is generally provisioned for the company's stock option pool. This is definitely biased towards technology startups.
joezydeco 16y ago
I'd like to know more about the downsides of RSUs. I've been offered some recently, and I feel like it's just a way of saying "yes, you can have some equity...someday. Meanwhile, you're still in the dark on shareholder issues and you can't see the balance sheets. Keep up the good work". Is that a wrong way to look at this?
- daniel-cussen 16y ago
  I'd do the same. For any fixed epsilon greater than zero you take a delta greater than zero but less than epsilon, and that's the value of those shares.
- gaius 16y ago
  Wasn't there a case not long ago where option holders got basically raped by the taxman? They were taxed on their options as if they'd been exercised at their peak value, but by the time they vested they were worth a lot less. AMT I think it was called.
  - kscaldef 16y ago
    The situation where you can (could?) get screwed by AMT is if you exercise and hold, and the value of the stock drops. This isn't universal and there are different rules for different types of employee stock options, so make sure you know the rules that apply to you if you are considering an exercise-and-hold.
gacba 16y ago
I'd really like to know this since none of the startups I've been involved with have had positive outcomes (buy out, IPO, merger etc). If you're part of the 10-20% employee ownership, assuming that you have an "average" stake, what percentage of the overall deal do you usually walk away with? I'm expecting this number to be painfully small and hardly f#ck you money, but I'd like to hear from those who have direct experience on this. NOTE: I'm not asking about founder exits, because those are adequately covered in the media and other places. I want to know about all the folks who are in that magic 10-20% of employees. Outlier anecdotal evidence (e.g. Google secretaries, Microsoft mail room folks) need not be mentioned. :)
- 3pt14159 16y ago
  If you are one of their favored employees (multiple bonuses of additional options) and you got in before they hit 50 people you can expect about 0.1-0.3%. I know employee 1000 at Google walked away with about $2 million.
- mattew 16y ago
  The answer is, "it depends". It depends on how the companies investments are structured. For example, if a VC on the A round has a 2x or more liquidation preference, that can change the distributions significantly. There could also be phantom stock agreements, warrants, notes of various values, etc, that can make a large difference.
- sbov 16y ago
  I was involved in a buyout of a small (~15-20 people) company and the average stake was around 3%, but we had no outside funding at all. It didn't end in FU money (it was a "small" exit when compared to VC backed exits), but its enough to completely pay for retirement someday.
silvajoao 16y ago
This comes at a curious time for me. Just recently a startup didn't start at all, because I and the other would-be co-founder couldn't agree on how to split the equity. Can someone enlighten me please: is a 50/50 split reasonable for 2 founders of a coding-heavy startup, where each founder has roughly the same background? That is what I was asking for. My friend was asking to have 100% equity and I would get a sizable share of sales as a contractor for his company. It was our first startup, neither of us has previous experience running a startup or a business at all. I'm very sad it didn't work out because we worked on the technology for almost 4 weeks and it was promising, and now I feel a bit "guilty" about not having "cooperated", but I just couldn't invest the effort, resources (we have no investment; we would be burning our savings for some months) and yet have no ownership at all of what I was creating and risking into. Any thoughts into this will be greatly appreciated, as I have no other sources of feedback to evaluate my decision.
- blacksmythe 16y ago
  If your co-founder put in significant work before you started, then you should expect less than 50/50 ownership. It sounds like you both put in equally developing the idea, and equal risk of your effort having no payoff (a very high risk for any startup). I can't see any reason from your description that you should expect less than 50/50 split of the reward. (Maybe 40/60 depending on some contributions before you got involved).
- deleted 16y ago
  [deleted]
- robfitz 16y ago
  Depends on the people, but him wanting 100 is a good warning sign that you should quickly get un-involved. 50/50 is what I would expect in your situation, where neither person is obviously going to be carrying the company. If you give a founder (or early employee) more than they're going to be worth in the long term, you'll feel increasingly motivated to fire them and recover their un-vested stock. If you give them too little, they become increasingly motivated to quit and start something they can own. From what you described, you were at a lose-lose impasse. One or other of you was going to end up unhappy, in a company-destroying sort of way. I would have quit also and would make sure to sort the ownership question out earlier next time. Somewhat tangentially, people also tend to over-value the ownership that their "idea" should entitle them to. If someone spends 3 months thinking day and night and you just started, it can seem like they deserve a big chunk. But you have to remember, standard vesting is 4 years, so their 3 months of thought is only about 6% of the time you're each committing to the business.

68 points by DanielH 16y ago

hyung 16y ago

"If the founders are the top managers in the company, then the typical "non founder employee ownership" will tend to be between 10% and 20%." Does this mean that all the "non founder employees" would split the 10-20% of the equity?

3pt14159 16y ago
That is what he is saying, yes. Although I think this varies greatly with region, because in Toronto it is more like 4-11% for an ESOP.
- ojbyrne 16y ago
  "Employee ownership levels are higher in well developed startup cultures like the bay area, boston, and NYC. They are lower in less developed startup communities"
  - 3pt14159 16y ago
    Yeah I saw that, I just wanted to give people an idea of how much it can range.
deleted 16y ago
[deleted]
earle 16y ago
Yes, the "10-20% of the equity" is generally provisioned for the company's stock option pool. This is definitely biased towards technology startups.

joezydeco 16y ago

I'd like to know more about the downsides of RSUs. I've been offered some recently, and I feel like it's just a way of saying "yes, you can have some equity...someday. Meanwhile, you're still in the dark on shareholder issues and you can't see the balance sheets. Keep up the good work". Is that a wrong way to look at this?

daniel-cussen 16y ago
I'd do the same. For any fixed epsilon greater than zero you take a delta greater than zero but less than epsilon, and that's the value of those shares.
gaius 16y ago
Wasn't there a case not long ago where option holders got basically raped by the taxman? They were taxed on their options as if they'd been exercised at their peak value, but by the time they vested they were worth a lot less. AMT I think it was called.
- kscaldef 16y ago
  The situation where you can (could?) get screwed by AMT is if you exercise and hold, and the value of the stock drops. This isn't universal and there are different rules for different types of employee stock options, so make sure you know the rules that apply to you if you are considering an exercise-and-hold.

gacba 16y ago

I'd really like to know this since none of the startups I've been involved with have had positive outcomes (buy out, IPO, merger etc). If you're part of the 10-20% employee ownership, assuming that you have an "average" stake, what percentage of the overall deal do you usually walk away with? I'm expecting this number to be painfully small and hardly f#ck you money, but I'd like to hear from those who have direct experience on this. NOTE: I'm not asking about founder exits, because those are adequately covered in the media and other places. I want to know about all the folks who are in that magic 10-20% of employees. Outlier anecdotal evidence (e.g. Google secretaries, Microsoft mail room folks) need not be mentioned. :)

3pt14159 16y ago
If you are one of their favored employees (multiple bonuses of additional options) and you got in before they hit 50 people you can expect about 0.1-0.3%. I know employee 1000 at Google walked away with about $2 million.
mattew 16y ago
The answer is, "it depends". It depends on how the companies investments are structured. For example, if a VC on the A round has a 2x or more liquidation preference, that can change the distributions significantly. There could also be phantom stock agreements, warrants, notes of various values, etc, that can make a large difference.
sbov 16y ago
I was involved in a buyout of a small (~15-20 people) company and the average stake was around 3%, but we had no outside funding at all. It didn't end in FU money (it was a "small" exit when compared to VC backed exits), but its enough to completely pay for retirement someday.

silvajoao 16y ago

This comes at a curious time for me. Just recently a startup didn't start at all, because I and the other would-be co-founder couldn't agree on how to split the equity. Can someone enlighten me please: is a 50/50 split reasonable for 2 founders of a coding-heavy startup, where each founder has roughly the same background? That is what I was asking for. My friend was asking to have 100% equity and I would get a sizable share of sales as a contractor for his company. It was our first startup, neither of us has previous experience running a startup or a business at all. I'm very sad it didn't work out because we worked on the technology for almost 4 weeks and it was promising, and now I feel a bit "guilty" about not having "cooperated", but I just couldn't invest the effort, resources (we have no investment; we would be burning our savings for some months) and yet have no ownership at all of what I was creating and risking into. Any thoughts into this will be greatly appreciated, as I have no other sources of feedback to evaluate my decision.

blacksmythe 16y ago
If your co-founder put in significant work before you started, then you should expect less than 50/50 ownership. It sounds like you both put in equally developing the idea, and equal risk of your effort having no payoff (a very high risk for any startup). I can't see any reason from your description that you should expect less than 50/50 split of the reward. (Maybe 40/60 depending on some contributions before you got involved).
deleted 16y ago
[deleted]
robfitz 16y ago
Depends on the people, but him wanting 100 is a good warning sign that you should quickly get un-involved. 50/50 is what I would expect in your situation, where neither person is obviously going to be carrying the company. If you give a founder (or early employee) more than they're going to be worth in the long term, you'll feel increasingly motivated to fire them and recover their un-vested stock. If you give them too little, they become increasingly motivated to quit and start something they can own. From what you described, you were at a lose-lose impasse. One or other of you was going to end up unhappy, in a company-destroying sort of way. I would have quit also and would make sure to sort the ownership question out earlier next time. Somewhat tangentially, people also tend to over-value the ownership that their "idea" should entitle them to. If someone spends 3 months thinking day and night and you just started, it can seem like they deserve a big chunk. But you have to remember, standard vesting is 4 years, so their 3 months of thought is only about 6% of the time you're each committing to the business.