2 ms·

so, if you don't stick around for four years, you get squat? or you get 25% of that a year? the former sounds a bit too draconian. I mean, I don't expect anyo

by lsc 16y ago

so, if you don't stick around for four years, you get squat? or you get 25% of that a year? the former sounds a bit too draconian. I mean, I don't expect anyone (save for myself) to stick around that long. the latter would stick me with the same problem I have now... the thing is, every year that goes on, I'm investing what amounts to a pretty large chunk of cash into the company. If you earned 10% 5 years ago, that's fine, but c'mon, my ongoing contributions should mean something, too. My point is that without dilution, as time goes on and I accumulate more (no longer working) people with percentage ownership in the company, my motivation to continue to invest decreases. If the company increases in value fast enough (and if my free-market value doesn't increase dramatically) that the percentage of the company I still own is worth the investment, we don't have a problem. But if I become more valuable or if the value of the company stagnates, my motivation for continuing to invest will decrease with my percentage ownership. I'll be thinking more about how to buy out those who are no longer with me rather than using those resources to move the company forward. I could issue a new options pool (that dilutes existing shares) every year, but I don't really see the difference between that and what I proposed, other than it's options rather than equity.

staunch 16y ago
Normally the vesting would be quarterly over 4 years with a 1 year "cliff". So 0% until 1 year (then 25%) then every quarter they'd get the next chunk. The equity they get should be a reward for work they've done, not work they're going to do. So if they work their ass off for years they should get their equity and you shouldn't feel negatively about it. Their piece should be quite small relative to yours. If you gave out 15% in an option pool only 7% of it might have been vested and exercised. That's not very much if it meant you got to have really great people work their ass off for you over years. If you do it right you will not regret them owning a small piece of your company because they should have contributed to moving it forward in a big way. You should be thinking "Bob quit and owns 1.25% but he did do X and that helped us grow so quickly and smoothly it was totally worth it."
- lsc 16y ago
  >You should be thinking "Bob quit and owns 1.25% but he did do X and that helped us grow so quickly and smoothly it was totally worth it." Now, admittedly, I'm somewhat irrational about my company. For the first four years, I think only an irrational person would have stuck around. But it still seems like it would be very easy to get into a situation where I've spent away the company. For example, say the company is worth $200K. (It's worth a little more than that, but in this industry, you are talking around a year revenue plus the value of your equipment, so valuations are really low compared to, say, social networks.) so I hire someone worth $130K and I pay them $30K, because I can afford that and they need to make rent. To make things fair, I need to give them half the company for a years work, right? Yeah, after that first year, I'd feel fine about it. they put in a bunch of good work and improved the company. But, say they quit because I am an idiot and I overestimated the value of the product we built, so the company is now only worth, say $300K and still can't pay anyone reasonable salaries. So, would I work another year? this time needing to grow the company twice as fast to feel the same effects? maybe. but the year after that? yeah I'm pretty sure I'd decide it's time to close up shop and start a new company or to get a real job.
  - staunch 16y ago
    Give them tiny percentages that are only worth a lot if the company is a big success. That means maybe 2.5% (with vesting) for an amazing person. If someone takes over most of your job (and does it better) maybe you'd give them 5%-10% but that's a very extreme case. Most people should be getting 0.15% - 1.5% depending on their contribution. You don't necessarily have to decide up front. You can start people low and award options for performance. Plan to distribute at most 20% of the company to employees over the next 5-7 years.
    - lsc 16y ago
      >Give them tiny percentages that are only worth a lot if the company is a big success. Is it possible to get good people who have other options for 1/4th what they could regularly get plus what amounts to a few grand worth of equity? It doesn't seem like a very good deal for the employee, really. (seems like a fine deal for me if I could pull it off... but I'd laugh at you if you made me that offer. Sure, pay me market rate plus some tiny bit of equity, that's fine... but if you expect me to work for peanuts, I expect serious equity.) edit: thanks for engaging with me on this; It's good to hear another perspective, I mean, mine is likely wrong. But I think that I might be trying to apply equity rules that make sense for "get big or die" businesses to a lifestyle business that only needs to double a few more times.

by lsc 16y ago

staunch 16y ago

Normally the vesting would be quarterly over 4 years with a 1 year "cliff". So 0% until 1 year (then 25%) then every quarter they'd get the next chunk. The equity they get should be a reward for work they've done, not work they're going to do. So if they work their ass off for years they should get their equity and you shouldn't feel negatively about it. Their piece should be quite small relative to yours. If you gave out 15% in an option pool only 7% of it might have been vested and exercised. That's not very much if it meant you got to have really great people work their ass off for you over years. If you do it right you will not regret them owning a small piece of your company because they should have contributed to moving it forward in a big way. You should be thinking "Bob quit and owns 1.25% but he did do X and that helped us grow so quickly and smoothly it was totally worth it."

lsc 16y ago
>You should be thinking "Bob quit and owns 1.25% but he did do X and that helped us grow so quickly and smoothly it was totally worth it." Now, admittedly, I'm somewhat irrational about my company. For the first four years, I think only an irrational person would have stuck around. But it still seems like it would be very easy to get into a situation where I've spent away the company. For example, say the company is worth $200K. (It's worth a little more than that, but in this industry, you are talking around a year revenue plus the value of your equipment, so valuations are really low compared to, say, social networks.) so I hire someone worth $130K and I pay them $30K, because I can afford that and they need to make rent. To make things fair, I need to give them half the company for a years work, right? Yeah, after that first year, I'd feel fine about it. they put in a bunch of good work and improved the company. But, say they quit because I am an idiot and I overestimated the value of the product we built, so the company is now only worth, say $300K and still can't pay anyone reasonable salaries. So, would I work another year? this time needing to grow the company twice as fast to feel the same effects? maybe. but the year after that? yeah I'm pretty sure I'd decide it's time to close up shop and start a new company or to get a real job.
- staunch 16y ago
  Give them tiny percentages that are only worth a lot if the company is a big success. That means maybe 2.5% (with vesting) for an amazing person. If someone takes over most of your job (and does it better) maybe you'd give them 5%-10% but that's a very extreme case. Most people should be getting 0.15% - 1.5% depending on their contribution. You don't necessarily have to decide up front. You can start people low and award options for performance. Plan to distribute at most 20% of the company to employees over the next 5-7 years.
  - lsc 16y ago
    >Give them tiny percentages that are only worth a lot if the company is a big success. Is it possible to get good people who have other options for 1/4th what they could regularly get plus what amounts to a few grand worth of equity? It doesn't seem like a very good deal for the employee, really. (seems like a fine deal for me if I could pull it off... but I'd laugh at you if you made me that offer. Sure, pay me market rate plus some tiny bit of equity, that's fine... but if you expect me to work for peanuts, I expect serious equity.) edit: thanks for engaging with me on this; It's good to hear another perspective, I mean, mine is likely wrong. But I think that I might be trying to apply equity rules that make sense for "get big or die" businesses to a lifestyle business that only needs to double a few more times.