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>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

by 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.
maxawaytoolong 16y ago
You just described how most startups end up. Even yc funded startups that flop have to close up shop and the founders go back to work at Facebook or whatever. There aren't any easy answers to your questions.
- lsc 16y ago
  well, "easy" answer #1 is what I've been doing, which is to say, keeping all the equity to myself. I was just thinking that I know of funded companies that pay market salaries that have been going for years (and many rounds of funding) without turning a profit. Each new round of funding dilutes the previous investors. I was thinking it might be possible to simulate the same thing when the "investors" (and that's what you are when you work for equity) are investing labour rather than cash.

by lsc 16y ago

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.

maxawaytoolong 16y ago

You just described how most startups end up. Even yc funded startups that flop have to close up shop and the founders go back to work at Facebook or whatever. There aren't any easy answers to your questions.

lsc 16y ago
well, "easy" answer #1 is what I've been doing, which is to say, keeping all the equity to myself. I was just thinking that I know of funded companies that pay market salaries that have been going for years (and many rounds of funding) without turning a profit. Each new round of funding dilutes the previous investors. I was thinking it might be possible to simulate the same thing when the "investors" (and that's what you are when you work for equity) are investing labour rather than cash.