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This number makes complete sense. I was a 'key employee' once upon a time - in a startup that had just raised f&f, and I received a FULL 2% (unheard of for Can
by cik 8y ago
This number makes complete sense. I was a 'key employee' once upon a time - in a startup that had just raised f&f, and I received a FULL 2% (unheard of for Canada).
Fast forward through the (usual) reality of 6 rounds of dilution, and my 2% was worth less than 0.02%. If the startup went from a $2M valuation to $200M (as it did) then my take would have been $40K.
Do with that what you will.
- smallgovt 8y agoIt sounds like your startup was unfortunately an outlier with respect to the level of dilution experienced. 99% dilution over 6 rounds is far from 'usual reality'. More common is 20% dilution per round.
- vkou 8y agoIt was also an outlier, in the sense that it had a valuable exit. You've only got one lifetime to pull the equity slot machine, hoping that the reels come up all sixes.
- eanzenberg 8y ago6 rounds of 20% dilution will get you to 74% total dilution from the initial grant.
- Zephyr314 8y agoWhich in this case nets you >$1M [0] vs the 80k quoted above. This also assumes no retention grants over 6 rounds. [0]: 0.02*0.8^6*$200,000,000 = $1,048,576
- rubicon33 8y agoSomething I am always curious about is, was your company / CEO open and honest with you about how your shares were doing? If you worked somewhere for 5 years, it could be easy to think you're safe but meanwhile the CEO is diluting your equity to fractions of what it originally was? Don't they have to report that to employees?
- xmly 8y agoEvery round of financing, the shares got diluted but the total value of shares should increase. Otherwise, the company is not doing well and taking a down turn.
- cik 8y agoIn my experience both as that employee, and sometimes the executive - they're not. There are frequently legal, secrecy, or other corporate reasons for the lack of disclosure. It kinda sucks - but it's understandable. To be fair, I'm someone who has never chosen shares over base salary. The equity slot machine is fine, but I (firmly) believe that over the long haul, the only thing that matters is index investing. Benjamin Graham is always right. I appreciate shares - I work either way. They're just not my motivation. If that works for others - great.