4 ms·

6% Ain’t Really That Much

32 points by mqt 18y ago

zasz 18y ago
I'm sorry, but...WHY do you keep referring to Sarah Lacy as "he"?
- aneesh 18y ago
  Because Sarah Lacy didn't write the original article. A guest poster hiding behind the name "Paisano" wrote it.
  - zasz 18y ago
    Oh. Oops.
    - mattmaroon 18y ago
      Fair enough. I probably could have made my pronoun usage a little clearer.
- stcredzero 18y ago
  To avoid the charge of being sexist? http://news.ycombinator.com/item?id=280082 http://news.ycombinator.com/item?id=280082 (jk)
helveticaman 18y ago
Good article, but you're wasting your breath. Sarah Lacy's article had such little substance and thought behind it that pointing out the errors in it is like picking apart scientology.
- soundsop 18y ago
  Agreed. In some cases, the best response to an argument is silence.
deleted 18y ago
[deleted]
tptacek 18y ago
6% is 1-3 rock stars --- your best lead developer, your CEO. It only seems small when you're just getting started. It's a very significant amount of equity. Yes, companies trade 40+% for VC all the time. But they're also buying a guaranteed 2 year runway and a war chest to offer those same rock stars 150k-200k in year 1. I'm not making a value judgement here --- maybe YC is worth that much for you. (I read the article, I know "6%" isn't really the point here; it's just the one nit I have with the discussion.)
- dshah 18y ago
  I don't think 6% will get you 1-3 "rock stars" at the stage that most YC companies are. Much too early for that. At that stage (where cash compensation is minimal if not non-existent), the equity that would need to be given a real "rock star" would be considerably higher.
  - tptacek 18y ago
    You're right, but what does that matter? When you give up 6% of your company in 2008, you're out that 6% in 2009. In 2008, a CEO costs 33% of the founder's pool. When the company survives into its first cash-flow-neutral year, that CEO costs much less. The idea that you can just keep peeling 6% (or 40%) every round is also a fallacy. You can keep doing that exactly until the point where your shareholders stop letting you do it. Again: it's really easy to devise an argument that says a YC endorsement is worth 6%. I'm not going there. I'm just asking you to think about the real value of that equity number, and I'm doing that because I think to a lot of people, 6% sounds low. I had less than 2% of a very small company that got acquired in '98, and I ended that year just shy of 7 figures.
    - mattmaroon 18y ago
      It matters a lot. 6% of a company in the idea stage is worth a lot less than 6% of a company that's been in motion for a year. Earlier stage = more risk = less value. It's that simple. If a company in the idea stage were to hire a rock star, they'd almost always need to give way more than 1 or 2%. A company that's already gone through YC and/or done an angel round might give away that little. And even then, bringing on a CEO would be way more. You wouldn't want a CEO to only get 1 or 2% equity.

32 points by mqt 18y ago

zasz 18y ago

I'm sorry, but...WHY do you keep referring to Sarah Lacy as "he"?

aneesh 18y ago
Because Sarah Lacy didn't write the original article. A guest poster hiding behind the name "Paisano" wrote it.
- zasz 18y ago
  Oh. Oops.
  - mattmaroon 18y ago
    Fair enough. I probably could have made my pronoun usage a little clearer.
stcredzero 18y ago
To avoid the charge of being sexist? http://news.ycombinator.com/item?id=280082 http://news.ycombinator.com/item?id=280082 (jk)

helveticaman 18y ago

Good article, but you're wasting your breath. Sarah Lacy's article had such little substance and thought behind it that pointing out the errors in it is like picking apart scientology.

soundsop 18y ago
Agreed. In some cases, the best response to an argument is silence.

deleted 18y ago

[deleted]

tptacek 18y ago

6% is 1-3 rock stars --- your best lead developer, your CEO. It only seems small when you're just getting started. It's a very significant amount of equity. Yes, companies trade 40+% for VC all the time. But they're also buying a guaranteed 2 year runway and a war chest to offer those same rock stars 150k-200k in year 1. I'm not making a value judgement here --- maybe YC is worth that much for you. (I read the article, I know "6%" isn't really the point here; it's just the one nit I have with the discussion.)

dshah 18y ago
I don't think 6% will get you 1-3 "rock stars" at the stage that most YC companies are. Much too early for that. At that stage (where cash compensation is minimal if not non-existent), the equity that would need to be given a real "rock star" would be considerably higher.
- tptacek 18y ago
  You're right, but what does that matter? When you give up 6% of your company in 2008, you're out that 6% in 2009. In 2008, a CEO costs 33% of the founder's pool. When the company survives into its first cash-flow-neutral year, that CEO costs much less. The idea that you can just keep peeling 6% (or 40%) every round is also a fallacy. You can keep doing that exactly until the point where your shareholders stop letting you do it. Again: it's really easy to devise an argument that says a YC endorsement is worth 6%. I'm not going there. I'm just asking you to think about the real value of that equity number, and I'm doing that because I think to a lot of people, 6% sounds low. I had less than 2% of a very small company that got acquired in '98, and I ended that year just shy of 7 figures.
  - mattmaroon 18y ago
    It matters a lot. 6% of a company in the idea stage is worth a lot less than 6% of a company that's been in motion for a year. Earlier stage = more risk = less value. It's that simple. If a company in the idea stage were to hire a rock star, they'd almost always need to give way more than 1 or 2%. A company that's already gone through YC and/or done an angel round might give away that little. And even then, bringing on a CEO would be way more. You wouldn't want a CEO to only get 1 or 2% equity.