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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 min

by 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.
  - tptacek 18y ago
    You're obviously right. I've just had the experience of wishing I had that kind of equity to throw around. I'm "arguing" a point you didn't really make --- is YC worth 6%? I don't know. But I do know that it's more significant than it might sound.
    - mattmaroon 18y ago
      Well, like PG says, it only has to increase your expectation by 6.4%. For some people, it probably would not. Early paypal employees, people with other successes, etc, have unlimited access to funding/capital. I would say that for most first timer's though, it's a clear win. If nothing else, PG's guidance probably saves you from well more than 6% wasted equity later on.

by dshah 18y ago

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.
- tptacek 18y ago
  You're obviously right. I've just had the experience of wishing I had that kind of equity to throw around. I'm "arguing" a point you didn't really make --- is YC worth 6%? I don't know. But I do know that it's more significant than it might sound.
  - mattmaroon 18y ago
    Well, like PG says, it only has to increase your expectation by 6.4%. For some people, it probably would not. Early paypal employees, people with other successes, etc, have unlimited access to funding/capital. I would say that for most first timer's though, it's a clear win. If nothing else, PG's guidance probably saves you from well more than 6% wasted equity later on.