4 ms·

The one thing that is missing from this discussion is the actual value of any stock that the employee might have received. The headline figure of $12B, of whic

The one thing that is missing from this discussion is the actual value of any stock that the employee might have received. The headline figure of $12B, of which maybe $1B is split between 1200 employees is almost always a fantasy. Having been bought out by a large company, the reality is far less rosy. If you're buying a company for both its assets, and its employees, giving all the employees "fuck you" money is a very bad play. they are going to leave and do things other than work for the new company. which means on day one you have a huge brain drain, culture shift and a hiring headache. Therefore you need golden handcuffs. Sometimes its a year, most of the time its a lot longer. Then we have the "headline" figures. Most of them are bollocks. Ctrl-labs supposedly was sold for $500m. It wasn't, it was significantly less than that. most peoples assumptions of what a stock option is valued at during a buyout it as much as 10x out from the actual value you'll receive. This is before we factor in the whole debt swap/priority stakes/other VC semi fraudulent share systems. unless its an IPO, and you are given actual shares in your hands, most of the money that's talked about during buyouts is illusion.

nemo44x 5y ago
Many employees have no idea how a cap table works or even what it is. They don’t understand that a buyout for $X dollars doesn’t mean that all the shares are divided equally. VC’s have a good deal with liquidation preferences. Sometimes an acquisition works out great but this generally when a company was going to go public anyways. We hear about all the IPO’s that made 200 overnight millionaires. But we don’t hear about the vast majority that either fail, have a poor exit, or just sort flag in the wind.
- defnmacro 5y ago
  > We hear about all the IPO’s that made 200 overnight millionaires. But we don’t hear about the vast majority that either fail, have a poor exit, or just sort flag in the wind. To play devils advocate, most people who intentionally optimize their career focusing on equity rather than TC know this fairly well and have had their fair share of duds. You can also make the argument that overall the EV of optimizing your career for equity is probably lower than just getting a high paying FAANG job. However, with all that being said, the only way to be the "overnight millionaire" is to play the game. Also, there really isn't any overnight millionaires, those people probably worked for years for sub-par comp compared to alternatives and took a large risk whether knowingly or not to get that payout which may or may not have existed. There really is no free-lunch if your employee #5 at Uber you made tens of millions of dollars, however you took the risk of being employee #5 at Uber. Look at Snapchat though they paid huge amounts of equity when they were trading in the 10's even after they IPO'd if you were employee #10002 and joined Snap at 100k-250k in equity that netted you anywhere between 600k-1.5m if you held the shares, that's not including cash comp. However, you took the risk of joining a tech company that at the time nobody really wanted to join and may very well have closed the doors. That being said there very much is an alternative risk of going the safe route of just optimizing total TC. That risk is generally that path is well defined, the salary bands are well published, and overall despite whatever amount of effort you put in that will be around the amount you make. You'll be flogged into a corporate grind if you really want to make more either by job hopping or trying to get promoted. The risk with the defined path is well, its just that linear and well defined, not saying it's a great path and maybe even a better one overall but it means you'll be working for Facebook when the next company that is going to disrupt Facebook is potentially out there today. Equity stakes for employees means the tails on the right side of the distribution are rich. Assuming you get a cash comp that makes you happy that equity stake my very well be the thing that puts you in the 1-10m+ range if your extremely lucky. If not even if its mildly successful a 50-500k payout with a decent salary of say 150k a year over 5 years netted you 160-250k comp a year while putting you in the run to make potentially millions. If you work for a "startup" that is a decent place to work and respects WLB etc then taking those "risks" over your career might make a-lot of sense. You'll probably learn way more too, have more autonomy, and frankly they can just be alot of fun.
  - nemo44x 5y ago
    Indeed, equity can pay off in major ways. I’ve been fortunate to be involved in 2 startups that would eventually IPO and the bags of money at the end of those rainbows were life changing. I’ve been involved on the failed side too, ironically from a company that was extremely stingy with equity due to some very early success that was not able to scale and eventually got crushed - poor management. My only point is to be careful joining a company mainly because of ISO stock options, as are the most popular in our industry. It’s more important that you believe strongly in the product and business, and have reason to believe the management is strong. You won’t be given access to the cap table or equity structure and should seriously consider what you’re sacrificing and what your title really means within the context of the size of the company. Startups are fun. They have less structure, you get to wear many hats, early successes seem easy and the cult of joy is contagious. However a series D 5 years later while the company is still feeling a bit too startup like and on their 3rd CEO is the more likely outcome.
    - disiplus 5y ago
      How long have you worked for those companies before the IPO ?
      - nemo44x 5y ago
        One was 6 years (8 year old company at ipo time) and the other was 4 years (6 years old I think). I think the typical time for an IPO is about 7 or 8 years from series a if it’s going to happen. Most of those companies competitors that aren’t already public companies either crashed out, were acquired for parts, or are still around but probably won’t IPO as their growth got stuck somewhere along the line. Was a good 10 year run.
Aeolun 5y ago
Given that MailChimp has zero outside investment though, none of that applies, and 50% of the buyout price does actually go directly to the founders. If employees had options/stock, it would be worth exactly as much, since there’s no preferred shares or outside investment to make good on first.
- rk06 5y ago
  If employees had options/stock, then there would be preferred shares in the picture too. They usually go hand in hand with stock options. I still believe MC is somewhat better than the more common scenarios where employee pay more in taxes on stock than what they get from stock
manquer 5y ago
In a sale or a IPO you are not allowed to sell immediately. Even founders will always have vesting schedules for stock granted. I would say it probably A lot of people stick around way longer than otherwise because of equity grants making it financially sensible to do so. There are plenty of ways to retain talent in public or private companies while granting stock options.

nemo44x 5y ago

Many employees have no idea how a cap table works or even what it is. They don’t understand that a buyout for $X dollars doesn’t mean that all the shares are divided equally. VC’s have a good deal with liquidation preferences. Sometimes an acquisition works out great but this generally when a company was going to go public anyways. We hear about all the IPO’s that made 200 overnight millionaires. But we don’t hear about the vast majority that either fail, have a poor exit, or just sort flag in the wind.

defnmacro 5y ago
> We hear about all the IPO’s that made 200 overnight millionaires. But we don’t hear about the vast majority that either fail, have a poor exit, or just sort flag in the wind. To play devils advocate, most people who intentionally optimize their career focusing on equity rather than TC know this fairly well and have had their fair share of duds. You can also make the argument that overall the EV of optimizing your career for equity is probably lower than just getting a high paying FAANG job. However, with all that being said, the only way to be the "overnight millionaire" is to play the game. Also, there really isn't any overnight millionaires, those people probably worked for years for sub-par comp compared to alternatives and took a large risk whether knowingly or not to get that payout which may or may not have existed. There really is no free-lunch if your employee #5 at Uber you made tens of millions of dollars, however you took the risk of being employee #5 at Uber. Look at Snapchat though they paid huge amounts of equity when they were trading in the 10's even after they IPO'd if you were employee #10002 and joined Snap at 100k-250k in equity that netted you anywhere between 600k-1.5m if you held the shares, that's not including cash comp. However, you took the risk of joining a tech company that at the time nobody really wanted to join and may very well have closed the doors. That being said there very much is an alternative risk of going the safe route of just optimizing total TC. That risk is generally that path is well defined, the salary bands are well published, and overall despite whatever amount of effort you put in that will be around the amount you make. You'll be flogged into a corporate grind if you really want to make more either by job hopping or trying to get promoted. The risk with the defined path is well, its just that linear and well defined, not saying it's a great path and maybe even a better one overall but it means you'll be working for Facebook when the next company that is going to disrupt Facebook is potentially out there today. Equity stakes for employees means the tails on the right side of the distribution are rich. Assuming you get a cash comp that makes you happy that equity stake my very well be the thing that puts you in the 1-10m+ range if your extremely lucky. If not even if its mildly successful a 50-500k payout with a decent salary of say 150k a year over 5 years netted you 160-250k comp a year while putting you in the run to make potentially millions. If you work for a "startup" that is a decent place to work and respects WLB etc then taking those "risks" over your career might make a-lot of sense. You'll probably learn way more too, have more autonomy, and frankly they can just be alot of fun.
- nemo44x 5y ago
  Indeed, equity can pay off in major ways. I’ve been fortunate to be involved in 2 startups that would eventually IPO and the bags of money at the end of those rainbows were life changing. I’ve been involved on the failed side too, ironically from a company that was extremely stingy with equity due to some very early success that was not able to scale and eventually got crushed - poor management. My only point is to be careful joining a company mainly because of ISO stock options, as are the most popular in our industry. It’s more important that you believe strongly in the product and business, and have reason to believe the management is strong. You won’t be given access to the cap table or equity structure and should seriously consider what you’re sacrificing and what your title really means within the context of the size of the company. Startups are fun. They have less structure, you get to wear many hats, early successes seem easy and the cult of joy is contagious. However a series D 5 years later while the company is still feeling a bit too startup like and on their 3rd CEO is the more likely outcome.
  - disiplus 5y ago
    How long have you worked for those companies before the IPO ?
    - nemo44x 5y ago
      One was 6 years (8 year old company at ipo time) and the other was 4 years (6 years old I think). I think the typical time for an IPO is about 7 or 8 years from series a if it’s going to happen. Most of those companies competitors that aren’t already public companies either crashed out, were acquired for parts, or are still around but probably won’t IPO as their growth got stuck somewhere along the line. Was a good 10 year run.

Aeolun 5y ago

Given that MailChimp has zero outside investment though, none of that applies, and 50% of the buyout price does actually go directly to the founders. If employees had options/stock, it would be worth exactly as much, since there’s no preferred shares or outside investment to make good on first.

rk06 5y ago
If employees had options/stock, then there would be preferred shares in the picture too. They usually go hand in hand with stock options. I still believe MC is somewhat better than the more common scenarios where employee pay more in taxes on stock than what they get from stock

manquer 5y ago

In a sale or a IPO you are not allowed to sell immediately. Even founders will always have vesting schedules for stock granted. I would say it probably A lot of people stick around way longer than otherwise because of equity grants making it financially sensible to do so. There are plenty of ways to retain talent in public or private companies while granting stock options.