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Exactly, and that's why you need to be very careful with hiring. If you give one of your early employees 1%-5% equity, getting bought for 10-100 MM just doesn't

Exactly, and that's why you need to be very careful with hiring. If you give one of your early employees 1%-5% equity, getting bought for 10-100 MM just doesn't cut it. After taxes, fees & TPS said employee could easily walk away with under $1 million (even if you're bought for over $100 million). This is still obviously awesome, but is probably not the upside that many potential hires are expecting.

nostrademons 18y ago
I always took it as a given that employees will not get rich off an acquisition, unless the company is a Google or Netscape or Stratus (and even then, only if they were management-level and hired fairly early on). I did the math on my last equity offer (as an employee; not counting cofounder offers): I would've ended up with about $5000 worth of stock in a best-case (~50M) acquisition. My former coworker was an early employee of CCBN, purchased for $40M: he ended up with $3000. Both founders and employees need to be very aware of the different risk/reward structures for each. I've heard some founders complain about how hard it is to get decent, hardworking help. Well, of course it is - their upside is 1/10th of yours! And their downside is lower as well, since they usually take a market-rate salary. People are less inclined to put in herculean effort if they have no incentive to do so. For employees, be very cognizant of how much risk the founder has actually eliminated and make sure that fits with the reduced reward. It's really, really hard to build something people want: if they've already done so, they deserve every bit of those outsize founder stakes. But if all they have is an idea and some VC funding, they're asking you to bear many of the same risks, yet leaving you with much less of a reward. The takeaway, IMHO, is don't hire and don't take VC money until you have product/market fit. That gives your employees a risk & upside profile inline with their equity stakes. It also gives your VCs an acceptable return without them forcing you into taking outlandish risks, eg. going after that pie-in-the-sky market opportunity.
- fallentimes 18y ago
  I tend to following your line of thinking, but "you" is different than "many people". :) Agreed; we're not.
- rams 18y ago
  Hmmm ... those numbers are kind of depressing. But I had kind of come around to the same conclusion. Unless you are a founder, it's just not worth it most of the time.
  - netcan 18y ago
    Depressing? All this are saying is: Unless you're a founder, you're an employee. Earlier employees are closer to the founder end, later employees are closer to the employee end. Neither are probably going to retire at 23 from an early acquisition. The latter are probably not even gonna retire from a monster exit (though in this case there are probably more employees, early is relative). They do have a chance at making quite a lot of money though. 3k/40m is less then 0.01%. So it's not really a big part of the compensation package. In that case, stock just isn't a reason to work there. There may be other reasons to. It's depressing that being in the vicinity of a startup doesn't make you rich? If everyone was rich, it wouldn't be rich. By definition, it's not available to everyone. You think market rates + a 50% chance at being millionaire, should be the going rate?
raganwald 18y ago
http://weblog.raganwald.com/2005/03/are-you-thinking-of-working-for-start.html http://weblog.raganwald.com/2005/03/are-you-thinking-of-work...

nostrademons 18y ago

I always took it as a given that employees will not get rich off an acquisition, unless the company is a Google or Netscape or Stratus (and even then, only if they were management-level and hired fairly early on). I did the math on my last equity offer (as an employee; not counting cofounder offers): I would've ended up with about $5000 worth of stock in a best-case (~50M) acquisition. My former coworker was an early employee of CCBN, purchased for $40M: he ended up with $3000. Both founders and employees need to be very aware of the different risk/reward structures for each. I've heard some founders complain about how hard it is to get decent, hardworking help. Well, of course it is - their upside is 1/10th of yours! And their downside is lower as well, since they usually take a market-rate salary. People are less inclined to put in herculean effort if they have no incentive to do so. For employees, be very cognizant of how much risk the founder has actually eliminated and make sure that fits with the reduced reward. It's really, really hard to build something people want: if they've already done so, they deserve every bit of those outsize founder stakes. But if all they have is an idea and some VC funding, they're asking you to bear many of the same risks, yet leaving you with much less of a reward. The takeaway, IMHO, is don't hire and don't take VC money until you have product/market fit. That gives your employees a risk & upside profile inline with their equity stakes. It also gives your VCs an acceptable return without them forcing you into taking outlandish risks, eg. going after that pie-in-the-sky market opportunity.

fallentimes 18y ago
I tend to following your line of thinking, but "you" is different than "many people". :) Agreed; we're not.
rams 18y ago
Hmmm ... those numbers are kind of depressing. But I had kind of come around to the same conclusion. Unless you are a founder, it's just not worth it most of the time.
- netcan 18y ago
  Depressing? All this are saying is: Unless you're a founder, you're an employee. Earlier employees are closer to the founder end, later employees are closer to the employee end. Neither are probably going to retire at 23 from an early acquisition. The latter are probably not even gonna retire from a monster exit (though in this case there are probably more employees, early is relative). They do have a chance at making quite a lot of money though. 3k/40m is less then 0.01%. So it's not really a big part of the compensation package. In that case, stock just isn't a reason to work there. There may be other reasons to. It's depressing that being in the vicinity of a startup doesn't make you rich? If everyone was rich, it wouldn't be rich. By definition, it's not available to everyone. You think market rates + a 50% chance at being millionaire, should be the going rate?

raganwald 18y ago

http://weblog.raganwald.com/2005/03/are-you-thinking-of-working-for-start.html http://weblog.raganwald.com/2005/03/are-you-thinking-of-work...