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RelateIQ is cool. I'm little surprised that they "gave up" so easily :-). Regarding the exit, I would appreciate if somebody more experienced can give example

by tlogan 12y ago

RelateIQ is cool. I'm little surprised that they "gave up" so easily :-). Regarding the exit, I would appreciate if somebody more experienced can give example how much is this for 1st employee. The sold company for $360. First employee probably got ~2% of stock options. They received $69 of investment and there was some dilution.

boomzilla 12y ago
According to crunchbase http://www.crunchbase.com/organization/relateiq http://www.crunchbase.com/organization/relateiq they took 3 rounds on top of seed funding. So in the best case scenario, each round diluted by 20%, leaving the founder team and employees with ~50% ownership (= 80% * 80% * 80%). Again, best case scenario, there is no participating preferred, then 2% options will end up somewhere around .8% (depending on the option pool), which is between 2.5M and 3M. Worse case scenario, all rounds come with 3x participating preferred and much bigger percentage than 20%, and the options pool got inflated to accommodate more recent employees. So in this liquidity event, the VCs take 3 * 70 = 210M out first, leaving 150M on the table. 2% options might end up being .1% equity, resulting in 150K for the first employee (before tax). The real number is somewhere between the two. From my experience, it's more likely closer to the lower end than the higher end.
- byoung2 12y ago
  Thanks for the explanation. Does the same math apply for founders (just with a higher % to start), or is it calculated differently?
  - boomzilla 12y ago
    In theory, founders get commons too, so same math applies (with higher %). In practice, sometime founders get themselves better deals, e.g.: http://allthingsd.com/20111001/vcs-unite-chamath-palihapitiya-decries-airbnbs-recent-112m-funding-for-excessive-founder-control-and-cashout-in-email/ http://allthingsd.com/20111001/vcs-unite-chamath-palihapitiy... There is also some tax workaround that leaves founders much better off: usually their payout are only taxed as long term financial gains, which is a much lower bracket.
- btrautsc 12y ago
  The logic makes sense, but that is a pretty pessimistic view. I have no inside info, but I hope the first few people will come out ahead of that.
- danielpal 12y ago
  This seems to extreme. Starting with 2%, likehood is he was diluted 50 - 55% across the 3 rounds. He end's up with 1.1%. Given the $390M exit, he get's $4.2M. This doesn't take into account liquidation preferences, but also doesn't take into account incentive plans either. Let's say due to liquidation preferences he only takes half of that ($2.2M). Given that he just made $2.2M and Salesforce is keeping RelateIQ as a whole subsidiary, they'll want to make sure they retain the talent. So they will probably sweeten the deal with an incentive package of 60%-80% of that(1.3M). All in all, given he stays 3-4 more years, he'll likely come out with 3.5M to 6M.
  - btrautsc 12y ago
    This sounds much more reasonable... thanks Daniel
- randomflavor 12y ago
  I agree. It's most likely this or close to it.
olgasteidl 12y ago
i would look at this from a different angle. If i can grow a company till its IPO, why would i sell. for me the most realistic scenario is that RelateIQ had a very high customer acquisition cost (CAC) and they were not sure they can get out of this high CAC before the money runs out.

by tlogan 12y ago

boomzilla 12y ago

According to crunchbase http://www.crunchbase.com/organization/relateiq http://www.crunchbase.com/organization/relateiq they took 3 rounds on top of seed funding. So in the best case scenario, each round diluted by 20%, leaving the founder team and employees with ~50% ownership (= 80% * 80% * 80%). Again, best case scenario, there is no participating preferred, then 2% options will end up somewhere around .8% (depending on the option pool), which is between 2.5M and 3M. Worse case scenario, all rounds come with 3x participating preferred and much bigger percentage than 20%, and the options pool got inflated to accommodate more recent employees. So in this liquidity event, the VCs take 3 * 70 = 210M out first, leaving 150M on the table. 2% options might end up being .1% equity, resulting in 150K for the first employee (before tax). The real number is somewhere between the two. From my experience, it's more likely closer to the lower end than the higher end.

byoung2 12y ago
Thanks for the explanation. Does the same math apply for founders (just with a higher % to start), or is it calculated differently?
- boomzilla 12y ago
  In theory, founders get commons too, so same math applies (with higher %). In practice, sometime founders get themselves better deals, e.g.: http://allthingsd.com/20111001/vcs-unite-chamath-palihapitiya-decries-airbnbs-recent-112m-funding-for-excessive-founder-control-and-cashout-in-email/ http://allthingsd.com/20111001/vcs-unite-chamath-palihapitiy... There is also some tax workaround that leaves founders much better off: usually their payout are only taxed as long term financial gains, which is a much lower bracket.
btrautsc 12y ago
The logic makes sense, but that is a pretty pessimistic view. I have no inside info, but I hope the first few people will come out ahead of that.
danielpal 12y ago
This seems to extreme. Starting with 2%, likehood is he was diluted 50 - 55% across the 3 rounds. He end's up with 1.1%. Given the $390M exit, he get's $4.2M. This doesn't take into account liquidation preferences, but also doesn't take into account incentive plans either. Let's say due to liquidation preferences he only takes half of that ($2.2M). Given that he just made $2.2M and Salesforce is keeping RelateIQ as a whole subsidiary, they'll want to make sure they retain the talent. So they will probably sweeten the deal with an incentive package of 60%-80% of that(1.3M). All in all, given he stays 3-4 more years, he'll likely come out with 3.5M to 6M.
- btrautsc 12y ago
  This sounds much more reasonable... thanks Daniel
randomflavor 12y ago
I agree. It's most likely this or close to it.

olgasteidl 12y ago

i would look at this from a different angle. If i can grow a company till its IPO, why would i sell. for me the most realistic scenario is that RelateIQ had a very high customer acquisition cost (CAC) and they were not sure they can get out of this high CAC before the money runs out.