4 ms·

Dustin talks about Financial Reward and Impact of "why to do a startup" for examples like Facebook and Dropbox here: https://www.youtube.com/watch?v=CBYhVcO4WgI

by mbesto 12y ago

Dustin talks about Financial Reward and Impact of "why to do a startup" for examples like Facebook and Dropbox here: https://www.youtube.com/watch?v=CBYhVcO4WgI#t=2161 https://www.youtube.com/watch?v=CBYhVcO4WgI#t=2161 Are these values correct? If you join Dropbox as employee #100 with 10bp, you're 10bp is going to get massively diluted through subsequent rounds, no? Isn't it more like $1-2mil? And also this is wealth on paper, which means that you don't all of the sudden have $10mil sitting in the bank. I don't think he explains that but that's how it's portrayed, and is probably worth explaining, given the audience.

rdl 12y ago
The dilution you'll get from Series B onward is maybe 30% total. That's not "massive" IMO. (Obviously much higher dilution in a down round, if you're a founder who gets kicked out and crammed down, or if the company has a marginal exit, you're not part of the retention, and they choose to put all the acquisition into retention...) Being a senior-ish employee at a Pre-IPO (i.e. Series C/D company, on a great trajectory, and an obvious winner) is probably the optimal outcome for total compensation; for cash, consulting, if you can find the right niche. (Startup founder MAY actually be superior to Seed/Series A startup employee, though, especially due to both tax issues and what happens when the company does anything less than stellar. OTOH, you can jump ship as a Series A employee, even manager, with no real negatives; if you're a founder, you're pretty much committed until the end, or at least until some serious inflection point, especially in a suboptimal outcome.)
7Figures2Commas 12y ago
Based on the holdings disclosed at the time of Facebook's IPO, and even accounting for the rise in the company's stock, I doubt very much that employee #100 at Facebook is sitting on $200 million in gains from his or her options or RSUs. In the case of Dropbox, looking at what the Box founders own according to Box's S-1[1] probably provides a more realistic comp. One thing worth noting is that Dustin's slide apparently fails to take into account the cost of exercising options. You can absolutely make a lot of money at a startup, and you don't even need to be one of the earliest employees to do so, but today's valuation trend works against employees. Startups are raising money at significant valuations earlier and earlier, so even early employees aren't receiving cheap equity. As an example of this, consider that Facebook had sold shares at a $15 billion valuation just three years after the company was founded. Google went public at a valuation under $27 billion (edit: corrected). If you had your choice, you'd almost certainly have received a better equity package as an early rank-and-file employee of Google versus Facebook. [1] http://fortune.com/2014/03/25/aaron-levie-owns-more-of-box-than-you-think/ http://fortune.com/2014/03/25/aaron-levie-owns-more-of-box-t...
- birken 12y ago
  When Google went public the valuation was ~$23 Billion (they raised just under $2 billion in the IPO) [1]. However to your point this was around 6 years after founding, whereas Facebook was valued at ~15 billion by Microsoft in 2007, 3 years after it was founded. I had a friend who turned down a job at Facebook in late 2008 because he felt the 15 billion valuation was very high and it limited his upside. And before about July '13 when FB's stock started a huge rise, this was pretty correct thinking. There is also still a problem with all of this revisionist valuation stuff for a company like Facebook. It only would be worth some obscene amount if: a) you got a generous stock option package when you joined b) you stayed with the company until the IPO (so you could actually both have a chance to sell your stock and pay the exercise costs) c) you didn't sell until right now after the stock has massively appreciated in the past year. And even still you are going to be paying regular income tax on all of that gain which is going to be around 50% if you live in California. [1]: http://www.washingtonpost.com/wp-dyn/articles/A14939-2004Aug19.html http://www.washingtonpost.com/wp-dyn/articles/A14939-2004Aug...
  - 7Figures2Commas 12y ago
    Yes, you are correct. Your friend didn't necessarily make a bad decision. Facebook traded as low as ~$18/share in 2012 and didn't get back to its IPO closing price until mid-2013. According to a media report[1], at one point, even employees who joined the company as late as the end of 2010 were underwater. So anybody (you, me, your friend) could have purchased FB shares with a cost basis lower than that of many employees. Given this, it's somewhat disingenuous for Dustin to use Facebook's current valuation to demonstrate "getting rich at a startup." It's actually a better demonstration of "getting rich trading the stock market." Adding insult to injury is the fact that the investor with long-term capital gains receives more favorable tax treatment on his or her gains than employees usually receive. Incidentally, employees who don't exercise and sell as soon as they can are effectively investing their hard-earned gains back into their employer's stock. Depending on how well the company's stock does, and when sales are timed, this can either be a really profitable thing or a really unprofitable thing. [1] http://www.businessinsider.com/facebook-lockup-release-2012-8 http://www.businessinsider.com/facebook-lockup-release-2012-...
vishalzone2002 12y ago
The other point to note here is that there is not a way to tell what is the next facebook/dropbox either. So the amount of risk or the time that one might take to figure whether they are going to make a huge sum in options is pretty much the same. By the time the market guesses the big company, my guess is they are already on high valuation with highly diluted equity.

by mbesto 12y ago

rdl 12y ago

The dilution you'll get from Series B onward is maybe 30% total. That's not "massive" IMO. (Obviously much higher dilution in a down round, if you're a founder who gets kicked out and crammed down, or if the company has a marginal exit, you're not part of the retention, and they choose to put all the acquisition into retention...) Being a senior-ish employee at a Pre-IPO (i.e. Series C/D company, on a great trajectory, and an obvious winner) is probably the optimal outcome for total compensation; for cash, consulting, if you can find the right niche. (Startup founder MAY actually be superior to Seed/Series A startup employee, though, especially due to both tax issues and what happens when the company does anything less than stellar. OTOH, you can jump ship as a Series A employee, even manager, with no real negatives; if you're a founder, you're pretty much committed until the end, or at least until some serious inflection point, especially in a suboptimal outcome.)

7Figures2Commas 12y ago

Based on the holdings disclosed at the time of Facebook's IPO, and even accounting for the rise in the company's stock, I doubt very much that employee #100 at Facebook is sitting on $200 million in gains from his or her options or RSUs. In the case of Dropbox, looking at what the Box founders own according to Box's S-1[1] probably provides a more realistic comp. One thing worth noting is that Dustin's slide apparently fails to take into account the cost of exercising options. You can absolutely make a lot of money at a startup, and you don't even need to be one of the earliest employees to do so, but today's valuation trend works against employees. Startups are raising money at significant valuations earlier and earlier, so even early employees aren't receiving cheap equity. As an example of this, consider that Facebook had sold shares at a $15 billion valuation just three years after the company was founded. Google went public at a valuation under $27 billion (edit: corrected). If you had your choice, you'd almost certainly have received a better equity package as an early rank-and-file employee of Google versus Facebook. [1] http://fortune.com/2014/03/25/aaron-levie-owns-more-of-box-than-you-think/ http://fortune.com/2014/03/25/aaron-levie-owns-more-of-box-t...

birken 12y ago
When Google went public the valuation was ~$23 Billion (they raised just under $2 billion in the IPO) [1]. However to your point this was around 6 years after founding, whereas Facebook was valued at ~15 billion by Microsoft in 2007, 3 years after it was founded. I had a friend who turned down a job at Facebook in late 2008 because he felt the 15 billion valuation was very high and it limited his upside. And before about July '13 when FB's stock started a huge rise, this was pretty correct thinking. There is also still a problem with all of this revisionist valuation stuff for a company like Facebook. It only would be worth some obscene amount if: a) you got a generous stock option package when you joined b) you stayed with the company until the IPO (so you could actually both have a chance to sell your stock and pay the exercise costs) c) you didn't sell until right now after the stock has massively appreciated in the past year. And even still you are going to be paying regular income tax on all of that gain which is going to be around 50% if you live in California. [1]: http://www.washingtonpost.com/wp-dyn/articles/A14939-2004Aug19.html http://www.washingtonpost.com/wp-dyn/articles/A14939-2004Aug...
- 7Figures2Commas 12y ago
  Yes, you are correct. Your friend didn't necessarily make a bad decision. Facebook traded as low as ~$18/share in 2012 and didn't get back to its IPO closing price until mid-2013. According to a media report[1], at one point, even employees who joined the company as late as the end of 2010 were underwater. So anybody (you, me, your friend) could have purchased FB shares with a cost basis lower than that of many employees. Given this, it's somewhat disingenuous for Dustin to use Facebook's current valuation to demonstrate "getting rich at a startup." It's actually a better demonstration of "getting rich trading the stock market." Adding insult to injury is the fact that the investor with long-term capital gains receives more favorable tax treatment on his or her gains than employees usually receive. Incidentally, employees who don't exercise and sell as soon as they can are effectively investing their hard-earned gains back into their employer's stock. Depending on how well the company's stock does, and when sales are timed, this can either be a really profitable thing or a really unprofitable thing. [1] http://www.businessinsider.com/facebook-lockup-release-2012-8 http://www.businessinsider.com/facebook-lockup-release-2012-...

vishalzone2002 12y ago

The other point to note here is that there is not a way to tell what is the next facebook/dropbox either. So the amount of risk or the time that one might take to figure whether they are going to make a huge sum in options is pretty much the same. By the time the market guesses the big company, my guess is they are already on high valuation with highly diluted equity.