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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

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-...
  - prostoalex 12y ago
    > even employees who joined the company as late as the end of 2010 were underwater That is not correct usage of the term. According to external report, Facebook stopped issuing stock options to employees as of 2007. People joining in 2010 would be receiving RSUs, whose "strike price" is $0. While the monetary value of the shares at IPO was different than the value they imagined, they would not be underwater (having a strike price above market price, thus rendering options meaningless). http://www.nytimes.com/2012/02/02/technology/for-founders-to-decorators-facebook-riches.html?pagewanted=all http://www.nytimes.com/2012/02/02/technology/for-founders-to...
    - 7Figures2Commas 12y ago
      I was not privy to when Facebook started granting RSUs instead of options. My use of the term "underwater" was based on what was reported. Still, this is a red herring. The fundamental point of my comment was that in the past couple of years, every single person here had the ability to purchase Facebook shares on terms just as favorable if not more favorable than many Facebook employees without having to spend a single day working for the company. In fact, in the past several years, you could have on favorable terms purchased shares in any number of tech companies that have delivered fantastic gains to shareholders. Obviously, timing investments (or trades depending on your persuasion) is easier said than done, but it's probably no more difficult than trying to determine whether the startup you're going to work at for the next four years of your life is the next Facebook or the next MySpace.
prostoalex 12y ago
> As an example of this, consider that Facebook had sold shares at a $15 billion valuation just three years after the company was founded. That is not the entire story. Microsoft invested $240 million in exchange for certain number of shares (constituting 1.6% of total Facebook shares issued) at the time plus a 3-year exclusive right to sell banner ads on Facebook through Microsoft AdCenter. The $15 billion valuation is only correct if: 1) Microsoft bought common stock with no liquidation preferences or special dividends. 2) An exclusive 3-year right to sell banner ads on Facebook is worth $0.
- 7Figures2Commas 12y ago
  Companies cannot grant equity to employees at below fair market value without creating adverse tax consequences for those employees. Transactions like the Microsoft investment absolutely factor into the determination of fair market value. Bottom line: just three years after its founding, Facebook had a very significant valuation.
  - prostoalex 12y ago
    You are correct on the bottom line, I was just pointing out that mainstream media's definition of valuation = number of all stocks * the price per share of the latest transaction, no matter what preferred dividends, liquidation preferences or special side deals are thrown in to close that deal.

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-...
- prostoalex 12y ago
  > even employees who joined the company as late as the end of 2010 were underwater That is not correct usage of the term. According to external report, Facebook stopped issuing stock options to employees as of 2007. People joining in 2010 would be receiving RSUs, whose "strike price" is $0. While the monetary value of the shares at IPO was different than the value they imagined, they would not be underwater (having a strike price above market price, thus rendering options meaningless). http://www.nytimes.com/2012/02/02/technology/for-founders-to-decorators-facebook-riches.html?pagewanted=all http://www.nytimes.com/2012/02/02/technology/for-founders-to...
  - 7Figures2Commas 12y ago
    I was not privy to when Facebook started granting RSUs instead of options. My use of the term "underwater" was based on what was reported. Still, this is a red herring. The fundamental point of my comment was that in the past couple of years, every single person here had the ability to purchase Facebook shares on terms just as favorable if not more favorable than many Facebook employees without having to spend a single day working for the company. In fact, in the past several years, you could have on favorable terms purchased shares in any number of tech companies that have delivered fantastic gains to shareholders. Obviously, timing investments (or trades depending on your persuasion) is easier said than done, but it's probably no more difficult than trying to determine whether the startup you're going to work at for the next four years of your life is the next Facebook or the next MySpace.

prostoalex 12y ago

> As an example of this, consider that Facebook had sold shares at a $15 billion valuation just three years after the company was founded. That is not the entire story. Microsoft invested $240 million in exchange for certain number of shares (constituting 1.6% of total Facebook shares issued) at the time plus a 3-year exclusive right to sell banner ads on Facebook through Microsoft AdCenter. The $15 billion valuation is only correct if: 1) Microsoft bought common stock with no liquidation preferences or special dividends. 2) An exclusive 3-year right to sell banner ads on Facebook is worth $0.

7Figures2Commas 12y ago
Companies cannot grant equity to employees at below fair market value without creating adverse tax consequences for those employees. Transactions like the Microsoft investment absolutely factor into the determination of fair market value. Bottom line: just three years after its founding, Facebook had a very significant valuation.
- prostoalex 12y ago
  You are correct on the bottom line, I was just pointing out that mainstream media's definition of valuation = number of all stocks * the price per share of the latest transaction, no matter what preferred dividends, liquidation preferences or special side deals are thrown in to close that deal.