6 ms·

This is a great story, and I'm glad it worked out for them, but it's important to keep in mind that it's only one data point. This is exactly the sort of "I'll

This is a great story, and I'm glad it worked out for them, but it's important to keep in mind that it's only one data point. This is exactly the sort of "I'll pay you in equity, and once my great idea makes it big you'll be rich!" approach that HN usually hates, because 99% of the time said payout never comes.

mathattack 12y ago
True. But it's nice to hear these stories. My brother gave our old man $5K in his startup in appreciation for several months of sleeping on the couch when money got tight. During a downturn my brother lost it all. When the dot com bubble hit, my old man realized he still had the stock, which was now in a parent of a parent, and got out with a 20x return.
metaphorm 12y ago
I think its not directly comparable. Wizards of the Coast was never a "my big idea that will change the world!" type of company. It was a a games publishing company. They didn't even have one particular game in mind when they started up. Magic came later. Initially they were doing pretty much any board game and RPG that wanted to cut a license deal with them. In fact, they still operate this way to a certain extent, even with Magic as the flagship product. Because Wizards was never an idea based company I don't think its fair to put them in the same bucket with the usual suspects who try to exploit naive young developers by not paying them for hard work.
- tptacek 12y ago
  Another possible big difference between WOTC and a typical tech company is that there weren't as many professional financiers involved in WOTC's fundraising. Every round of "institutional" funding taken by a tech company revalues all the previously issued shares, and companies planning to go this route are structured to make that process as frictionless for the company as possible.
- tehwebguy 12y ago
  And there was no vesting
  - tptacek 12y ago
    Avoid tech companies that don't have vesting. Vesting is not optional. Everyone vests.
    - tehwebguy 12y ago
      OK, it wasn't a tech company
  - uiri 12y ago
    I'm not sure that that's really true. Investors don't vest because they put in capital which is immediately available. Similarly, those contributing capital (either in the form of supplies (e.g. a drafting table) or cash) should get their shares right away. Those who are accepting equity for labour should vest because otherwise they may walk away before all of the promised labour materializes. I think that those who were paid in WOTC stock (in addition to or in lieu of cash) received their stock in paycheque-sized increments. Which is fair because the amount of stock they received is a fair trade for the labour that they put into the company.
    - sqrt17 12y ago
      Which begs the question, why would you deliberately build a cliff into the vesting process? Why not say, 20000$/yr (or whatever arbitrary amount) at then-current valuation? As for institutional investment, this would create incentives for the founders (or other equity holders) to exaggerate the valuation of the company. On a different note, this kind of vesting would mean more equity for people who worked for the company while it was growing slowly (and who took on more risks - that's why you give them equity and not hard cash) before seeing exponential growth, and no equity growth for people who joined after the company had reached a stable state. The next point is, what's whith people who want to disinvest from their position? This is both the case for investors after a company has reached a certain size (e.g. Zappos before they were acquired by Amazon), but it will also be the case when people who get partly paid in equity want out of their position. Vesting cliffs unilaterally benefit the current equity holders, because it creates a skewed incentive structure where you either should leave at the start or stick it out until the vesting cliff. (And, that's what it was with Microsoft in the 90s/2000s: many people stayed on exactly for the time it took for their equity to vest).
gcb0 12y ago
the difference is that on tech world, they already came up with a way that only the suits will profit. anytime you see two types of stock, you can be 110% sure that you are going to be screwed. and last time i checked there was no tech company, HN included that didn't have restricted and unrestricted stock.

mathattack 12y ago

True. But it's nice to hear these stories. My brother gave our old man $5K in his startup in appreciation for several months of sleeping on the couch when money got tight. During a downturn my brother lost it all. When the dot com bubble hit, my old man realized he still had the stock, which was now in a parent of a parent, and got out with a 20x return.

metaphorm 12y ago

I think its not directly comparable. Wizards of the Coast was never a "my big idea that will change the world!" type of company. It was a a games publishing company. They didn't even have one particular game in mind when they started up. Magic came later. Initially they were doing pretty much any board game and RPG that wanted to cut a license deal with them. In fact, they still operate this way to a certain extent, even with Magic as the flagship product. Because Wizards was never an idea based company I don't think its fair to put them in the same bucket with the usual suspects who try to exploit naive young developers by not paying them for hard work.

tptacek 12y ago
Another possible big difference between WOTC and a typical tech company is that there weren't as many professional financiers involved in WOTC's fundraising. Every round of "institutional" funding taken by a tech company revalues all the previously issued shares, and companies planning to go this route are structured to make that process as frictionless for the company as possible.
tehwebguy 12y ago
And there was no vesting
- tptacek 12y ago
  Avoid tech companies that don't have vesting. Vesting is not optional. Everyone vests.
  - tehwebguy 12y ago
    OK, it wasn't a tech company
- uiri 12y ago
  I'm not sure that that's really true. Investors don't vest because they put in capital which is immediately available. Similarly, those contributing capital (either in the form of supplies (e.g. a drafting table) or cash) should get their shares right away. Those who are accepting equity for labour should vest because otherwise they may walk away before all of the promised labour materializes. I think that those who were paid in WOTC stock (in addition to or in lieu of cash) received their stock in paycheque-sized increments. Which is fair because the amount of stock they received is a fair trade for the labour that they put into the company.
  - sqrt17 12y ago
    Which begs the question, why would you deliberately build a cliff into the vesting process? Why not say, 20000$/yr (or whatever arbitrary amount) at then-current valuation? As for institutional investment, this would create incentives for the founders (or other equity holders) to exaggerate the valuation of the company. On a different note, this kind of vesting would mean more equity for people who worked for the company while it was growing slowly (and who took on more risks - that's why you give them equity and not hard cash) before seeing exponential growth, and no equity growth for people who joined after the company had reached a stable state. The next point is, what's whith people who want to disinvest from their position? This is both the case for investors after a company has reached a certain size (e.g. Zappos before they were acquired by Amazon), but it will also be the case when people who get partly paid in equity want out of their position. Vesting cliffs unilaterally benefit the current equity holders, because it creates a skewed incentive structure where you either should leave at the start or stick it out until the vesting cliff. (And, that's what it was with Microsoft in the 90s/2000s: many people stayed on exactly for the time it took for their equity to vest).

gcb0 12y ago

the difference is that on tech world, they already came up with a way that only the suits will profit. anytime you see two types of stock, you can be 110% sure that you are going to be screwed. and last time i checked there was no tech company, HN included that didn't have restricted and unrestricted stock.