6 ms·

That says it all really. $30M and you see under $100k as 24th employee. So 0.3%.

harryh 11y ago
What % of the company do you think the 24th employee should get? Obviously it's highly variable depending on the role. #24 could be a COO or could be a receptionist. But for the sake of argument let's assume they're a mid level engineer (taking a stab at what MCRed might have been at the gig in question).
- branchless 11y ago
  It's true we don't have enough info. I'm assuming he's a dev but I don't know.
  - harryh 11y ago
    I don't think that 0.3% is radially out of line. It sounds completely in the ballpark of reasonable to me.
    - serge2k 11y ago
      I think it depends on the risk. Getting hired at #24 might be a much less risky proposition than number 10 or 15.
      - tptacek 11y ago
        Assume we're talking about a senior developer and come up with math that reasonably gets #24 above 100 basis points. It's not impossible, but it's pretty tricky. Remember, in a lot of companies, the founders are diluted way back below 10%.
- pzb 11y ago
  The percentage really doesn't matter. Assume that you could get a $150K cash/stock at a public company (meaning concrete valuation). A startup offers you $80K and says "here is equity to make up the difference". If you assume three years and a 10% chance of them being worth something that means you need RSUs worth at least $2.1M to meet expected loss of salary. I highly doubt you are getting that.
  - harryh 11y ago
    Startups aren't a roll of the dice where they are all the same with equal probabilities of success. Make good decisions. Join the right team.
    - dman 11y ago
      If youre great at identifying the right team, why not work as a VC rather than working as an employee :) .
      - harryh 11y ago
        Because I like making things and working with other people and don't really like meetings or traveling.
        dman 11y ago
        The biggest downward ticks to my personal net worth have been due to me relying on skills that I dont exercise often. Over time I have calibrated my judgement to mark the value of infrequently exercised skills to zero even though I might think I am a natural at them.
      - MCRed 11y ago
        VCs are terrible at this. I can't tell you how many times in the past 20 years I've heard VCs say things like "you should move into [tangentially related area that we can't add value to that just had a big exit]" For instance, when youtube got bought, VCs were all interested in investing in online video companies. At that point, though, Youtube had already been bought! They were like 5 years too late.
        dman 11y ago
        That might well be true, the point I was trying to make was that as an employee its dangerous to make decisions based on the belief that you are great at picking winning teams / companies. Sure VC's are bad it too, but theyre sensible enough to do it with other peoples money.
- MCRed 11y ago
  It's not a simply "$100k/$30M = Equity" situation, and I wasn't expecting people to go into this much detail. My equity at hiring time was probably %1.5, I think. But there was vesting, of course, and also a whole lot of unsavory business, mostly perpetrated by the VCs. Trying to go into the detail and tangle out exactly why I got what I got would be just airing a lot of drama from the past and not really applicable to others. I only presented those numbers because they're two objective facts from the best payout I got working for a startup.
tptacek 11y ago
30bp is not a low number for employee #24. I got a huge windfall from a year and a half I worked for just 50bp, as employee #5 and a principal contributor. Do the math. Cut 30MM in half, and give half to investors. That leaves 15MM. Divide that 24 ways and nobody's getting 7 figures. But of course, that's not how it works; at 30MM, even an extremely egalitarian division of what's left after investors recoup is still going to get you into low 6 figures. The problem for this person isn't that 30bp is a stingy allocation. It's that for a company with 24 employees - or, very conservatively, a 4-5MM annual burn - 30MM simply isn't a very good exit, no matter how big that number sounds.
- bane 11y ago
  Sure, $30m isn't a great exit from a VC fast growth point of view, but with burn rates as you stated (if their revenue is about their burn) it's at or better than the traditional 5 x Static Revenue figure used for more established buyouts. Of course in crazy VC world this is probably supposed to be $12billion valuation or some nonsense to be worth it.
  - tptacek 11y ago
    I'm not following. I'm not venturing an opinion; I think I'm stating a fact. Stipulate: * VC funded company * 24 employees * <80th percentile of SFBA burn rate (ie: in Portland) It doesn't matter how the VCs feel about the company. 30MM is not a very lucrative outcome for that company, mathematically. You can make 30MM be an amazing outcome, but not if you bought yourself to an exit at barely-profitable on 6MM annual revenue using VC money. 30MM is a fantastic outcome for a bootstrapped company.
    - bane 11y ago
      Yeah, I agree. For VC funded, the investors won't be getting a good return (if any) on their investment. They'll probably lose money after all the venture banking fees are out of the way. I think the question of what is a good return these days is a bit crazy. For this size company VC's should be looking at wanting a $150-300m exit on the low end. But unicorns are polluting this kind of idea. For non-VC funded (bootstrapped, etc.) it's about an expected sale price for an established minimally growing company.

What % of the company do you think the 24th employee should get? Obviously it's highly variable depending on the role. #24 could be a COO or could be a receptionist. But for the sake of argument let's assume they're a mid level engineer (taking a stab at what MCRed might have been at the gig in question).

branchless 11y ago
It's true we don't have enough info. I'm assuming he's a dev but I don't know.
- harryh 11y ago
  I don't think that 0.3% is radially out of line. It sounds completely in the ballpark of reasonable to me.
  - serge2k 11y ago
    I think it depends on the risk. Getting hired at #24 might be a much less risky proposition than number 10 or 15.
    - tptacek 11y ago
      Assume we're talking about a senior developer and come up with math that reasonably gets #24 above 100 basis points. It's not impossible, but it's pretty tricky. Remember, in a lot of companies, the founders are diluted way back below 10%.
pzb 11y ago
The percentage really doesn't matter. Assume that you could get a $150K cash/stock at a public company (meaning concrete valuation). A startup offers you $80K and says "here is equity to make up the difference". If you assume three years and a 10% chance of them being worth something that means you need RSUs worth at least $2.1M to meet expected loss of salary. I highly doubt you are getting that.
- harryh 11y ago
  Startups aren't a roll of the dice where they are all the same with equal probabilities of success. Make good decisions. Join the right team.
  - dman 11y ago
    If youre great at identifying the right team, why not work as a VC rather than working as an employee :) .
    - harryh 11y ago
      Because I like making things and working with other people and don't really like meetings or traveling.
      - dman 11y ago
        The biggest downward ticks to my personal net worth have been due to me relying on skills that I dont exercise often. Over time I have calibrated my judgement to mark the value of infrequently exercised skills to zero even though I might think I am a natural at them.
    - MCRed 11y ago
      VCs are terrible at this. I can't tell you how many times in the past 20 years I've heard VCs say things like "you should move into [tangentially related area that we can't add value to that just had a big exit]" For instance, when youtube got bought, VCs were all interested in investing in online video companies. At that point, though, Youtube had already been bought! They were like 5 years too late.
      - dman 11y ago
        That might well be true, the point I was trying to make was that as an employee its dangerous to make decisions based on the belief that you are great at picking winning teams / companies. Sure VC's are bad it too, but theyre sensible enough to do it with other peoples money.
MCRed 11y ago
It's not a simply "$100k/$30M = Equity" situation, and I wasn't expecting people to go into this much detail. My equity at hiring time was probably %1.5, I think. But there was vesting, of course, and also a whole lot of unsavory business, mostly perpetrated by the VCs. Trying to go into the detail and tangle out exactly why I got what I got would be just airing a lot of drama from the past and not really applicable to others. I only presented those numbers because they're two objective facts from the best payout I got working for a startup.

tptacek 11y ago

30bp is not a low number for employee #24. I got a huge windfall from a year and a half I worked for just 50bp, as employee #5 and a principal contributor. Do the math. Cut 30MM in half, and give half to investors. That leaves 15MM. Divide that 24 ways and nobody's getting 7 figures. But of course, that's not how it works; at 30MM, even an extremely egalitarian division of what's left after investors recoup is still going to get you into low 6 figures. The problem for this person isn't that 30bp is a stingy allocation. It's that for a company with 24 employees - or, very conservatively, a 4-5MM annual burn - 30MM simply isn't a very good exit, no matter how big that number sounds.

bane 11y ago
Sure, $30m isn't a great exit from a VC fast growth point of view, but with burn rates as you stated (if their revenue is about their burn) it's at or better than the traditional 5 x Static Revenue figure used for more established buyouts. Of course in crazy VC world this is probably supposed to be $12billion valuation or some nonsense to be worth it.
- tptacek 11y ago
  I'm not following. I'm not venturing an opinion; I think I'm stating a fact. Stipulate: * VC funded company * 24 employees * <80th percentile of SFBA burn rate (ie: in Portland) It doesn't matter how the VCs feel about the company. 30MM is not a very lucrative outcome for that company, mathematically. You can make 30MM be an amazing outcome, but not if you bought yourself to an exit at barely-profitable on 6MM annual revenue using VC money. 30MM is a fantastic outcome for a bootstrapped company.
  - bane 11y ago
    Yeah, I agree. For VC funded, the investors won't be getting a good return (if any) on their investment. They'll probably lose money after all the venture banking fees are out of the way. I think the question of what is a good return these days is a bit crazy. For this size company VC's should be looking at wanting a $150-300m exit on the low end. But unicorns are polluting this kind of idea. For non-VC funded (bootstrapped, etc.) it's about an expected sale price for an established minimally growing company.