Honestly the only business I would be comfortable accepting options or even stock in lieu of adequate compensation is the guillotine factory.
My company sold for $100M and I got zilch – how can that be?
281–290 of 391 posts
Re: My company sold for $100M and I got zilch – how can that be?
#282“In fact, one of my kids was recently interviewing at a startup and I told her to ask about the preferred overhang — she said the interviewer looked at her like she was asking about his sex life! She didn’t get a call-back.” I’ll do you one better. This is like asking someone you’re about to have sex with if they have an STD and then having them act indignant and not answer. And you should do the same thing in both c…
it is understandable that this info is private (after all, you don't want this info leaked to your competitors).
But if you are trying to lure candidates, this info is critical for them to evaluate their offer (esp. if the offer consists of large amounts of stock/options etc). There's no reason this info should be kept secret from them, except when there's foul play on the part of the employer!
If the employer is concerned about the data leaking if the candidate rejects the offer, make them sign an NDA before telling them!
Re: My company sold for $100M and I got zilch – how can that be?
#283Earlier quoted context omitted.
And employees deserve to be sandbagged? That seems monumentally unfair...
Preferred stock (and specifically, liquidity preferences-- the common 1x, nonparticipating term) exists to ensure that if investors put in $10M for 20% of a company, you don't immediately sell the company for $10M and give them $2M back, and split $8M among yourselves. The deal is structured so that the investors have their option of either getting their original money returned or their share of the proportional shar…
This is a really good point that I hadn't considered. Employees are "investing" money in a startup too in the form of opportunity cost, but a founder can't turn around and "sell" the investment when it's just time; when it's actual cash they can.
I wonder if there are stories about this happening in certain contexts that predated liquidity preferences?
Re: My company sold for $100M and I got zilch – how can that be?
#284For anyone thinking about working for startups: - don't treat verbal agreements seriously - common stock is 99.9% worthless, you want preferred stock - liquidation preference is important, if company doesn't want to tell you, insist on market-rate salary - if a company tries to switch from an LLC to C-Corp and move you from being a minority owner of LLC (0.1-3%) into a common-stock owner of a C-Corp with the same %,…
Any equity that is offered with secret terms should be valued at zero. In my experience nobody will tell you, so always go for market rate salaries.
Does any startup give market rate salaries?
Re: My company sold for $100M and I got zilch – how can that be?
#285As a normal individual contributor not at the C-level or even management level, I just assume the value of any options/shares I receive is zero unless an accountant or the IRS tells me I should believe otherwise. Too many goofy fine-print shenanigans like this to keep track of.
the problematic circumstance is when the company doesn’t perform and is forced to raise under desperate circumstances. if you can make that distinction then early equity is worth stupid money (and just leave quickly if the company doesn’t perform)
"Doesn't perform?" "Forced to raise under desperate circumstances?"
Re: My company sold for $100M and I got zilch – how can that be?
#286> Again, let me emphasize, this is not inherently unfair. I guess our definitions of what is "unfair" are quite different. I think a better term here would be "illegal". It's most certainly not illegal - but I definitely would not consider it fair . Companies throw options at employees - or potential employees - like candy. They imply, explicitly or not, that when the company gets big and successful, these options ar…
Back in the dotcom era, they called it "hanging paper."
Re: My company sold for $100M and I got zilch – how can that be?
#287Earlier quoted context omitted.
Preferred stock (and specifically, liquidity preferences-- the common 1x, nonparticipating term) exists to ensure that if investors put in $10M for 20% of a company, you don't immediately sell the company for $10M and give them $2M back, and split $8M among yourselves. The deal is structured so that the investors have their option of either getting their original money returned or their share of the proportional shar…
This is a really good point that I hadn't considered. Employees are "investing" money in a startup too in the form of opportunity cost, but a founder can't turn around and "sell" the investment when it's just time; when it's actual cash they can. I wonder if there are stories about this happening in certain contexts that predated liquidity preferences?
You bring up a good rebuttle, to which I ask, why not have the preferred shares vest? Then your stake accurately matches the risk you've taken on at any given time.
Re: My company sold for $100M and I got zilch – how can that be?
#288Earlier quoted context omitted.
> Why shouldn't they, when they put up all the money that the company's been burning? Because there is another group that's putting up all the work. In startups, that work is generally more intense and risk laden, which is why employees are offered shares as part of compensation. Otherwise, why would they be offering shares? Both groups deserve protection. The SEC was created so that people couldn't swindle each othe…
That labor is being paid cash along the way. It might additionally be getting common stock, under the same terms of other common shareholders, which is to say, behind the preferred shareholders, who are behind the bond holders.
I'm surprised how many people don't get this part.
Person A, investor puts in $100k
Person B, employee gets paid $100k
Company fails.
Person A lost $100k
Person B gained $100k
This is why person A gets the lion's share of the rewards if the company succeed. Person B risked nothing. Person A risked $100k.
The typical retort from Person B is they could have gone to a different company so their risk was to work for this particular company. For example they could have gone to a FAANG company and made a high salary but instead went to some startup at a lower salary on the risk that it would succeed. From one POV that is a risk but it's not your money until it's in your hands. Future money is similar to saying well "if I won the lottery tomorrow". Until you do actually win that money it doesn't really count. You can use that line of reasoning in negotiations (you want me to join your startup but I have an offer from a FANNG company, sweeten the deal if you want me). But after that you didn't actually take a risk relevant to the company. Instead you made a choice to be paid X amount for your labor.
Note: I've never been on the investing side, only the employee side, but for some reason I've never felt ripped off since I knew I was taking no risk.
Re: My company sold for $100M and I got zilch – how can that be?
#289I feel like legal manipulation is very bad for the startup ecosystem. Even here, at the YC forums, people assume their startup equity is worth $0 and advise you to go with a FAANG (or day that they broke even with friends at faangs after their exits). How is a legitimate startup supposed to recruit the best people under these conditions?
Pay them a market wage for the best people?
Re: My company sold for $100M and I got zilch – how can that be?
#290Earlier quoted context omitted.
> How is a legitimate startup supposed to recruit the best people under these conditions? 1. As a rule of thumb, you can't. 2. As an exception, you can if they really want to see you succeed (i.e. for your mission). 3. As an exception, you can if they're dissatisfied or bored with their FAANG career and the job represents growth or excitement that they want. 4. As an exception, you can splurge on a few key hires, in…
6. As an exception, you can offer workplace flexibility that the bigs don't offer. For instance, a 30 hour week.
Some of the bigs do offer that. I know several people who work 3 days a week or 20 hour weeks at FAANG companies. They probably don't offer it entering though but only after a few years.