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LivingSocial: Employees' and Founders' Common Stock Now Worthless

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Re: LivingSocial: Employees' and Founders' Common Stock Now Worthless

#151

Post by petenixey »

drusenko wrote: post #120
confluence wrote: post #55

Here are a few tips for others startup employees: 1. Take the least amount of stock possible - your startup is statistically unlikely to succeed. It'd be better to bump your salary up $10-20K than to get the stock. 2. Unless it's liquid - it's worthless. 3. Valuations pre-cashflow - are useless. Anybody can value anything at insane levels using just one dollar. I value HN at $1 billion by offering to buy only 1 share…

It's unfair to characterize all startups as nirvana, and it's likewise unfair to label them all as run by evil masterminds taking advantage of their employees. Sure, some startups are total shit, others are actually pretty enjoyable places to work. So let's not paint this as either black or white. You make some great points that a lot of "wide eyed" grads could use to hear more of. There are also a few things I take…

Well articulated, David. I also implore anyone reading this to use common sense and a huge risk-discount when evaluating the value of stock. As an employee the primary thing you should worry about is not whether the company is going to be 100x or 1000x return, it's whether it's going to succeed at all and you are far better equipped to do this than you realise.

An investor's job is to catch the winners. An employee's job is to avoid the losers.

As an employee, your main interest is not in what the top end of the stock may be, you don't have a portfolio, you aren't doing "black swan investments" you are investing your life and your time. It makes sense for professional investors to go in even at ridiculous valuations because one win can carry 19 losses.

As an employee you do not have a 20 strong portfolio. If you start young you have maybe five or six swings at bat and then you'll have a mortgage, kids, family. The return as an employee simply doesn't justify high levels of risk, the main job is just to ensure you're a part of something that works.

So how can you do that? Ask the questions you know make sense. Are you working for company run by founders who can sensibly and calmly articulate why they will succeed. Do the people around them also believe this and do you trust their judgement? Does the company have a justifiable burn rate and is it on track to make sustainable money in a market that's not unreasonably small? Would you pay money for the product or do you feel your customers are being duped? If the answer to the above questions is yes then put value in your stock. If not then don't.

Re: LivingSocial: Employees' and Founders' Common Stock Now Worthless

#153

Post by don_draper »

confluence wrote: post #55

Here are a few tips for others startup employees: 1. Take the least amount of stock possible - your startup is statistically unlikely to succeed. It'd be better to bump your salary up $10-20K than to get the stock. 2. Unless it's liquid - it's worthless. 3. Valuations pre-cashflow - are useless. Anybody can value anything at insane levels using just one dollar. I value HN at $1 billion by offering to buy only 1 share…

There's truth to these word, but it is also true that working for a big corporation can be soul crushing experience.

Re: LivingSocial: Employees' and Founders' Common Stock Now Worthless

#154

Post by calibraxis »

vecter wrote: post #149
confluence wrote: post #139

Earlier quoted context omitted.

1. Yes it is. Startup failure rates are really that high. 2. No one knows these odds or who will actually succeed - it's the reason why being a VC is so random. Furthermore - failure rates still push the EV towards zero. 3. The difference between say $3 million at a $15 million valuation post money and my example aren't really that different. Valuation leverage is a huge issue that no one seems to talk about. 5. You…

6. I'm not sure where you're getting these numbers from. You talk in black in white and categorically (and quite unfairly) paint startups as slave labor camps where employees are treated like shit and exploited at every possible opportunity. I know a lot of people both founding and working for startups, and I've never actually heard of employees being asked or even implicitly pressured to work 100+ hour weeks. That's…

100+ looks like a typo. confluence's original post said 60+. This is common at startups, and there was more to point #6 anyway.

Aside from that typo, confluence's points closely match my perspective. Just rational risk management. Understand the system you're you're getting into, without illusions. drusenko rhetorically asked if this all makes him sociopathic. (That is, an ideal rational amoral self-interest.) Frankly, I think that's a type error -- he's not sociopathic, but his corporation probably is. And that's just plain institutional constraint; startups already have a huge failure rate, even when acting in that kind of rational way. I am not a sociopath, but my corporation overall acts like one. With my support. Otherwise we court extra chance of failure.

Re: LivingSocial: Employees' and Founders' Common Stock Now Worthless

#155

Post by czzarr »

integraton wrote: post #132
louischatriot wrote: post #126

Earlier quoted context omitted.

Only someone who hasn't tried to start a company could say that founders and investors don't deserve to have most of the equity. Try to start one and give all employees the same equity you own ... Some points you make are valid though, it's a shame you are so single-minded.

I've started several companies and also been a first employee (and so have a number of my family members), and I've experienced multiple situations (and seen others second hand) where subsequent employees contributed more than at least one of the founders. This includes everything from founders being unmistakable liabilities to even one case where a 50% owning founder ended up doing quite literally nothing but playin…

Of course when you take the worst possible scenarios it doesn't look good.

Re: LivingSocial: Employees' and Founders' Common Stock Now Worthless

#156

Post by donavanm »

goronbjorn wrote: post #48

I wonder what this means for Amazon.

Amazon had about 60 billion in revenue last year. 1/3 of 150M inst so much. Jeffy B wrote a personal check for ~30M to get in on über, for comparison.

Edit: totally forgot, amazon already wrote most (all?) of the living social investment last year. So I guess they got out when the gettin was slightly less terrible.

Re: LivingSocial: Employees' and Founders' Common Stock Now Worthless

#157

Post by josscrowcroft »

confluence wrote: post #55

Here are a few tips for others startup employees: 1. Take the least amount of stock possible - your startup is statistically unlikely to succeed. It'd be better to bump your salary up $10-20K than to get the stock. 2. Unless it's liquid - it's worthless. 3. Valuations pre-cashflow - are useless. Anybody can value anything at insane levels using just one dollar. I value HN at $1 billion by offering to buy only 1 share…

"Oh, and that culture fit crap? That's just discrimination - rebranded! "

On this point I couldn't agree more – thanks for putting it so bluntly. I've been trying to figure out what irked me about "culture fit" for a long time.

Re: LivingSocial: Employees' and Founders' Common Stock Now Worthless

#158

Post by tessa_82 »

ericz wrote: post #116

Perhaps I'm missing something here -- people criticize group deal sites for taking too much of the money in a deal (50% of the revenue). The marginal cost for LivingSocial on this is 0... why aren't they making tons of money? Where has the near $1 billion dollars gone?

Daily deal sites burn huge amounts of money on online advertising and a massive sales team.

People talk about these companies as if they are tech yet there is such a huge people component that does not scale. Groupon at peak had over 7000 sales people which is insane!

Re: LivingSocial: Employees' and Founders' Common Stock Now Worthless

#159

Post by temphn »

confluence wrote: post #89
socalnate1 wrote: post #78

Earlier quoted context omitted.

You sound like the worst employee ever.

Yes - realistic employees are the worst - they are so unexploitable! What companies really need are wide-eyed, earnest, new college grads who have no idea what goes on in the real world, and how much they are truly being screwed by their current startup. Those guys rock! They work 100+ hour weeks, they don't have families, or commitments and are willing to do it all for mere peanuts and empty promises of golden rainb…

Honest question: do you believe there any job where you are not being screwed? And do you believe you are an above average employee, or that you could be a founder yourself (as it's just like getting in on Manhattan early)?

If so, why not work in that job (rather than at a startup)? Or why not found a startup (rather than be an employee)?

Re: LivingSocial: Employees' and Founders' Common Stock Now Worthless

#160

Post by confluence »

temphn wrote: post #159
confluence wrote: post #89

Earlier quoted context omitted.

Yes - realistic employees are the worst - they are so unexploitable! What companies really need are wide-eyed, earnest, new college grads who have no idea what goes on in the real world, and how much they are truly being screwed by their current startup. Those guys rock! They work 100+ hour weeks, they don't have families, or commitments and are willing to do it all for mere peanuts and empty promises of golden rainb…

Honest question: do you believe there any job where you are not being screwed? And do you believe you are an above average employee, or that you could be a founder yourself (as it's just like getting in on Manhattan early)? If so, why not work in that job (rather than at a startup)? Or why not found a startup (rather than be an employee)?

Any job with monopoly pricing protections - a doctor or engineer at large established firms fit the bill. Once you have monopoly pricing - you are no longer the one being screwed, but rather the one doing the screwing.

Do I think I'm above average? Depends on what you mean by average.

There are zero barriers to entry in becoming a founder - so yes I'm founder material. As is everyone else. The question that actually needs to be asked is: How lucky can one get?

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