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How Wizards of the Coast distributed equity as a startup

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Re: How Wizards of the Coast distributed equity as a startup

#11

Post by sgk284 »

kauffj wrote: post #2

I love the idea of small scale stock offerings, but isn't this illegal? My understanding was that selling stock like this is a private equity offering and that private equity offerings are limited to a small number of people unless the investor is sufficiently rich (the government likes to use the term "accredited investor").

The "accredited investor" restriction usually only applies if you're shopping the stock around.

If the person getting the stock qualifies as a "friend or family", the restriction doesn't apply. Hence the term "Friends and Family Round".

Re: How Wizards of the Coast distributed equity as a startup

#12

Post by metaphorm »

GeneralMayhem wrote: post #5

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.

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.

Re: How Wizards of the Coast distributed equity as a startup

#13

Post by tptacek »

metaphorm wrote: post #12
GeneralMayhem wrote: post #5

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.

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,…

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.

Re: How Wizards of the Coast distributed equity as a startup

#14

Post by tptacek »

kauffj wrote: post #2

I love the idea of small scale stock offerings, but isn't this illegal? My understanding was that selling stock like this is a private equity offering and that private equity offerings are limited to a small number of people unless the investor is sufficiently rich (the government likes to use the term "accredited investor").

There's a whole mess of exceptions to the rule you're referring to, but equally importantly, it's not so much "illegal" as "unlawful". For instance, many of the bad things that happen if you flout this rule only happen if you have disgruntled (or ruthless) shareholders.

It's a very bad idea to ignore the "reg D" type rules, but it's not the kind of thing where random people are likely to be able to report you to the SEC and get you fined.

Re: How Wizards of the Coast distributed equity as a startup

#15

Post by [deleted] »

kauffj wrote: post #2

I love the idea of small scale stock offerings, but isn't this illegal? My understanding was that selling stock like this is a private equity offering and that private equity offerings are limited to a small number of people unless the investor is sufficiently rich (the government likes to use the term "accredited investor").

[deleted]

Re: How Wizards of the Coast distributed equity as a startup

#16

Post by nwhitehead »

It's funny how everyone seems to have a different view of how equity should work. I'm reading Felix Dennis "How to Get Rich" (highly recommended, much better than the title makes it sound). He made his fortune in magazine publishing which is actually somewhat close to Wizards of the Coast in business model. His view is exactly opposite; fight as if your life depended on every share, and pay people bonuses to incentivize performance.

Re: How Wizards of the Coast distributed equity as a startup

#17

Post by joelrunyon »

nwhitehead wrote: post #16

It's funny how everyone seems to have a different view of how equity should work. I'm reading Felix Dennis "How to Get Rich" (highly recommended, much better than the title makes it sound). He made his fortune in magazine publishing which is actually somewhat close to Wizards of the Coast in business model. His view is exactly opposite; fight as if your life depended on every share, and pay people bonuses to incentiv…

Great book. Probably the best value to cheesy title ratio I've seen. I was hesitant to pick it up initially, but very happy I did.

Really interesting to see how his view on equity shaped his businesses.

Re: How Wizards of the Coast distributed equity as a startup

#18

Post by javajosh »

I always feel dumb asking - but doesn't the total number of shares matter? The real thing you're buying is a fraction of the pie when someone buys your company, and it would seem to matter quite a lot whether the pie was cut into 10^3 or 10^6 pieces. Indeed, I wish we could just talk about ownership percentage instead of shares to remove the ambiguity.

Why is there a reluctance for people to talk about this openly?

Re: How Wizards of the Coast distributed equity as a startup

#19

Post by georgeecollins »

javajosh wrote: post #18

I always feel dumb asking - but doesn't the total number of shares matter? The real thing you're buying is a fraction of the pie when someone buys your company, and it would seem to matter quite a lot whether the pie was cut into 10^3 or 10^6 pieces. Indeed, I wish we could just talk about ownership percentage instead of shares to remove the ambiguity. Why is there a reluctance for people to talk about this openly?

The number of shares should be figured into the estimated price. If they figure the company is valued at $100, and a share at $0.50, then they should be issuing 200 shares.

You should be completely mistrustful of anyone who offers you shares and doesn't tell you the # of shares outstanding. Alternately, if they tell you the value of a share, they should tell you the estimated value of the company.

The alternative is presented in Mel Brooks' The Producers.

Re: How Wizards of the Coast distributed equity as a startup

#20

Post by tehwebguy »

metaphorm wrote: post #12
GeneralMayhem wrote: post #5

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.

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,…

And there was no vesting
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