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How Wizards of the Coast distributed equity as a startup

peteradkison.com

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

#31

Post by teachingaway »

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 very beginning, I wanted all my friends to be shareholders. If I had a deep, intellectual conversation with someone, I’d give them 10 shares.

Yeah, it probably violates some securities laws... but when everyone makes lots of money on the deal, there's rarely an issue. When investors lose money, they're all too happy to bring up securities law violations and fraud claims. Better to do everything by the book and not give anyone an excuse to sue you later.

I'm not a securities lawyer, but in a nutshell, startup companies should prefer a very small number of professional (and accredited) investors.

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

#32

Post by 8_hours_ago »

ryanburk wrote: post #26
mproud wrote: post #24

Peter says again and again how he did it might not have been the safest way, that perhaps he was lucky it worked out, that there could have been a better approach. He does recognize it’s all water under the bridge, that in the end, he got success. But just keep this in mind — the way they did it is probably not the best way. Edit: Read Blog Entry 2, Part 1: http://www.peteradkison.com/blog-entry-2-wizards-of-the-coas…

can you go into why this wasn't "the best" or "safest" way or the alternatives?

Offering stock instead of money for goods and services to your friends is risky. If the stock becomes worthless (which is very common for startups), your friends may not be your friends anymore. Of course, that doesn't mean much for an investment as small as a $100 drafting table, but losing your life savings is devastating.

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

#33

Post by [deleted] »

benmathes wrote: post #7

"But most of the value in this company came from two things: Richard Garfield creating Magic: The Gathering, and the employees. Not investors. It’s only appropriate that the distribution from the sale reflects that." Hear hear. Investors say that founders and employees are what make startups. I wish the cap tables reflected that.

[deleted]

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

#34

Post by nerfhammer »

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?

depends what the valuation is based on. If the company is generating revenue in theory and to some degree of tax lawfulness the strike price should be related to the actual ultimate market value

even if it's not and depending on the type of grant the strike price matters quite a bit for tax purposes to the grantee.

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

#36

Post by joshu »

benmathes wrote: post #7

"But most of the value in this company came from two things: Richard Garfield creating Magic: The Gathering, and the employees. Not investors. It’s only appropriate that the distribution from the sale reflects that." Hear hear. Investors say that founders and employees are what make startups. I wish the cap tables reflected that.

so how do you propose that change?

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

#37

Post by ryanburk »

8_hours_ago wrote: post #32
ryanburk wrote: post #26

Earlier quoted context omitted.

can you go into why this wasn't "the best" or "safest" way or the alternatives?

Offering stock instead of money for goods and services to your friends is risky. If the stock becomes worthless (which is very common for startups), your friends may not be your friends anymore. Of course, that doesn't mean much for an investment as small as a $100 drafting table, but losing your life savings is devastating.

thanks. totally get the life savings risk - the risk to the investor. I read it as risk to the company, so didn't know how this would be any riskier than standard round raises.

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

#38

Post by alexose »

The next generation of startups is going to have to address some employee equity problems, I think. This notion that early hires are going to share a small piece of the 10% employee pool needs to stop.

Being employee #1 of a startup can be one of the worst positions a young developer can ask for. Long hours, high stress, low job security, and for what? 0.5% of a company that, if it survives, will most likely dilute its shares?

A startup could really set itself apart by advertising more progressive structure-- One where shares in the company aren't treated like a lottery ticket, but an actual piece of value that is worth growing. Too bad VCs don't see it that way.

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

#40

Post by gcb0 »

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.

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.

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