How Wizards of the Coast distributed equity as a startup • Hacker News Board

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

#41

Post by pchristensen » Wed, Oct 22, 2014, 7:34 PM UTC

Beltiras wrote: post #30

binarymax wrote: post #21

"We did no mathematical analysis of how the stock should be priced; we didn’t have the skill to do that" Folks may not realize it while doing so, but developing complex gameplay that is perfectly balanced can be considered a feat of linear algebra. So that quote made me smile :)

They actually did a horrible job at making a balanced game as can be seen in the multiple revisions since. I loved it and I'm calling it a roaring success in most respects, but balance is not something I would attribute to the first several incarnations.

They knew that it was unbalanced and that some cards (Moxen, Ancestral Recall, etc) were too powerful, but that was on purpose because they expected scarcity to be a part of the metagame.

If you were playing with your own group of friends who owned a few cards, the small total number of overpowered cards would be a fun diversion. They didn't anticipate the huge success and scale the game achieved. With a worldwide metagame and market for buying/selling cards, scarcity vanished as top players would pay up to get 4 of whatever card gave them an edge, so revisions had to be designed in balance, rather than rely on scarcity to create balance.

Source: I read way too much MtG history a few years ago when I was working on my own card game.

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

#42

Post by gcb0 » Wed, Oct 22, 2014, 7:38 PM UTC

tptacek wrote: post #14

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…

he did mention they had disgruntled shareholders. e.g. complaining about paying $300k for a $100 item. couldn't they have used that to halt the payment to the small (and illegal) shareholders of the past?

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

#43

Post by DonHopkins » Wed, Oct 22, 2014, 7:39 PM UTC

binarymax wrote: post #21

"We did no mathematical analysis of how the stock should be priced; we didn’t have the skill to do that" Folks may not realize it while doing so, but developing complex gameplay that is perfectly balanced can be considered a feat of linear algebra. So that quote made me smile :)

Sounds like they're on the right side of the Dunning-Kruger effect.

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

#44

Post by JoeAltmaier » Wed, Oct 22, 2014, 7:41 PM UTC

pchristensen wrote: post #41

Beltiras wrote: post #30

Earlier quoted context omitted.

They actually did a horrible job at making a balanced game as can be seen in the multiple revisions since. I loved it and I'm calling it a roaring success in most respects, but balance is not something I would attribute to the first several incarnations.

They knew that it was unbalanced and that some cards (Moxen, Ancestral Recall, etc) were too powerful, but that was on purpose because they expected scarcity to be a part of the metagame. If you were playing with your own group of friends who owned a few cards, the small total number of overpowered cards would be a fun diversion. They didn't anticipate the huge success and scale the game achieved. With a worldwide me…

There's more to it than that. They've re-released edition after edition to obsolete the previous. Used to be 1 mana got you a 1/0 or 1/1 creature with nothing else. Now you can get cards with 1 or two features, flying etc. Anybody using the old ones is a sucker. Its easy to think its all about the money, you have to buy new cards to keep competitive.

In fact this is why our game club designed their own card game (Orion Empire, check it out on Kickstarter!) The idea is, new cards will always be different in some way from old ones, so no card is ever completely eclipsed. So you can buy new decks to keep it interesting, but your old one is probably still competitive.

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

#45

Post by tptacek » Wed, Oct 22, 2014, 7:56 PM UTC

gcb0 wrote: post #42

tptacek wrote: post #14

Earlier quoted context omitted.

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…

he did mention they had disgruntled shareholders. e.g. complaining about paying $300k for a $100 item. couldn't they have used that to halt the payment to the small (and illegal) shareholders of the past?

I don't know, but the sense I got is that those stakeholders were larger, more formal investors, in which case RegD doesn't help them --- they're assumed to be sophisticated.

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

#46

Post by mproud » Wed, Oct 22, 2014, 7:59 PM UTC

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?

• He hired an alcoholic for a lawyer

• He didn’t know about Founders’ Stock

• He only ended up with 4% of the company after his divorce

• The board of directors took pity and helped him out financially, but they didn’t have to

Rereading this, I realize that this story might sound like sour grapes, and perhaps some of you are thinking, “What an idiot!” But, no, I’m not bitter in the least. That’s life; these things happen, and it was a valuable learning experience. I share it because, well, it’s a part of the history here. And yeah, I’m an idiot. If you keep reading this blog, you’ll see that proven again and again! But we’re all idiots. We do dumb things: we trust people we shouldn’t, we make decisions based on emotion without regard for logic, or sometimes logic without regard for emotion. It’s the human experience, and the story of Wizards of the Coast is a very human story.

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

#47

Post by tptacek » Wed, Oct 22, 2014, 8:00 PM UTC

alexose wrote: post #38

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 i…

Probably not, or that already would have happened. It hasn't.

One problem is that a lot of people look at equity grants as a meritorious service award. But that's not at all what they are; they're compensation for risk.

Developers look at risk compensation and say, "well, I undertook a lot of risk to work long hours for a lower wage". That's true, but the market prices that kind of risk, and the market cares a lot about substitutes, and the typical developer taking basis points for their participation is eminently replaceable by other developers.

On the other hand, the market has no replacement for an entity legally authorized to trade $1MM for X% of the company, so that risk is priced highly. Similarly, the market has fewer substitutes for the people who actually start the company; or rather, those substitutes tend to react to the mispricing by simply starting their own companies, and thus aren't competing with the founders for equity.

Pithier:

* there's a lot of ground to be made up in how founders/operators promote startup jobs to developers!

* there's probably some marginal ground to be made up for developer equity compensation

* it probably won't dramatically alter the way startup cap tables look

* developers who genuinely (in a market sense) are poorly served by how startups allocate equity should start their own companies

* developers who can't start companies probably aren't being as screwed as we think they are by small grants --- or, if they are, they're being screwed by being persuaded to work at startups when they should instead work for larger companies that can pay them better wages.

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

#48

Post by MattHeard » Wed, Oct 22, 2014, 8:06 PM UTC

> I was successful as a CEO not because of my own brilliance, but because I built a team of people far smarter than me who were willing to buffer my shortcomings.

This attitude defines a good CEO.

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

#49

Post by DonHopkins » Wed, Oct 22, 2014, 8:07 PM UTC

cwh wrote: post #28

dtparr wrote: post #3

>If I had a deep, intellectual conversation with someone, I’d give them 10 shares. At $0.50 per share, that was only $20 of fictional value, certainly a fair trade at the time! Is his multiplication bad, or am I misunderstanding something terribly?

thanks, thought i was also crazy.

Well he did say "fictional".

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

#50

Post by javajosh » Wed, Oct 22, 2014, 8:07 PM UTC

nerfhammer wrote: post #34

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.

This is a good example of a spectacularly bad comment: it is both filled with jargon and it totally misses the point. "Strike price", "grant" etc. is unnecessary.

At the point of a sale, your shares worth (v) is a function entirely of the price paid for the company (p), the number of shares you have (n), and the total number of shares (N), like this: v = n/N * p. You can't even begin to speculate on the value of n for a given p without knowing N.