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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

#91

Post by joslin01 »

kjksf wrote: post #83
tanzania wrote: post #81

Earlier quoted context omitted.

I'm definitely underpaid at the moment but that's the nature of a bootstrapped startup isn't it. They took a chance on me with no degree or job exp. Also money doesn't equal a better experience. I get to work on something really fucking cool and I love the people I work with. I'd probably kill myself at consultancy. So regardless of whether or not make tons of money on this startup, I'll have 2+ years of job experien…

You're rationalizing your state of being underpaid, which is understandable (you want to feel like you're making good choices in your life) but not very rational. The tell-tale sign is that you compare your current position with a bad job (consultancy). The thing is: there are plenty of startups that make cool things and have nice people AND pay well AND offer good equity AND have potential to take off in the future.…

Eek.. doesn't

> They took a chance on me with no degree or job exp.

Stand out to you? S/he sounds like a beginner..

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

#92

Post by clogston »

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?

There's nothing at all dumb about this question! And the answer is most definitely "yes."

As a shareholder you should have an understanding of how many shares are authorized (i.e., how many units of measure the company has been divided in to) and how many of those shares are issued (i.e., how many units of measure have been given out and are no longer up for grabs).

The reason it's done this way and not via simple percentage (which I agree is WAY easier to understand) is a matter of practicality; as new shareholders come on board it would be prohibitively difficult to go back to all existing shareholders and modify their percentage.

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

#93

Post by mentat »

tptacek wrote: post #47
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 ab…

> 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.

If all you're hiring with your first employees are replaceable people, you're doing it wrong and will probably fail. Those people not only have to work long hours, they have to work them well. It's like the APM curve at the beginning of a RTS. You never make up those time and behind-ness just piles up.

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

#94

Post by 23david »

SeoxyS wrote: post #73
tanzania wrote: post #57

Earlier quoted context omitted.

Yikes this hits close to home for me. I am employee #1 for a rapidly growing startup, been here nearly two years. It's my first developer position, I'm definitely underpaid (until our A-round apparently), but I have .5%. I feel like pretty soon it'll be apparent whether this is going to ~really~ take off (I honestly feel it will). Any advice on what steps I should take to prevent getting shafted?

I've been in this position. .5% of a rocketship is still pretty great. You'll end up with 1.25MM cash if the company exits at a billion (after 2x dilution and 50% taxes if you're in California). Yeah, it sucks to think about how much richer the founders got, whilst you worked just as hard… but it's still important to remember that you were very lucky to be in the right place at the right time, and be along for the ri…

Sounds like you'll make out ok, but feel it could've worked out better...

After proving your value as an early engineering hire, what about approaching the Founders to re-up the equity on a regular basis? Awesome first quarter 2012? Company revenue up 100x? Profit through the roof? Ok... how about that equity re-up? :-)

Nothing should restrict irreplaceable engineers or engineers who just create tons of $$$ value from getting increased equity post-hire. I'm sure there are some great techniques for this, and this can definitely become a norm in our industry. (My friends on Wall Street have this down to an art form...) As companies grow out, individual engineer performance is usually under-appreciated so there is less leverage.

I'm surprised you didn't walk away with co-founder (10%+) level equity. You built nearly everything... all the hard/nasty bits like supporting multiple api versions across diff platforms and also building/maintaining new features that drove new customer adoption. From an engineering perspective it was pretty awesome to see the value creation, so it's a bummer to hear that after sticking it out you won't get rewarded for that early value creation.

Definitely think it'd be appropriate to show up one day after acquisition and ask for a rather large boat. Or 2. :-)

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

#95

Post by shalmanese »

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…

> 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?

One thing that's never really brought up in these discussions because it's extremely poorly understood is that startup employees are the only ones given options (in the financial sense) and options are always more valuable than the underlying asset with the degree of premium based on the volatility of the asset.

Think of it this way, as a startup employee, your optimal strategy is to join a company, work for a year and then immediately quit if the company isn't 5x as valuable as when you joined. Over the course of an engineering career, this gives you approximately 20 shots on goal to hit on a hyper growth company. Once you've hit one, you essentially have to do enough work for the next 3 years that you won't get fired and you're vesting stock that's 10x - 1000x more valuable than what you negotiated. Nobody else is allowed to have the option of buying startup stock at 4 year old prices except employees and that's the extreme advantage.

Unfortunately, engineers are not experts at options pricing (nor should they be) so they tend to devalue the equity portion when considering total compensation which leads to the overall dysfunction in the system.

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

#96

Post by klochner »

shalmanese wrote: post #95
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…

> 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? One thing that's never really brought up in these discussions because it's extremely poorly understood is that startup employees are the only ones given options (in the financial sense) and…

> options are always more valuable than the underlying asset

How about this deal: for any publicly traded stock you're holding, I'll give you an option to buy an equivalent number of shares at current market price.

If the price goes down, your option is worthless but I can still sell the underlying. If the price goes up, I can sell for market price, while you net [market-strike] I enjoy startups. They can be great learning opportunities, but they're typically a losing bet financially. You have to choose wisely.

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

#97

Post by rozap »

georgeecollins wrote: post #19
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…

> You should be completely mistrustful of anyone who offers you shares and doesn't tell you the # of shares outstanding

AKA every VC funded startup ever

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

#98

Post by anigbrowl »

waterlesscloud wrote: post #89
Qworg wrote: post #70

Earlier quoted context omitted.

For new startups? A cult (of personality or of the religious persuasion)? A warparty? A pirate crew? All are good options.

I'm a firm believer that every filmmaking project is a cult, and that directors with cult leader traits are much more effective at getting the project made the way they want it. There can be obvious downsides to that, of course, but the same thing likely applies to startups. I don't know if you can force it if you don't have it, but it's probably learn-able.

This is absolutely true.

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

#99

Post by theworst »

debacle wrote: post #78
tanzania wrote: post #76

Earlier quoted context omitted.

Thanks for the perspective - this has been really helpful. I think no matter what happens it will have been an amazing experience that I lucked in to.

> it will have been an amazing experience that I lucked in to. I'm not really sure why you feel that way. Are you underskilled? You make it sound as though you're underpaid but then call it an amazing experience.

I suppose it depends on how you define "lucked in to".

Even building my own company, bootstrapping over these 5 years, I feel like I lucked into where I am. Not because I'm undeserving, but really because I feel lucky to live in an era where I even have that possibility.

If my world is entirely comprised of SV type startups, perhaps I'd feel differently. But I try to keep some perspective. (As in, I lucked into not being a field hand in 4th century Italy, and instead I can use my brain to manipulate electrons through small finger movements, that supposedly create value enough for other people to transfer electrons into a virtual account of "mine" that I can exchange for goods and services.)

I'm sorry if that sounds harsh, it's not intended that way. I really just wanted to point out that people define luck very differently.

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

#100

Post by STRML »

rozap wrote: post #97
georgeecollins wrote: post #19

Earlier quoted context omitted.

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…

> You should be completely mistrustful of anyone who offers you shares and doesn't tell you the # of shares outstanding AKA every VC funded startup ever

I've had this happen to me, and quitting was one of the best decisions I ever made. If you can't be upfront about equity, it's a symptom of a much larger problem.
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