Just how much is that 2% really worth?

I think people forget just how complex cap tables can get. Add in rules about vesting and strike price, and dilution in future rounds and debt financing, and the likelihood that lowly employees receive meaningful amounts at an acquisition diminish further. Sure, big time paydays and public offerings are possible, but these are the exception.

Bottom line: Insist to get paid what you're worth and take any options as a free lottery ticket that will probably never get you anything.

Re: Just how much is that 2% really worth?

#5

Post by zorpner » Thu, Jul 03, 2014, 2:15 PM UTC

colinbartlett wrote: post #4

I think people forget just how complex cap tables can get. Add in rules about vesting and strike price, and dilution in future rounds and debt financing, and the likelihood that lowly employees receive meaningful amounts at an acquisition diminish further. Sure, big time paydays and public offerings are possible, but these are the exception. Bottom line: Insist to get paid what you're worth and take any options as a…

And equally importantly, get paid for the work you do (i.e. don't let anyone convince you to work nights & weekends for a year to "build the company" based on a hypothetical payout).

Re: Just how much is that 2% really worth?

#6

Post by newcf » Thu, Jul 03, 2014, 2:16 PM UTC

I'm not entirely sure the calculations work.. Maybe I entered data wrong, but I was trying to model the acquisition/startup that I just went through. with our numbers, and our dollars, and my shares.... I walked with a heckuva lot of money, but that's not what the site said.

Re: Just how much is that 2% really worth?

#7

Post by onion2k » Thu, Jul 03, 2014, 2:16 PM UTC

My advice to people who want to work in a startup is always very simple: Ignore any equity.

If you'd take the job without any equity then take the job. If the equity is part of your reason for taking the job, you probably shouldn't take it.

Base rate neglect[1] means we are terrible at evaluating the probability of equity being valuable. For every story about someone making millions out of their equity when the startup they're working for exits there are thousands of stories of people who walked away with nothing but a few years having fun solving challenging problems. That is the reason to work in a startup, because that is the definite, concrete thing on the table. If you want to make millions in software, get a job writing code at a bank and invest your salary.

[1] http://en.wikipedia.org/wiki/Base_rate_fallacy

Re: Just how much is that 2% really worth?

#8

Post by peterjancelis » Thu, Jul 03, 2014, 2:18 PM UTC

I'd include in this calculator a negative value per 'passion' speech given by the founders to convince the employees they are building something 'bigger than themselves'.

Re: Just how much is that 2% really worth?

#9

Post by geertj » Thu, Jul 03, 2014, 2:21 PM UTC

colinbartlett wrote: post #4

I think people forget just how complex cap tables can get. Add in rules about vesting and strike price, and dilution in future rounds and debt financing, and the likelihood that lowly employees receive meaningful amounts at an acquisition diminish further. Sure, big time paydays and public offerings are possible, but these are the exception. Bottom line: Insist to get paid what you're worth and take any options as a…

Cap tables are indeed very complex. Often there's also a preference on preferred stock, meaning that the preferred gets a minimum return (often 300% or 400%) before the common gets anything.

Fully agreed with the other comments: ignore equity in early stage startups and go for a market rate salary.

The one situation where I would take a lower salary is if there's concrete plans that a company will go public within 12 months, and you're going to be in a senior enough job that you'll be in the know about it.

Re: Just how much is that 2% really worth?

#10

Post by calebclark » Thu, Jul 03, 2014, 2:25 PM UTC

newcf wrote: post #6

I'm not entirely sure the calculations work.. Maybe I entered data wrong, but I was trying to model the acquisition/startup that I just went through. with our numbers, and our dollars, and my shares.... I walked with a heckuva lot of money, but that's not what the site said.

There is a bug that triggers when you add a funding round. It takes your equity percentage down to zero, regardless of the amount raised or pre-money valuation.