LivingSocial: Employees' and Founders' Common Stock Now Worthless

I've started several companies and also been a first employee (and so have a number of my family members), and I've experienced multiple situations (and seen others second hand) where subsequent employees contributed more than at least one of the founders. This includes everything from founders being unmistakable liabilities to even one case where a 50% owning founder ended up doing quite literally nothing but playing online poker and silently attending meetings for his entire tenure, which lasted half a decade.

The problem with the issue is what constitutes "deserving" of a larger share of equity. Obviously there are different perspectives on this, but in terms effort, there certainly are many cases where employees eclipse founders. I literally just finished a conversation 30 minutes ago with a c-level exec about how the one founder of her company who is still present (there were two) never actually did anything other than give talks and never had anything to do with operations or strategy.

Even in the case of taking on risk, a founder with enough personal wealth and/or strong professional network that failure doesn't severely impact them is certainly not taking as much risk as an employee who is living paycheck to paycheck.

In short, I've seen more than enough cases where strong, effective employees worked harder, took more risk, and contributed more to the success of the company than one of the founders. I'm not sure by what metric the founder "deserved" more equity in those cases besides being there from the beginning.

>1. Take the least amount of stock possible is not a good generally-applicable rule. It might have worked for you in the past, but it sure wouldn't have worked well for any of the employees of Google, Facebook, Dropbox, Weebly, etc.

A more accurate statement would be "...is not a good universally-applicable rule...".

To add some numbers to the discussion, there are currently 203 startups listed on Angel List as hiring for full-time dev roles in the SF Bay Area. How many will exit in such a manner as to yield financial rewards via equity / ownership / deferred compensation?

Note the bar has been set considerably lower than for the companies you listed (e.g. big-name successes), and my sense is that we're still talking about fewer than 50%.

It's quite difficult for new hires to correctly gauge a startups long-term potential. After all, professional investors (who by definition do this for a living) routinely mis-calculate. Given this, it seems fairly sensible for potential hires to err on the side of caution.

This is very thoughtful of you, but the key phrase here is "at least in our industry". Truthfully I believe running a groupon offer should be done by very few businesses and only then after intensive numbers crunching. Yes, the daily deals space was a bubble - a BIG bubble - but only because substantially more businesses took advantage of it when they shouldn't have. Importantly, they probably did so because they knew jack about their bottom line and even less about marketing and sales. That doesn't mean you can fault Groupon or LivingSocial for trying to make money off of you hand over fist.

When mom and pop businesses launch a Web marketing effort, they often have little appreciation for, let alone a rudimentary understanding of the Internet, and just in general have NO IDEA what they're dealing with. And yet they'll happily launch their business into a jungle full of rabies-infected cannibals, without so much as a guide. Why? Because the brochure said it was all sunshine and rainbows.

If you don't run the numbers beforehand, don't do a group buy offer. And please, don't blame Groupon for your own actions if running a daily deal wasn't the right choice for your business. It's risky indeed to run a daily deal, especially when you're selling a commoditized product in a big market with dozens of entrants all vying for limited regional traffic. Your average customer lifetime value probably won't be high enough to justify a 70+% hit to front end revenue, assuming repeat business is rare and loyalty is low.

What you're doing with a daily deal is similar to running a free trial offer for a consumer good that converts to a $10/mo paying customer for 3.5 months, 2% of the time. In this scenario, giving up any amount over $2.00 on the front end per customer is the equivalent to lighting your money on fire. For context, the most successful marketers online wouldn't attempt anything approaching that without a fully built back end sales funnel, probably with a call center and thoroughly tested followup method. And yet the owner of Daisy's Ice Cream Scoops thinks she can somehow make it work with her homemade strawberry sherbet.

Yet, many anti-groupon commentators would have you believe daily deals are objectively worthless to any and all other businesses. This is not particularly directed at the OP, but for the love of all that is holy, Do Your Due Diligence. The daily deal promotion is merely another promotional tool at your disposal in a free market, and if you shoot yourself in the foot with it, you have no one to blame but yourself.

LivingSocial AFAIK had deep roots in CPA and online advertising. You see people criticising CPA as seedy all the time, but the fact is the online advertising giants know what makes people buy, and they do it over and over, and over again. They live and breathe direct marketing like it's a requirement for survival in the industry, because it is. That expertise does not, however, mean you stick your neck out for your customers, or even pretend to care about your business partners. Too often in the online advertising industry are immediate profits sought above all else, with reputation and honesty being tossed aside sometimes. I'm not privy to any of LivingSocial's financials or business practices, but it really wouldn't be that surprising if they had trucked over everyone and made off like bandits. Hopefully they're smart enough to run a sustainable business.

Only tangentially related maybe, but I've noticed an increase in the 'scamminess' of a lot of daily deals lately. Stuff like a cottage for £70/weekend but if you read the small print there's a 'cleaning charge' of £250 - to give one recent example.

I don't know if that perhaps hints at the desperateness of daily deal companies to get new business in running such promotions, but it certainly dampens any enthusiasm I have for checking these sites again in the future.