A lot of words to say something very simple - information asymmetry via contractual complexity is being abused to profit those writing the contracts.
My company sold for $100M and I got zilch – how can that be?
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Re: My company sold for $100M and I got zilch – how can that be?
#32Is there any good book for explaining all of these startup evaluation, fundraising, etc. terms, how they work, what to ask about, etc.?
I found Consider Your Options (by Kaye A. Thomas) helpful and easy to understand.
Re: My company sold for $100M and I got zilch – how can that be?
#33Is there any good book for explaining all of these startup evaluation, fundraising, etc. terms, how they work, what to ask about, etc.?
Very briefly: for employees to have a good outcome, the company must be a success relative to the funding . I'd love to say that founders are in the same boat as employees, but it's not true. Unethical founders can engineer situations where they alone get millions of dollars and no other employees do. That can be somewhat justifiable (eg taking $1m or something off the table in a round B for a company that eventually…
"they're previously worked with? That's a good sign."
As in good, or bad?
Re: My company sold for $100M and I got zilch – how can that be?
#34[deleted]
Re: My company sold for $100M and I got zilch – how can that be?
#35Earlier quoted context omitted.
In no particular order: https://www.holloway.com/g/equity-compensation (The Holloway Guide to Equity Compensation) https://gist.github.com/jdmaturen/5830b83c1425c4767f7e1bd4c9... (Who pays when startup employees keep their equity?) https://gist.github.com/yossorion/4965df74fd6da6cdc280ec57e8... (What I Wish I'd Known About Equity Before Joining A Unicorn) https://gigaom.com/2011/06/05/5-mistakes-you-cant-afford-to-..…
Andy from Holloway here. Our equity comp. guide is 100% free. We also have a Guide on Raising Venture Capital (340 pages). We made sure to include an entire chapter on "Assessing Whether to Raise," which includes sections on alternatives to VC and how VCs can control your company. If anyone on here wants to buy it, you can get a 25% discount on it using this link: https://www.holloway.com/rvc?vip_code=VIP25
Quick thanks for making the equity comp guide free! It's come at the perfect time for me. I'm also on the wait list for the tech recruiting guide and will be happily purchasing it when it's available. Great stuff you guys are doing!
Re: My company sold for $100M and I got zilch – how can that be?
#36Because your company raised money from VCs.
This will never happen at a bootstrapped company.
Re: My company sold for $100M and I got zilch – how can that be?
#37Liquidation Preference. In very simple terms: "Liquidation Preference" is an agreement between a company and an investor that when the company is acquired or IPOs, the company will pay the investor some specific amount of money BEFORE any other shareholders get paid. If the company negotiated the funding well, the liquidation preference might be 1x (basically saying the company promises to pay back, in full, the inve…
So in your example, the investors are basically getting a 300% return if the company sells for 15M or more?
In my opinion:
Liquidation preference of 1x (or lower) is just sensible alignment of investor and founder incentives. The investor wants to make sure that if they buy 20% of the company for $5M, the founders aren't now incented to take advantage of them (in an extreme example: the day after the fundraising, liquidating the company for its assets, taking home $4M themselves and handing the investor back $1M. In a less extreme example, selling the company (in toto) for $10M a year or two later).
Liquidation preference of higher than 1x is a whole different thing. It's, at its most benign, something kind of like a financial instrument a little more like debt than stock, trading a more-guaranteed return for a lower price, or at its most pernicious, basically an attempt to create false impressions of a company's value. If you sell stock with a x3 liquidation preference, that is deeply different, and conveys considerably less investor confidence, than selling the same stock at the same price with x1 liquidation preference, but the press releases get to not mention the preference.
Re: My company sold for $100M and I got zilch – how can that be?
#38As a normal individual contributor not at the C-level or even management level, I just assume the value of any options/shares I receive is zero unless an accountant or the IRS tells me I should believe otherwise. Too many goofy fine-print shenanigans like this to keep track of.
the problematic circumstance is when the company doesn’t perform and is forced to raise under desperate circumstances. if you can make that distinction then early equity is worth stupid money (and just leave quickly if the company doesn’t perform)
Re: My company sold for $100M and I got zilch – how can that be?
#39From a 40,000 foot view, it's odd that employees who are investing their professional effort are relegated to a lower equity tier. I think the person asking the question in the article makes a valid point: why is it fair for human capital to be devalued in this way?
Re: My company sold for $100M and I got zilch – how can that be?
#40Liquidation Preference. In very simple terms: "Liquidation Preference" is an agreement between a company and an investor that when the company is acquired or IPOs, the company will pay the investor some specific amount of money BEFORE any other shareholders get paid. If the company negotiated the funding well, the liquidation preference might be 1x (basically saying the company promises to pay back, in full, the inve…
Say a company sells 10% of itself to an investor for $10M, with a 2x preference. If the company sells for $100M, the investor gets $20M off the top. My question: Does the investor still own 10% of the shares, and will they recoup $8M of the remaining $80M? Is their $10M investment now worth $20M or $28M?
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