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Windsurf employee #2: I was given a payout of only 1% what my shares where worth

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Re: Windsurf employee #2: I was given a payout of only 1% what my shares where worth

#451

Post by highfrequency »

karmasimida wrote: post #171
highfrequency wrote: post #124

Directly contradicts Garry Tan's post saying that all forty founding engineers got seven figure payouts from the Google acquisition: https://x.com/garrytan/status/1947072583092052406 Even if the OP considers the full headline number of $2.4b to be the value of the company, and taking his "1% of fair" number as truth, seven figure payouts would imply all 40 founding engineers had >4% equity which is nonsensical.

Not contracting. Let’s do a simple math. Assume this employee gets 5% of the company (which is super unlikely, but let’s go with it), that is 150m for what could be worth if OpenAI deal went through. 1% of that would be 1.5m. That is still 7 figure. But this person spent 3 years in a startup, which turned out to be a unicorn and super highly successful, and he bagged a FAANG salary man pay at the end of the deal. Bas…

Yes, but 40 people cannot each have 5% of the company.

Re: Windsurf employee #2: I was given a payout of only 1% what my shares where worth

#452

Post by Henchman21 »

hiAndrewQuinn wrote: post #394
BhavdeepSethi wrote: post #135

Earlier quoted context omitted.

I don't believe they did. This acquisition was by Flipkart, the poster child startup in India, who had a very high bar for hiring. They wanted to interview the non-founders to make sure they met the standard. The founders said you get all or you get none. To be fair, it was a small team of 6-8 employees, so I doubt Flipkart cared. :)

Wait, what are the employee protections like in India that such a deal is enforceable? Why couldn't Flipkart just take them and then fire them a few weeks/months later?

I genuinely wonder how people like yourself sleep at night.

Re: Windsurf employee #2: I was given a payout of only 1% what my shares where worth

#453

Post by usaar333 »

baq wrote: post #364
usaar333 wrote: post #145

Earlier quoted context omitted.

Not everything is adversarial. More cash pressure on the company itself can be bad for the company which is bad for you too. I always take more equity. I wouldn't work for you in the first place if I didn't believe in your equity.

This may work for you, but in general isn’t good advice. You shouldn’t be confusing beliefs and risks. Risk should be managed - you should be comparing cash invested into the public market (or treasuries, or bitcoin, whichever you prefer) with equity in the startup, not with a savings account.

Startup equity is worth a lot:https://www.amafinance.org/startup_comp/

Re: Windsurf employee #2: I was given a payout of only 1% what my shares where worth

#454

Post by usaar333 »

cortesoft wrote: post #267
usaar333 wrote: post #142

Earlier quoted context omitted.

Under any normal circumstance I've ever seen, you should be taking the higher equity/lower salary combination and should focus on equity rather than salary. The only time it ever makes sense to push for more salary instead is if you literally cannot get a job at a public company (or even a near IPO unicorn). Plenty of startup employees can, so clearly they believe their startup equity is worth something. Financially…

First, your stock has a much higher than 50% chance of being worth less, even at the best startups. This is why early stage investors invest in so many companies… a vast majority are worth zero, but the few that make it big pay for all those and more. This is why you would never see an early stage investor invest in only one company. They need volume to be able to survive the high risk/high reward nature of startup i…

I didn't claim my risk is lower, but as my link notes I can quit and recall my investment while the investors cannot.

Re: Windsurf employee #2: I was given a payout of only 1% what my shares where worth

#455

Post by djoldman »

chii wrote: post #334
djoldman wrote: post #218

Earlier quoted context omitted.

I think it makes perfect sense. It's a guaranteed incentive for a potential employee to increase the value of the company and act in its best interest. Absent those guarantees, it's smoke, nothing, kaput: 1.5% equity or whatever % can become approximately 0% and there's nothing the employee can do about it. They could structure the agreement in other ways to incentivize the potential employee: if additional shares ar…

> pay a dividend to the employee. the whole point of equity compensation is that it replaces cash, as the startup rarely has sufficient liquidity in cash. But equity is often used in ways the employee does not understand and get screwed over. It's also why there are accredited investor requirements for VC/startup investments - so that only those who can afford to pay for a lawyer and such can partake in these deals.…

> the whole point of equity compensation is that it replaces cash, as the startup rarely has sufficient liquidity in cash.

Understood and it makes sense. Offering equity to a potential employee is a way for the employee to benefit potentially on future growth in the company.

I'm proposing that if there is a future funding round, pay the employee a dividend from part of the proceeds. Or maybe give them more shares or a combination; but put it in writing from the start.

Re: Windsurf employee #2: I was given a payout of only 1% what my shares where worth

#456

Post by djoldman »

gwd wrote: post #369
djoldman wrote: post #220

Earlier quoted context omitted.

They can easily, they just don't.

There is actually a sense to the dilution. If I have something I think is worth $10m, and I'm asking someone else to give me another $10m, doesn't it make sense for that person to own 50% of the company? Why would any investor give you $10m wile receiving no ownership of the company? How are you going to give these newer investors ownership, if you don't reduce the ownership of everyone else? The claim in the tweet w…

I don't think I understand.

If the value of a company is $10m and the company asks an investor to give $10m in exchange for equity, the investor should own 100%.

If the value of a company is $20m and the company asks an investor to give $10m in exchange for equity, the investor should own 50%.

Re: Windsurf employee #2: I was given a payout of only 1% what my shares where worth

#457

Post by cloverich »

stouset wrote: post #163
ProfessorLayton wrote: post #76

Earlier quoted context omitted.

While you're right that exercising options can be very expensive and are a risky tax bet, we're talking about employee #2 in this case. They should've been able to buy in early at a low price and tax bill if they really believed in the company: - Jan 2021: 3M seed round - Jan 2024: Series B valuing the company at 500M That's 3 years of vesting below a 1B company valuation, and 75% of a typical vesting schedule. There…

I encourage you to put yourself in that person's shoes. It is never a simple decision. Yes, there is plenty of opportunity to exercise when valuations were low. But that also means you're buying before there's clear evidence that the company will be successful. It also still means you're out the cash to exercise the options before there's a market for those options and before you know that the company will actually g…

IME the real issue is people don't know what or how to do it. If you're a pre-seed employee, you're going to be able to exercise 100% of your shares for a minuscule amount of money. But you need to know what to do and do it right away.

In other cases, you may be later but have a higher strike price (expensive-ish to exercise), but its at least close to the valued price and in that case you can exercise without a major tax hit. But again usually people learn this after the valuation goes up and there's no way to go in reverse. So best we can do is share information here I guess, and perhaps advocate for some kind of regulation.

Re: Windsurf employee #2: I was given a payout of only 1% what my shares where worth

#458

Post by djoldman »

Xylakant wrote: post #361
djoldman wrote: post #220

Earlier quoted context omitted.

They can easily, they just don't.

Legally speaking, it’s probably possible. Practically speaking it almost certainly a guarantee that the company will never see outside investment. On every round someone would need to pony up the cash to fill that employees stock. Anti-dilution clauses exist, but they never work like that. Such a privilege is also likely to be almost worthless - if the company succeeds and the round makes it worth more, you’ll win ev…

The difference is that if the company succeeds, an employee afforded this provision is guaranteed to make $X.

Without this provision, it's possible in many ways for the employee to be left with far less than $X, even if the company succeeds. In some ways <<<<<<$X.

Re: Windsurf employee #2: I was given a payout of only 1% what my shares where worth

#459

Post by kentonv »

MichaelZuo wrote: post #449
kentonv wrote: post #134

Earlier quoted context omitted.

That and $800 CA franchise tax. But the money wasn't really significant. It was just annoying to have to prepare the returns every year.

Did your legal counsel at the time not mention that was a possibility?

Yes, of course. But given the circumstances we all believed it was highly unlikely he'd actually sue.

Re: Windsurf employee #2: I was given a payout of only 1% what my shares where worth

#460

Post by stouset »

ProfessorLayton wrote: post #370
stouset wrote: post #298

Earlier quoted context omitted.

My point is that exercising the company’s stock early is fraught with risk and is in almost all cases a -EV play. Yes, the option technically exists. But without perfect foresight it’s not a good option. It’s not even an okay one. It’s an exceedingly bad one in most cases. Acting like this employee was silly for not dumping a huge sum of money into company shares before it was in a position to succeed is flatly ridic…

> Acting like this employee was silly for not dumping a huge sum of money into company shares before it was in a position to succeed is flatly ridiculous. Once again we’re talking about employee #2, exercising early would not have been that expensive! They had access to a strike price and low tax liability that the vast majority of later employees would ever see. You are correct in that most shares in startups are wo…

> Once again we’re talking about employee #2, exercising early would not have been that expensive!

Exercising early almost certainly would have cost hundreds of thousands of dollars. For employee #2 of a startup, you’re almost certainly already working for mostly equity and not salary.

You are high as a kite if you think it’s reasonable to dump large sums of money into a five-person company while getting paid peanuts in return.

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