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Uber plays hardball with early shareholders

fortune.com

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Re: Uber plays hardball with early shareholders

#61

Post by potatolicious »

opendais wrote: post #55
potatolicious wrote: post #40

Earlier quoted context omitted.

5% is IMO extremely generous. Basically what that means is that there is a 5% chance that: 1 - Your options will fully vest before you leave the company due to internal or external factors 2 - The company will reach an exit (as opposed to flop over and die) 3 - The company will reach an exit sizable enough that after accounting for cut price, your options are still worth the value when you got them (accounting for in…

I wasn't advocating you take a pay cut for options. ;) But I think $0 is wrong as well. http://online.wsj.com/news/articles/SB1000087239639044372020... 75% fail. 11% go public or acquired. It is a lottery ticket but those don't sell at $0.

A lot of those 11% are still "failures" for the employees though - IPOs almost always are positive for employees, but acquisitions are not.

It is common for floundering companies to sell or go for acquihires, in which case your options are most certainly underwater and worthless.

Even in small acquisitions (that aren't just a fire-sale in disguise) it's quite possible for the investors and founders to get paid, but leave employees with little to no payout as well (certainly not the tune the options were originally valued).

Considering how difficult it is to differentiate between a "real" acquisition (with requisite payouts for all involved) and desperation acquisitions/acquihires, I doubt we'll ever see the true percentage. In any case, as an employee holding options, you are the last in line to get paid, never forget that.

My personal, unscientific ballpark is that the odds of exiting your options for at least the same amount as the original grant valuation is somewhere in the sub-1% range.

Re: Uber plays hardball with early shareholders

#62

Post by georgemcbay »

pjc50 wrote: post #27
jeremymcanally wrote: post #16

It's amazing to me what companies will stick in these contracts, and how deep down the rabbit hole they'll stick it. It's their stock to do it with, of course, but it's just annoying that seemingly employee-centric companies will do such seemingly abusive things. For example, I've seen instances of sale restrictions being four contracts deep (e.g., "shall be governed by (x) agreement", and that agreement says "shall…

never depend on it as part of your compensation in any way This is very true. I've been in the position of having worthless share options before. It's something everyone who's tempted to work 80 hour weeks because they have share options should remember. You should also remember the Google cook, who had $200m in options that the company tried to do him out of because he wasn't a developer .

"the company tried to do him out of because he wasn't a developer"

Is this true? Serious question because I've never heard that before (quite the opposite, I've only heard other early Google employees defend him from external sources as being, if anything, (relatively) undercompensated).

Anyway, the point stands, being a lowly common stock holding employee is a lottery that you can lose on in an infinite number of ways even if the company is wildly successful, which is already a huge longshot.

If you get a bunch of money from it, great; but you certainly shouldn't rely on it to pay off anything.

Re: Uber plays hardball with early shareholders

#63

Post by ilyanep »

lmm wrote: post #12
couradical wrote: post #7

Earlier quoted context omitted.

There's no requirement to go "public" in the sense of listing on an exchange, and available for public purchase. What changes at that point is SEC regulatory compliance kicks in: earnings/revenue go public, SEC compliance paperwork has to be filed just like a public corp. That's really why people try to stay under that number - you have all the drawbacks of being public, except a floated share price, and it would eff…

Isn't an IPO pop bad for the company? It indicates that they priced too low, no?

A small pop could indicate that the private-ness (and thus illiquidity) of the shares were priced in before.

Re: Uber plays hardball with early shareholders

#64

Post by opendais »

potatolicious wrote: post #61
opendais wrote: post #55

Earlier quoted context omitted.

I wasn't advocating you take a pay cut for options. ;) But I think $0 is wrong as well. http://online.wsj.com/news/articles/SB1000087239639044372020... 75% fail. 11% go public or acquired. It is a lottery ticket but those don't sell at $0.

A lot of those 11% are still "failures" for the employees though - IPOs almost always are positive for employees, but acquisitions are not. It is common for floundering companies to sell or go for acquihires, in which case your options are most certainly underwater and worthless. Even in small acquisitions (that aren't just a fire-sale in disguise) it's quite possible for the investors and founders to get paid, but l…

> A lot of those 11% are still "failures" for the employees though - IPOs almost always are positive for employees, but acquisitions are not. > My personal, unscientific ballpark is that the odds of exiting your options for at least the same amount as the original grant valuation is somewhere in the sub-1% range.

Fair enough, but lets call it .5%. Maybe I was off a decimal place. ;)

.5% of a chance at $200,000 is still worth something.

Re: Uber plays hardball with early shareholders

#65

Post by paul »

pjc50 wrote: post #27
jeremymcanally wrote: post #16

It's amazing to me what companies will stick in these contracts, and how deep down the rabbit hole they'll stick it. It's their stock to do it with, of course, but it's just annoying that seemingly employee-centric companies will do such seemingly abusive things. For example, I've seen instances of sale restrictions being four contracts deep (e.g., "shall be governed by (x) agreement", and that agreement says "shall…

never depend on it as part of your compensation in any way This is very true. I've been in the position of having worthless share options before. It's something everyone who's tempted to work 80 hour weeks because they have share options should remember. You should also remember the Google cook, who had $200m in options that the company tried to do him out of because he wasn't a developer .

That is totally false -- Google did not rip off Charlie. You're confused by the idiots at zynga who thought that a chef making money was a bad thing.

Re: Uber plays hardball with early shareholders

#66

Post by oh_sigh »

pjc50 wrote: post #27
jeremymcanally wrote: post #16

It's amazing to me what companies will stick in these contracts, and how deep down the rabbit hole they'll stick it. It's their stock to do it with, of course, but it's just annoying that seemingly employee-centric companies will do such seemingly abusive things. For example, I've seen instances of sale restrictions being four contracts deep (e.g., "shall be governed by (x) agreement", and that agreement says "shall…

never depend on it as part of your compensation in any way This is very true. I've been in the position of having worthless share options before. It's something everyone who's tempted to work 80 hour weeks because they have share options should remember. You should also remember the Google cook, who had $200m in options that the company tried to do him out of because he wasn't a developer .

You're probably thinking of the Zynga execs forcing stock buybacks because they didn't want any "Google Chef" millionaires.

Re: Uber plays hardball with early shareholders

#67

Post by paul »

Pre-ipo transfer restrictions are pretty normal. It never even occurred to me to try selling Google pre-ipo. It wasn't really a thing before secondmarket came along, and arguably trading on those markets is taking a company public without their consent.

If I ever start another company, I would definitely have transfer restrictions. It's pretty important to control your equity, and I think the day-trading mentality is toxic. (I would also avoid ever trading on the traditional stock markets, but that's a larger topic)

Re: Uber plays hardball with early shareholders

#68

Post by potatolicious »

opendais wrote: post #64
potatolicious wrote: post #61

Earlier quoted context omitted.

A lot of those 11% are still "failures" for the employees though - IPOs almost always are positive for employees, but acquisitions are not. It is common for floundering companies to sell or go for acquihires, in which case your options are most certainly underwater and worthless. Even in small acquisitions (that aren't just a fire-sale in disguise) it's quite possible for the investors and founders to get paid, but l…

> A lot of those 11% are still "failures" for the employees though - IPOs almost always are positive for employees, but acquisitions are not. > My personal, unscientific ballpark is that the odds of exiting your options for at least the same amount as the original grant valuation is somewhere in the sub-1% range. Fair enough, but lets call it .5%. Maybe I was off a decimal place. ;) .5% of a chance at $200,000 is sti…

It's worth $1000 ;)

Of course, the entire intent of options in startups is to convince you that it's worth much more than $1000. Best not be fooled.

Re: Uber plays hardball with early shareholders

#69

Post by malandrew »

simulate wrote: post #59
pjc50 wrote: post #27

Earlier quoted context omitted.

never depend on it as part of your compensation in any way This is very true. I've been in the position of having worthless share options before. It's something everyone who's tempted to work 80 hour weeks because they have share options should remember. You should also remember the Google cook, who had $200m in options that the company tried to do him out of because he wasn't a developer .

Are we talking about Charlie Ayers, the Google Cook? He earned $26 million from his options, not $200 million. He also had over 150 employees and 5 executive chefs reporting to him. He did well and was fortunate but he also wasn't just some guy in a lunch room preparing cafeteria food. EDIT: There is a nice description of Ayers in wikipedia: http://en.wikipedia.org/wiki/Charlie_Ayers

Exactly.

Bean counters and penny pinchers will never fully realize the value of someone like that. He kept people well fed, with healthy options that let them spend more time socializing with their peers and getting back to their desks to code. The alternative is having people waste time in traffic commuting to the dearth of eating options (many of which are far less healthy. many engineers left to their own devices don't choose the healthiest options) near the Google campus. There is no doubt that Google got their $26 million worth in the productivity he accreted to his fellow employees in those early days.

Re: Uber plays hardball with early shareholders

#70

Post by unchocked »

joezydeco wrote: post #33
unchocked wrote: post #22

Earlier quoted context omitted.

A "startup enemy" is someone who puts their own interests above those of the startup.

So, basically, your VC money is awesome, wonderful and welcome until the check clears...and then you're the "enemy" for wanting to stay in control of it. Doesn't this reduce every early investment in a startup into a binary thing? You either lose it all, or hit a home run. Unless you pull a Groupon and exit everyone before the IPO.

I believe the context is what an employee does with her equity stake, rather than what a founder does with the capital.

And no, I don't think it does.

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