Berkeley CSUA MOTD:Entry 52981
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2025/07/08 [General] UID:1000 Activity:popular
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2009/5/11-18 [Industry/Startup] UID:52981 Activity:moderate
5/10  stock is great and all but, have any of you ever been told how
      many outstanding shares there are out there when you were discussing
      stock options?  I've worked at 5 startups now, and haven't been
      able to get a straight answer out of anyone, ever.  bunch of weasels.
      \_ http://www.paulgraham.com/angelinvesting.html
      \_ If you haven't gone public yet then the staight answer isn't really
         useful anyway because there will be more shared issued along the way.
         Unless you have a controlling interest they could just dilute you
         out of most of your equity anyway.
      \_ I only knew to ask at the last two I worked at and yes, at both of
         them they were willing to tell me how many shares were outstanding.
         As the previous poster indicates though, both were diluted before
         their eventual IPO.
      \_ I've usually been able to find out, it is always a pain.  (You are
         best off getting this info when you first accept an offer with
         shares).  And yes you will get diluted, but to say that it isn't
         really useful to know the number is just plain wrong.  It is very
         easy to give some dumb engineer 10 million shares and issue 900
         trillion shares.  Diluting affects everyone, so there are interested
         parties besides no-power employees involved. -phuqm
         \_ The powerful parties are able to "un-dilute" themselves though.
            \_ Only by ponying up more cash. Their original investments get
               diluted.
               \_ I have seen execs who are cozy with the board get offered
                  more shares in this case.
                  \_ That's true. You don't want to over-dilute your key
                     personnel.
                     \_ I'm beginning to think my company has no idea who
                        is really 'key' (everyone here is pretty key, but
                        there are probably a few people who are more key
                        than others).  I just did some math and I have
                        calculated that my shares are worth about $10
                        a day to me at current prices.  big whooooooooo
      \_ I've never had any difficulty getting this information from any of
         the startups I've worked for.  This question should be asked when
         you receive their job offer, and any company that won't answer this
         question should be avoided.  Yes you will get dilluted at each
         round of funding (as more shares are issued), but it's also normal
         for employees to receive additional option grants at that time to
         compensate (though that still means the percentage of equity you're
         vested into has been reduced by the round), and if management
         doesn't bring it up the employees should.
      \_ When I first got the offer of my current job, the CEO actually told me
         my options as a percentage of all outstanding shares, not as number of
         shares.  I didn't know the number of shares until I signed the offer
         letter.
         \_ Was your CEO 24 years old?
            \_ No.  I think he's in his 40s.
        \_ I graduated in 2000, just before the bubble burst, and every company
           (except Trilogy, which is just wacky) offered up the percentage
           right off the bat. Only one was a little elusive, but they gave it.
           Since then, I've only worked for the public sector or public co's.
           \_ why only public co + sector? soured experience? need to pay
              mortgage and/or kid + wife?
              \_ the public sector was because I considered going into
                 education and was burned out from the startup. The public
                 company is doing quite well and has interesting work. I'm
                 still a bit startup adverse after the first one. No wife,
                 mortgage or kids.
                 \_ could you tell us about the bad experience you have?
                    I'm thinking of doing the reverse. I'm bored with a
                    20K+ company. I really dislike it.
                    \_ I have worked at three startups and they all had these
                       things in common: chaotic, unstructured work environment,
                       lots of things just "don't work" and you end up fixing
                       yourself or doing without (like copy machines, phones,
                       your work station, etc), long hours, inexperienced (and
                       therefore widely varying in quality) management. If you
                       can handle these, you might be okay. A bad startup will
                       have all these, but more pathologies, usually related
                       to whatever issues the founder has.
                       \_ he wasn't the previous poster, but that sums it up
                          pretty nicely. Another way to think about it is that
                                NPV(startup) < NPV(public company)
                          but the startup has >std dev so chance of options
                          being worth >$1M is higher at the startup.
        \_ I hear we're going for a 'liquidity event'.  Shoud I hold my
           breathe until i turn blue, to get more stock?
           \_ You won't get more stock at a liquidity event. You'll probably
              just get diluted more. You should
                1) Stay employed and content (and bitch on motd) or
                2) Ask for more stock while looking for a new job
              if you go for #2, you need to lay out your case well. Come up
              with a list of all the important projects you worked on last year
              as well as your domain knowledge and expertise that makes you an
              invaluable member of the engineering team. So focus on how good
              you are, not how shitty your compensation is. AFTER you get to an
              agreement about how awesome you are, you can bring up an argument
              agreement about how awesome you are, you can make an argument RE:
              how you feel like you should be rewarded and given greater
              incentives to stay and help the company grow/liquidate.
      \_ Every company I've asked this of has been up front about it. -dans
2025/07/08 [General] UID:1000 Activity:popular
7/8     

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www.paulgraham.com/angelinvesting.html
I put it off because it seemed mysterious and complicated. It turns out to be easier than I expected, and also more interesting. The part I thought was hard, the mechanics of investing, really isn't. You'll probably get either preferred stock, which means stock with extra rights like getting your money back first in a sale, or convertible debt, which means (on paper) you're lending the company money, and the debt converts to stock at the next sufficiently big funding round. Don't spend much time worrying about the details of deal terms, especially when you first start angel investing. When you hear people talking about a successful angel investor, they're not saying "He got a 4x liquidation preference." That is so much more important than anything else that I worry I'm misleading you by even talking about other things. Mechanics Angel investors often syndicate deals, which means they join together to invest on the same terms. In a syndicate there is usually a "lead" investor who negotiates the terms with the startup. But not always: sometimes the startup cobbles together a syndicate of investors who approach them independently, and the startup's lawyer supplies the paperwork. The easiest way to get started in angel investing is to find a friend who already does it, and try to get included in his syndicates. series AA documents Wilson Sonsini and Y Combinator published online. You should of course have your lawyer review everything. But the lawyers don't have to create the agreement from scratch. If the company raises more money later, the new investor will take a chunk of the company away from all the existing shareholders just as you did. If in the next round they sell 10% of the company to a new investor, your 476% will be reduced to 428%. What saves you from being mistreated in future rounds, usually, is that you're in the same boat as the founders. They can't dilute you without diluting themselves just as much. That varies enormously, from $10,000 to hundreds of thousands or in rare cases even millions. The upper bound is obviously the total amount the founders want to raise. The lower bound is 5-10% of the total or $10,000, whichever is greater. A typical angel round these days might be $150,000 raised from 5 people. For angel rounds it's rare to see a valuation lower than half a million or higher than 4 or 5 million. If you're part of a round led by someone else, that problem is solved for you. There is no rational way to value an early stage startup. The valuation reflects nothing more than the strength of the company's bargaining position. If they really want you, either because they desperately need money, or you're someone who can help them a lot, they'll let you invest at a low valuation. The startup may not have any more idea what the number should be than you do. What you should spend your time thinking about is whether the company is good. Just make sure that you and the startup agree in advance about roughly how much you'll do for them. Really hot companies sometimes have high standards for angels. The ones everyone wants to invest in practically audition investors, and only take money from people who are famous and/or will work hard for them. But don't feel like you have to put in a lot of time or you won't get to invest in any good startups. There is a surprising lack of correlation between how hot a deal a startup is and how well it ends up doing. Lots of hot startups will end up failing, and lots of startups no one likes will end up succeeding. And the latter are so desperate for money that they'll take it from anyone at a low valuation. The part of angel investing that has most effect on your returns, picking the right companies, is also the hardest. So you should practically ignore (or more precisely, archive, in the Gmail sense) everything I've told you so far. You may need to refer to it at some point, but it is not the central issue. What "Make something people want" is for startups, "Pick the right startups" is for investors. Combined they yield "Pick the startups that will make something people want." It's not as simple as picking startups that are already making something wildly popular. As an angel, you have to pick startups before they've got a hit--either because they've made something great but users don't realize it yet, like Google early on, or because they're still an iteration or two away from the big hit, like Paypal when they were making software for transferring money between PDAs. To be a good angel investor, you have to be a good judge of potential. They just try to notice quickly when something already is winning. If you can recognize good startup founders by empathizing with them--if you both resonate at the same frequency--then you may already be a better startup picker than the median professional VC. My extra year of experience was rounding error compared to our ability to empathize with founders. If there were a word that meant the opposite of hapless, that would be the one. They may be smart, or not, but somehow events overwhelm them and they get discouraged and give up. Which is not to say they force things to happen in a predefined way. That's the closest I can get to the opposite of hapless. You want to fund people who are relentlessly resourceful. Notice we started out talking about things, and now we're talking about people. There is an ongoing debate between investors which is more important, the people, or the idea--or more precisely, the market. Some, like Ron Conway, say it's the people--that the idea will change, but the people are the foundation of the company. Whereas Marc Andreessen says he'd back ok founders in a hot market over great founders in a bad one. Bill Gates would probably have ended up pretty rich even if IBM hadn't happened to drop the PC standard in his lap. I've thought a lot about the disagreement between the investors who prefer to bet on people and those who prefer to bet on markets. The three most prominent people I know who favor markets are Marc, Jawed Karim, and Joe Kraus. And all three of them, in their own startups, basically flew into a thermal: they hit a market growing so fast that it was all they could do to keep up with it. Plus I think they underestimate themselves: they think back to how easy it felt to ride that huge thermal upward, and they think "anyone could have done it." So as an angel investor I think you want to go with Ron Conway and bet on people. Thermals happen, yes, but no one can predict them--not even the founders, and certainly not you as an investor. And only good people can ride the thermals if they hit them anyway. Deal Flow Of course the question of how to choose startups presumes you have startups to choose between. This is yet another problem that gets solved for you by syndicates. If you tag along on a friend's investments, you don't have to find startups. The problem is not finding startups, exactly, but finding a stream of reasonably high quality ones. If you're friends with a lot of investors and founders, they'll send deals your way. And once you start to become known as reliable, useful investor, people will refer lots of deals to you. There's also a newer way to find startups, which is to come to events like Y Combinator's Demo Day, where a batch of newly created startups presents to investors all at once. We have two Demo Days a year, one in March and one in August. But events like Demo Day only account for a fraction of matches between startups and investors. So if you want to hear about new startups, the best way to do it is to get lots of referrals. The best way to get lots of referrals is to invest in startups. No matter how smart and nice you seem, insiders will be reluctant to send you referrals until you've proven yourself by doing a couple investments. Some smart, nice guys turn out to be flaky, high-maintenance investors. But once you prove yourself as a good investor, the deal flow, as they call it, will increase rapidly in both quality and quantity. At the extreme, for someone like Ron Conway, it is basically identical with the deal flow of the whole Valley. So if you want to invest seriously, the way to...