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| 2009/9/2-9 [Industry/Startup] UID:53325 Activity:low |
9/2 Any opinions on what a developer at a small (10-person) startup
company should get in the way of stock options? (As a percent
of the company, of course). What are the general numbers?
Any opinions? -- First time startup employee
\_ http://csua.com/?entry=50939
\_ http://csua.com/?entry=52981
\_ http://csua.com/Industry/Startup/?page=1
\_ Thanks for the references --OP
\_ How many years of experience do you have? How much funding do they
have? Somewhere between 0.05-0.25% is common. Raw # of shares is
worthless because they may have 1M or 100M shares outstanding.
\_ 4-5 years of working part time/interning, with half a year
at this particular company, so I've already proved that I'm
quite valuable to them...
\_ what is this, undergrads posting on the motd?
\_ Guilty as charged
\_ 0.05-0.25% per year or per vesting period?
\_ In 1998 I joined a startup as Senior Enginner and employee #4,
and I got 1%. But that it didn't matter since it filed for Chapter
7 in 2001.
\_ As they say, startups are for really really lucky bastards
or suckers.
\_ I have worked at three startups and two had an IPO and the
other one got bought out at a hefty price. I guess I must
be really really lucky.
\_ You were a sucker in 2001, but then you got lucky.
Or maybe it's fate, it's meant to be. |
| 4/4 |
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| csua.com/?entry=50939 Guy Kawasaki says it's better to be employee #10 than #100, but how much smaller share would I expect? Later I joined another startup as employee #45 as a senior engineer, and I got 025%. Of course, whatever percentage of shares you get will most likely be diluted before the company is acquired or goes IPO, if it ever does. Start-up #1 quadrupled my grant after I got promoted to Director (this was after they went public and weren't doing so well). However, the seller is offering the following (but doesn't want to meet): "How about if we do the deal through a shipping company i've used to complete several transactions... I ship the camera to you, provide tracking and then payment to be done direct to the company agent. once you have received the camera and decide to keep it, then you inform the ... |
| csua.com/?entry=52981 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. As the previous poster indicates though, both were diluted before their eventual IPO. 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. 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. I didn't know the number of shares until I signed the offer letter. Since then, I've only worked for the public sector or public co's. The public company is doing quite well and has interesting work. A bad startup will have all these, but more pathologies, usually related to whatever issues the founder has. 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. Shoud I hold my breathe until i turn blue, to get more stock? 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. 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 An... |
| csua.com/Industry/Startup/?page=1 I asked him how many shares there are out there, and how much the company is worth, and, and I'm not making this up, he replied with the exact numbers I wanted. Apparently we are valued at 10 million, with 7 million shares outstanding. So how many shares should mr over stressed engineer receive? And I should I just say screw it and hold out for as much salary as possible? Most of the time, it's very much an every man for himself type of environment. If you can't fight for your shares and recognition, you should step up and fight for your shares, or don't join the startup environment. If you are really senior and in a lead or architect role, you should be getting two to four times that. But it is all up to what you can negotiate for yourself. If you are really interested, you might try and figure out what they are worth, but the volitality is going to be very hard to estimate. If it's not worth it, either find a new job or suck it up because the economy sucks. However, the seller is offering the following (but doesn't want to meet): "How about if we do the deal through a shipping company i've used to complete several transactions... I ship the camera to you, provide tracking and then payment to be done direct to the company agent. once you have received the camera and decide to keep it, then you inform the company to pay me." I've never done anything on Craigslist and I'm a bit wary of doing anything on it for the very first time. My friend got a fake money order from H Betty Industries with instructions to pay the shipping company the excess in cash. 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. As the previous poster indicates though, both were diluted before their eventual IPO. 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. 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. I didn't know the number of shares until I signed the offer letter. Since then, I've only worked for the public sector or public co's. The public company is doing quite well and has interesting work. A bad startup will have all these, but more pathologies, usually related to whatever issues the founder has. 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. Shoud I hold my breathe until i turn blue, to get more stock? 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. I've been here almost 25 years, he started in Sept 2008. Also another question, is salary of your CEO usually common public knowledge at a startup? The Phoenix thing and the high salary are the real red flags. I'd write this company off and continue to work there because the economy sucks, but be ready to look for a job in the next 12 months. I graduated that year and got offered $34k/yr by the UC, but quickly moved to Taos, making $50k/yr. Piaw had told me to take that class under Lenstra, he said Lenstra was good, these were Piaw's words: "Lenstra is very good. I have never worked so hard on a class with so little result, before or since, exept for the final. " And I took this ghostly advice, again and again during the exam, and got all but one problem. Fortunately, Lenstra had said, "if you don't like one problem, throw that one out. Oh, and BTW, if you do well on the final, we'll replace your mid-term grade, too." And that is how Piaw's awesomeness got me an A in Math 55, when I started with a C+. I doubt Piaw remembers me, but I sure won't ever forget him. And if some friend of Piaw's wants to send this on to him, feel free. I have never experienced a more powerful moment of happiness than when I exited that final exam--1 hour early, looking back at everyone else struggling with it, knowing I'd aced it. Stockwise it sounds like you just accepted the offer you were given. You can go to your CEO and tell him you want more stock. You don't think he should make 4X what a developer makes? His options might be out of line, but that's not coming out of your bottom line anyway. I hear him on company conf call if I want to but I've missed the last 4, I've been way too busy to care. I'd feel better about slaving away all week if he were around to watch. We recently layed off a bunch of developers and a couple of sales account execs, I think to impress the board of directors with our cost cutting skills. we shouldn't be paying our fatass CEO (he's HUGE) 1/2 mil a year and more equity than every other non founder employee COMBINED. if this guy owns 10% of the company, then you are looking at your options being worth $30k, not a sum which would greatly affect your life. If he owns 5% of the company, then you seem to need some pretty optimistic growth expectations to have your options to be worth more than a car ... unless the expectation down the road is you'll be getting lots more options and the current grant is more like a bonus up front rather than the sum of your vesting expectations. Run the numbers on a billion dollar valuation, and your options are going to be worth a nice vacation. VC's want to give the founders/CEO enough money to feel like they have to work their asses off to make a living. The salary is just enough to get by (ya, $250K sounds like a lot, but it's not that ridiculous). Don't think that "10,000 options" is a lot, you really have to look at it as a percentage of total outstanding stock. A friend of mine was negotiating and asked that question and they told him that the board wouldn't allow them to share that number. I call bullshit, but does anyone know if there's any truth to this? As for the stock options, lets assume there are 1M outstanding. Non-founder CEOs generally get 2-5% of outstanding stock. So that would leave him with about 50K options on the high end and you with 1K (or 01%). How long have you been out of school and how many employees were there when you started? I hope you didn't get screwed on a super-low salary because they told you the stock would make you millions. Lastly, this CEO in Pheonix thing sounds like the biggest red flag of all. Sounds like he is a sales-CEO type and travels a lot with a big budget. In your example, the CEO would be getting 50K options and the worker bee 1 option. At a public company, the top five compensated employees salaries are in the 10-K filed every year, so the CEOs salary is almost always one of those, and therefore public knowledge. Stockwise it sounds like you just accepted the offer you were given. You can go to your C... |