Berkeley CSUA MOTD:Entry 54568
Berkeley CSUA MOTD
2017/12/16 [General] UID:1000 Activity:popular

2012/12/21-2013/1/24 [Industry/Startup, Finance/Investment] UID:54568 Activity:nil
        Yahooers in Sunnyvale don't seem to average 170K/year.
        \_ Googlers average $104k/yr? Uh huh.
           \_ what is it suppose to be?
                 Google Sr. Software Engineer in Sunnyvale averages $193k in total pay,
                 according to Glassdoor. This is about right. Perhaps they mean all
                 Googlers, including Janitors and Bus Drivers.
                 Google Sr. Software Engineer in Sunnyvale averages $193k in
                 total pay, according to Glassdoor. This is about right.
                 Perhaps they mean all Googlers, including Janitors and Bus
                 \_ Gee, I'm a Principal SW Engineer at a startup and I'm
                    making only $128k/yr.
                    \_ Sounds like you're probably relatively young, then.  A
                       lot of this also depends on how much experience you.
                       If you have two employees with identical job titles, the
                       one with 15 years of experience is going to be making
                       much more than the one with 7 (even when they start
                       passing out senior-sounding titles to the younger
                    \_ How much equity are you getting? That might be worth
                       even more than your salary. I am very senior and
                       working at a startup and making about the same. But
                       also getting lots of equity.
                       \_ When I joined 6 years ago, I got 0.25% ISO which has
                          been diluted to 0.09% at present.  Combining with
                          the bonuses throughout the years, my total ISO now is
                          0.16%.  -- PP, class of '93
                          \_ That's not a lot of equity.  If you're class of
                             '93, you should have enough experience to command
                             a higher salary than that.  .16 isn't a generous
                             enough grant to make up for it.  That's "junior
                             engineer hired after round C" equity.  The next
                             time you switch jobs, ask for a hell of a lot more
                             money (like another $30-40k).
                          \_ Depends on the companies valuation. Any idea
                             what it is worth? 0.16% of $100M isn't that great.
                             0.16% of $1B is awesome. -PP
                             0.16% of $1B is awesome.
                             \_ The equity percentages you should expect are
                                based on what stage you join the company, and
                                how senior you are.  The valuation matters
                                when you cash in, but it doesn't really
                                provide any guidance for evaluating an offer.
                                And to your point, it's even *worse* if the
                                company is worth a billion, because he got
                                ripped off even more.
                                \_ In what world is an option on $160k of
                                   stock worth more than an option on $1.6M?
                                   \_ What I'm saying is that the percent
                                      equity you should expect is independent
                                      of the company's valuation.  If a more
                                      appropriate amount of equity would be
                                      about .5%, then his poor initial
                                      negotiation caused him to miss out on
                                      even more money if the company sells for
                                      one billion than if it sells for $100
                                      million.  I'm obviously not saying .16%
                                      of $100 million is more than .16% of
                                      $1 billion.
                                      \_ I think that you are incorrect. So
                                         does Fred Wilson up there, but then
                                         again he would think that, right? Do
                                         you have a handy dandy chart that tells
                                         people how much equity they should
                                         ask for given the funding round the
                                         company is at and the employees level?
                                         Absent that, most of this is just talk.
                                         \_ At this point, I'm pretty sure I'm
                                            being trolled.  Or you deserve what
                                            you (don't) get.  Want to find
                                            some guidance?  Google it yourself.
                                            You might want to look at typical
                                            capitalization tables while you're
                                            at it.
                                            \_ In other words, you are talking
                                               out your ass and don't want to
                                               admit being caught at it. Cap
                                               tables have nothing to do with
                                               what rank and file (or even
                                               executive) employees should get
                                               in equity compensation.
                                               \_ Oookay, Mr. I Can't Google:
                                                  Scroll down to the second
                                                  table, that looks about
                                                  right for round A.  And your
                                                  take on capitalization tables
                                                  is just precious.
                                                  \_ From your own link:
                                                     "The one number you should
                                                      know about your equity
                                                      grant is the percent of
                                                      the company you are being
                                                      granted (in options,
                                                      shares, whatever – it
                                                      doesn’t matter – just
                                                      the % matters)." Oddly
                                                      enough, this guy doesn't
                                                      seem to care much about
                                                      the cap table either.
                                                      \_ The cap table
                                                         describes the larger
                                                         ecosystem, of which
                                                         your option grant is
                                                         a small part.  It is
                                                         not necessary to
                                                         evaluate an offer,
                                                         neither is it
                                                         unrelated.  I directed
                                                         your attention to
                                                         *one table* on this
                                                         page.  I don't care
                                                         about the rest of it.
                                                         If he says "only the
                                                         percent equity
                                                         matters", that's a
                                                         bit naive, as it
                                                         ignores the
                                                         preference the VCs
                                                         have taken.  It was
                                                         true 15 years ago, but
                                                         not now.
                                                         \_ It was the same then
                                                            but they accoplish-
                                                            this via other, more
                                                            nefarious means. At
                                                            least this is up
                                                   \_ What should it be for
                                                      round B, round C, etc?
                                                      Do you have any insight?
        This is actually quite useful, thanks. _/
        I guess I did all right then, since
        I got this much in a company that
        has just completed it's D round -!PP
                       \_ The game has changed.  You might want to read up on
                          preference in startup term sheets, and why it means
                          that your (common) equity probably won't be worth
                          much (if anything), even if someone does buy your
                          startup.  Example: in the $500 million purchase of
                          Xen by Citrix, the VCs split 380 milllion of the
                          purchase amount, while the rank and file were left
                          splitting $120 million.  So if you're sitting there
                          thinking "I've got .5% equity" probably don't.
                          And when the VCs preference (not their investment)
                          covers more than the purchase <DEAD><DEAD>mon
                          shareholders get nothing.  Working for equity at a
                          startup today is *not* like the 90s.
                          \_ Yeah, I had to learn about this stuff before I
                             accpeted the offer. I am ready to take the risk
                             that I get nothing if the value of the company
                             does not increase. It is in general a bad idea
                             to get a job for a company that is failing, but
                             especially bad if much of your compensation is
                             in equity. I assume that I get 0.5% of the value
                             added *after* I join. Does that seem about right
                             to you? Thanks for the advice.
                             \_ Preference describes the extent to which the
                                preferred shareholders (the VCs) get paid more
                                than the common shareholders (the employees
                                who got options) if and when the place sells.
                                It has nothing to do with whether the
                                valuation is going up or down, though the
                                preference is likely to increase (get worse
                                for you) across a down round (a funding round
                                where the valuation is lower than the previous
                                round's valuation).  However, if you have
                                onerous preference conditions in round A,
                                they'll still be there after round B, even if
                                B is an up round.  In fact, the VCs who come
                                in in round B will get that same preference
                                over you, most likely.
                                The amount of equity you have is the size of
                                your grant divided by the number of shares
                                outstanding.  You should be able to find out
                                both those numbers to evaulate an offer.  Run
                                from any company that won't tell you the
                                shares outstanding.  The percent of equity you
                                have at the time of your offer is *not*
                                guaranteed across time, and *will* go down.
                                Additional shares will get created during a
                                funding round (dilution), which means you own
                                less of the company.  You should expect an
                                additional grant at that time to compensate,
                                but they're unlikely to give you enough to
                                keep you whole.
                                And even if they did, preference means you
                                probably don't really have what you think you
                                \_ Here is Fred Wilson's take on the topic.
                                   I think he does a better job of explaining
                                   it than you did.
2017/12/16 [General] UID:1000 Activity:popular

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MIT back in June I've been focusing on the growth of the company. It has been pretty much on mind non-stop for months now. The part that I'd like to zero in on is when you've got a high growth company what are some of the best practices out there to distribute equity to the founders, advisors, and employees? Founders' Pie Calculator by Frank Demmler, an Associate Teaching Professor of Entrepreneurship at the Donald H Jones Center for Entrepreneurship at the Tepper School of Business at Carnegie Mellon University invented an interesting way to divide equity between founders in a way that is both logical and fair. Sometimes when people start up a company they make decision to divide up the equity evenly because it's "fair". Demmler's approach is a bit different in that the calculator provides a way to quantify the elements of the decision making process, and that it appears to be logical and fair. The elements of the decision making process are 1) Idea; The idea behind the calculator is to come up with a weight for each of these five elements and then assign a value to each founder on a scale of 0-to-10. Then you take the weight and multiple it by the founders score to come up with the weighted score. I like this a lot better than splitting things equally because it allows you to quantify what is important. Weight Founder 1 (Contribution) Founder 1 (Weighted Score) Founder 2 (Contribution) Founder 2 (Weighted Score) Idea 7 10 70 3 21 Business Plan 2 3 6 8 16 Domain Expertise 5 6 30 4 20 Commitment & Risk 7 0 0 7 49 Responsibilities 6 0 0 6 36 Total Points 106 142 % of Total 43% 57% Equity for Board of Directors and Advisory Board When figuring out how to provide equity to advisors, you can use this chart as a guideline. Typically for an Advisory Board it ranges from 1/10th of percent to 1/2% and for Board of Directors from 1/2% to 2%. Equity for Employees It's important to figure out how much equity you give to your employees. Founders versus Early Employees", "Remember the goal is to incent early employees to have an emotional ownership of the product and company they are building. Equally said, potential employees need to understand what they are getting into". The one thing that I think is missing is distributing equity to every single employee in the company regardless of title. Quite honestly, it takes an entire team to build a company and giving each employee a piece is important so that employees are rewarded in the upside of the company as they have made a decision to work for you instead of some other opportunity. Giving equity to employees also helps foster the "act like an owner" kind of mentality. Below is an example of how some companies may approach distributing equity to employees. The one number you should know about your equity grant". The one number you should know about your equity grant is the percent of the company you are being granted (in options, shares, whatever - it doesn't matter - just the % matters). All this information that I've gathered up here seems rather logical. Are there other tools that you've used that you think would be helpful to share with other entrepreneurs and founders? Are there principles that you live by that you've implemented in your startup that have worked really well? Reply over year ago Peter, this is another interesting post, and one that ties well into your previous post about single founders and dealing with disagreements. Specifically, what's interesting to me about the owner allocation formula in your example is that part of the allocation is based on "what has been done" and another part is based on "what needs to be done." In the example, founder 2 scores 57% of the founder shares and, yet, most of founder 2's score is on account of "commitment and risk" and "responsibilities" -- presumably things that "need to be done." Not only do you want to allocate ownership, but you want to re-allocate ownership if either partner fails to deliver. Investors routinely subject founder shares to vesting, but there is no rule that says that founders cannot, or should not, impose vesting on themselves. Indeed, to allocate founder shares based on expected performance is foolish, unless there is a mechanism for holding co-founders accountable. And the vesting doesn't necessarily need to be time-based either. The founders could agree on a set of objective goals that, when met, release a specific number of a founder's shares from a right of repurchase. Finally, I might also add that, at least in my view, founders tend to give too much weight to things that have been done and far too little weight to things that need to be done, in allocating founder shares. Yes, the idea gets things started and definitely excites. But at the end of the day, its execution that really matters. Reply over year ago Joe thanks for the insightful comment. Last weekend at Seattle MindCamp we had a session on this topic of "How to divide co-founder equity" and we did talk about there being too much emphasis on what was done in the past and not enough about what is actually going to get done. One idea that we came up with was to allocate a portion of equity to the co-founders and set aside another portion of of co-founder equity that could be allocated or earned by the co-founders in the future. We're also working on an iPhone app to build this kind of calculator so that people can figure this out in a meaningful way rather than just agreeing to split the equity evenly among the co-founders. Reply 206 days ago Your last paragraph actually describes a situation I am in. I was originally hired as a contractor, developing a SaaS app from scratch, including DB design and coding. Along the way, I was hired full time (I believe about 8 months after I started), a coder from India was hired and another contractor was added to the team. Now this application is being spun off by the founder as it's own company. I am being offered a single digit percentage of outstanding shares, which I believe is based on the founder's application of a share distribution as though I am in a CTO or a Director Of Engineering role. of vesting) deserves more of a share distribution as that of a co-founder. In relation to the founder, is there an equity percentage that would be fair? In my experience, though, most equity splits reach the point of being fair when all the principals agree that it feels about right; clearly you don't think so, which means it's arguably not fair. I'm happy to chat with you further about it if you want to give me a call. I can probably help you develop a negotiating strategy, and am willing to consult initially by phone free of charge. You can email me at thnkspc (aatt) impressthenet dot com. Reply over year ago Your blog post does a great job of helping startup founders know a bit more about how to approach big equity decisions; between you and David Crow, there's also good acknowledgement of the value of giving enough equity to non-founding startup execs to ensure they truly feel they're owners of the business & vested in its success. Not nearly as much information exists, however, to help non-founding startup execs know what they need to know to avoid getting taken for a ride by investors & founders, who very often take advantage of severe knowledge asymmetry. The employee buys a dream (a big part of making them feel emotionally attached) of making $X on equity, but reality is usually some fraction of that, in part due to lack of knowledge on the part of the employee, and omissions/lies on the part of founders & investors. Reply 253 days ago Knowledge asymmetry is the primary basis for profit in equity transactions. Consider the stock exchange, knowing something that will effect the price of a stock before it is well known allows you to make the right move with the stock. The greater the inequity of knowledge about the company, the easier it is for the seller, in this case founders and investors through the Board of Directors, to provide the fantasy that improves the value of the equity involved. This is like the notorious used car salesman who sells you a car that may be a lemon, and he knows it. Reply over year ago Pet...
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MBA Mondays series on Employee Equity and now we are going to start getting into details. I am just starting to realize how complicated the issues around employee equity are. Everybody does it and nobody but the tax accountants understand it. When VC investors (and sometimes angels) invest in a startup company, they almost always buy preferred stock. In most startups, there are two classes of stock, common and preferred. The founders, employees, advisors, and sometimes the angels will typically own common stock. The easiest way to think about this is the "sweat equity" will mostly be common and the "cash equity" will mostly be preferred. For the sake of this post, I am going to talk about a simple plain vanilla straight preferred stock. There are all kinds of preferred stock and it can get really nasty. I am not a fan of variations on the straight preferred but they exist and they can make the situation I am going to talk about even worse. Lets say you start a company, bootstrap it for a year, and then raise $1mm for 10% of the company from a VC. And let's say a few months later, you are offered $8mm for the company. If the VC bought common, he or she gets $800k back on an investment of $1mm. But if the VC buys preferred, he or she gets the option of taking their money back or the 10%. In that instance, they will take their money back and get $1mm and you will get $7mm. In its simplest (and best) form, preferred stock is simply the option to get your negotiated ownership or your investment back, whichever is more. It is designed to protect minority investors who put up significant amounts of cash from being at the whim of the owner who controls the company and cap table. Now that we have that out of the way, let's talk about how this can impact employee equity. Anytime the value of the company is less than the cash that has been invested, you are in a "liquidation overhang" situation. If a small amount of venture capital, let's say $5mm, has been invested in your company, it is unlikely that you will find yourself in a liquidation overhang situation. But if a ton of venture capital, say $50mm, has been invested in your company, it is a risk. The employees do the math and multiply 15% times $55mm and figure they are in for a $8mm payday. The VCs are going to choose to take their money back in this situation because 75% of $55mm is roughly $41mm, less than their cash invested of $50mm. So the remaining $5mm is going to get split between the founders and employees. The investors are now "out of the cap table" so the final $5mm gets split between the founders and the employees in proportion to their ownership. This story is even worse if the company that has $50mm of investment is sold for $30mm, or $40mm, or even $50mm. If your company has a lot of "liquidation preference" built up over the years, and if you think it is not worth that amount in a sale situation, your company is in a liquidation overhang situation and your employee equity is not worth anything at this very moment. If this hypothetical company we are talking about decided not to sell for $55mm and instead grew for a few more years and ends up getting sold for $100mm, then the liquidation overhang will clear (at at sale price of $65mm) and the employees will get $15mm in the sale for $100mm. So being in a liquidation overhang situation doesn't mean you are screwed. It just means your equity isn't worth anything right now and the value of the company has to grow in order for your equity to be worthwhile. But it also means that a sale of the company during the liquidation overhang period will not be good for the employees. As JLM would say "you won't be going to the pay window." This issue is front and center in the minds of many employees who worked in tech companies in the late 90s and early part of the 2000s. The vast majority of companies built during that period raised too much money too early and built up large liquidation preferences. Many of them were sold for less than the liquidation preference and the investors lost money on their investments and the employees got nothing. That has hurt the value of employee equity in the minds of many. We are in a different place in the tech startup world these days. Many of our companies have raised less than $10mm in total investment capital. And the ones that have raised a lot more, like Zynga, Twitter, and Etsy, have enterprise values that are 10x the lquidation preferences (or more). It doesn't take as much investment capital to build a web company anymore. And it has made being an employee equity holder in web companies better. But liquidation overhangs still do exist and when you are offered a job in a startup where equity is being offered, it is worth asking a few simple questions. You need to know how many options you are being offered. You need to know where the company thinks the strike price will come in at (they can't promise you an exact price). You need to know how many shares are outstanding in total so you can determine the percentage ownership you are being offered and the implied valuation of the strike price. And finally, you need to know how much total capital has been invested in the company to date so you can decide if there is a liquidation overhang situation. Just because there is a liquidation overhang doesn't mean you shouldn't take the job. But it's a data point and an important one in valuing the equity you are being offfered. Because standing at the pay window and finding out there's no check for you is painful.