The Median Level of Founder Ownership at Exit
blossomstreetventures.com
blossomstreetventures.com
This causes some founder/ceo/early teams to appear over represented: Sergey Brin, Larry Page & Zuck, while others appear under represented.
I can't help but feel that these flaws make the final assessments tilted toward the point of the article which appears to be something along the line of `owning 11% at IPO is totally normal, don't sweat it`. This is VC content marketing through and through. Additional note: "That means smaller investors and employees owned 27% of these businesses at IPO." The idea that employee pools make up a sizable chunk of most of these companies is completely laughable.
So, yes, I'm confused too. It doesn't seem that they should list Hoag as the "founder or CEO", and why exclude the actual founders which is what the article is supposed to be about?
[1] http://www.forbes.com/sites/jaysomaney/2016/08/12/why-is-jay...
According to this source [2] based on the latest SEC filing, Reed Hastings owns 931,660 shares of Netflix.
Since Jay might own some original Netflix shares, with the new 900k shares addition, perhaps he has eclipsed Reed Hastings in shares ownership.
[1]: http://www.forbes.com/sites/jaysomaney/2016/08/12/why-is-jay...
There are some unexplained things like Apple founders "Steve Jobs, Markula[sic], Scott" having 35%. First, why is Mike Markkula (which is the correct spelling) included as a "founder or CEO". He was an investor in every history of Apple I've read. Second, is Steve Wozniak included or not included in that 35% of founder ownership? I recall reading that Wozniak had approx. 7% share at the time of Apple's IPO, so not huge but not tiny.
My favorite startup exit is PlentyOfFish.com. 100% owned by one dude who made over half a billion cash selling it to Match.com.
It is also curious the table rounded Accel's ownership up (12.7 -> 13), but truncated the founders' (37.7 -> 37).
[1] https://www.sec.gov/Archives/edgar/data/1650372/000155837015...
There are many more notable bootstrapped exits, e.g. Mojang/Minecraft.
Lots of bootstrapped companies that could IPO, e.g. Mailchimp
And many other examples of companies that took very little money making their founders richer than comparable funded founders. E.g. Each of the founders of Wayfair made more than EVERYONE involved in the sale of Zappos.
Also, Zuckerberg exceptionalism strikes again: he was the highest ownership-retaining CEO on the list, at 57% (closely followed by others at 55 and 53).
Rather than percentages, the median/mode of absolute monetary value would be more useful, since that gives you a directly number you can compare to non-VC startup (lifestyle startup). If you own 2% of a 100M VC startup, maybe it's the same to fully own a 2M fully owned lifestyle startup.
On a side note, I was like "wait a second, 2M is now considered a lifestyle business?" but then I remembered that crazy P/E is the norm around here, so a valuation of 2M probably means that the founder subsists on ramen... :(
Crazy P/E is the market outcome in any low interest rate environment. If an investor wants to get 2% over the safe (read: government bonds) rate of return and the safe rate is 4%, then the investor wants a 6% return and that gives you price/profit ratio (not quite the same as P/E, I know, but for purposes of lifestyle business income this is the relevant number anyway of about 16).
If the safe rate is 0%, then the investor is willing to settle for a 2% return and you get a price/profit ratio of 50. Given identical profits that means 3x the valuation.
In real life this is a bit more complicated, because investors may not necessarily seek a simple additive percentage on top of the safe rate of return, but the same dynamic plays out in general.
Or to put another way, say you have a lifestyle business with $100k/year of profit. That's nothing too special. What valuation should that correspond to? Depends on risk, of course, but $1-2M doesn't seem unreasonable; that corresponds to 5-10% annual return, which is pretty good right now.
That doesn't seem like it would fly.
(Sorry, I could probably Google this myself...)
If you are the hottest startup in SV you probably have some leverage in the negotiations.
I noticed Apple on the list, but I also like to see Microsoft, AutoDesk, Cisco, UUNET, etc., and also really old ones like Hewlett-Packard, Intel, Texas Instruments, etc.
As I founder, if I sold almost 90% of MY company along the way, I would feel like I didn't do good enough job of building it without relying too much on other investors.
For example if your market requires large capital investment, e.g. insurance, banking, you could expect to part with a good proportion of your equity at every raise.
If you're a non-capital-intensive business and you still ended up with 10% at IPO I really wouldn't beat yourself up too much... You still did what very few people in the world have managed.
But then again depends what and why your doing it. If that 11% is worth enough to you (and the company is otherwise healthy), then you might not even care.
It perplexes me why such obvious realities are hard to grasp amongst budding entrepreneurs
Where does that misplaced pride come from?
Form the asset, sell the asset. Don't get married to it!
Small pieces of a small pie
Would love to see more in depth comparison between the cases.
Revenue is not profit. Only reason Amazon had so many losses over quarters during the years because it was a managed tax avoidance measure, not because they had unfixable costs.
I'd be interested in how much equity each venture firm had for each of these too.