GitHub Founders Will Own More Microsoft Stock Than Its CEO
bloomberg.com
bloomberg.com
Imagine an Apple buys NeXTSTEP styled coup by acquisition.
There’s reason both Tim Berners-Lee’s little side project (the “WorldWideWeb") was developed on NextSTEP bought specifically for the project [1]. Or why Doom was written on Next machines as well [2]. The semi-dynamic features of Obj-C made a very power UI development system and the postscript backed graphics system was (likely) the first and only vector based display subsystem. Linux / BSDs and OS GUI frameworks still suck at handling hi-dpi in 2018. Well QT’s ok at it.
Linux and PC BSDs were more primitive at the time Next was aquired, especially the UI subsystem and X11.
So NextSTEP brought a powerful ahead-of-its-time graphics subsystem, solid BSD Unix based OS tools and services, and powerful dynamic development system and language. If that’s not valuable well by your estimation, it’s worked pretty well for the most valuable company in the US.
0: http://www.computerhistory.org/atchm/the-deep-history-of-you... 1: https://www.w3.org/DesignIssues/TimBook-old/History.html 2: https://www.forbes.com/sites/quora/2016/09/01/why-john-carma...
Buying can be far more effective than building, especially for large companies.
I'd love to see more discussion on the acquisition valuation here.
Considering that Github had sales of around 200M last year and is losing money, the 7.9B is a pretty rich multiple.
Sure Github is a nice fit for Microsoft (more perhaps than something like Minecraft is).
Still, this seems more like mindshare or perhaps defensive purchase.
This one kind of feels like Skype, in that it felt like they overpaid there as well (I remember thinking that Silverlake had performed a masterful coup with Skype) ... only time will tell whether Github loses their mojo as in the Skype situation. I'm not a skype user, but my general sense is that the service has been completely eclipsed by everything else in that space.
So they are still planning to purchase more shares than this $7.5B issue.
https://seekingalpha.com/article/4179322-github-deal-fits-ne...
Stock buyback plans are heavily pre-meditated programs with relatively rigid rules. It's not like they added an extra ~8B to the last buyback plan in anticipation of this exact event.
The firm owned about 13 percent of the company after that deal, according to Pitchbook, and made sure to take its pro rata rights — or right to follow up with more investment at a later date — when Sequoia Capital valued the company at $2 billion in its own deal in 2015. Those were the only two times that the 10-year-old company ever raised money. [0]
So, the other two winners are a16z and Sequoia?
[0]: https://www.recode.net/2018/6/4/17424664/github-microsoft-sa...
what about the employees?
And the employees also work hard, and are working on reduced pay, and are doing it because it's fun and they believe in the mission. And they believe they're all "in this together," but learn otherwise only when the big day arrives.
Methinks you need to distinguish between startups like Theranos, Clinkle, or Juicero, where a well-connected and charismatic founder meets an investor who takes on all the risk and then they crash and burn spectacularly and nobody gets their money back, and a bootstrapped team of engineers that build a product millions of people want and then get handsomely rewarded 11 years later.
there is certainly a gulf in the present day equity split between even the least helpful founder and the most instrumental employee.
as a community, we anchor each other by saying things like what you’re saying. if more people felt the way i do, as a community, we would not accept the status quo.
it sounds as though your stance is founded upon a just-world hypothesis.
And without that sacrifice on the part of employees, many companies would never have made it out of a vast pool of mediocre nondescript companies.
This is not the case for every employee or every company, but I think you need to balance your world view a little bit.
Unless they are being forced to do that without proper compensation in which case they should leave they aren’t and shouldn’t be awarded with extra just because they are workaholics if nothing else is that because it forces other people to invest more than they want or can.
For quite some time in the start of my working career I was staying till 9-10pm at work working on extra projects, perfecting something having fun etc. until at some point my then manager took me a side and told me to stop it not because of what it did to my life and not even because of the potential liability the company had but because of my other team members.
He basically said look you are 25 you can do what ever the hell you want but “Joe” is 42 and “Mark” is 45 don’t put them in a position to have to compete with you when there is nothing on the line.
Since then and since getting much more experience I’ve really taken that to heart and I actually detest people who spend considerable amount of time on top what is expected and appropriate at work and I work actively to prevent anyone on my team or who I engage with doing so.
If you like to code 24/7 do your 9/5 job and then work on some FOSS project on the side, take a 2nd job or volunteer at some charity and build them a new donor engagement platform. Don’t force me to feel bad or uncomfortable for leaving at 5.
Less dilution is better for employees too (especially the early ones).
Presumably the employees were paid salaries.
E.g., one person I know, an Employee #1, was shocked to discover that investors only held ~15% of the startup he was at, which he joined just a couple of weeks after incorporation, and the founders held nearly 80%. His equity was IIRC 1%, which he thought was great, and was assuming that the founders had maybe 10% each, with a big option pool and a much-larger investor ownership. Ok, so his numbers didn't change just from learning everyone else's, but he wouldn't have agreed to 1% if he'd known.
It's not the founders' fault. They acted in their own self-interest, and did not volunteer information that would have negatively impacted their position.
But the employee still had a right to be upset, same as any of us would be if we discovered that a teammate for the last several years had been pulling in twice your salary, when you were told "sorry, this is as high as we can go."
This is a super capitalist thing to say. Anyone can understand _why_ the founder acted in their own self interest here, but to say it's not their fault is to just remove all agency from them.
Maybe it's in my best interest to have someone murdered so I can take over their business. Would you say it's not my fault if I did so?
So in one particular cycle people try to gather as much Pie for them as they can.
There fore ultimately one has to be selfish, even if not out of nature, but out of sheer compulsion. These days you have to do these things just not to get walked over.
If you're starving, or need shelter or some other basic to survival, then yes you need to be selfish. After that being selfish is a choice
My point is that startup equity is shit in all but the extremely rare unicorn cases for everyone except the founders and VC's.
I always laugh when I see startups offering microscopic equity while founders horde orders of magnitude more stock acting like what they have done is worth hundreds of times more what your early employees do.
As if anyone can just choose to be working for a company with the right terms, in a position to make a multi-billion dollar sale, and also somehow not get screwed out of what they thought their terms guaranteed.
If you want up be paid $x a fortnight right from the get go then you get a job.
I don't see how the success of people who chose to do A means people that did B got screwed, just because they both worked on the same project. The decisions they made and context of their choosing to work on it were still different things each with their own pros and cons
Unless there was some more to it. Like share /options shenanigans that might not be legally fraud but fraud in spirit. No one seems to be saying that happened here though.
False dichotomy. People join startups (esp. early ones) thinking they have a shot at a significant chunk. But even for the very first employees, the equity numbers are ridiculously small. I don't understand why they sign up for it.
All my friends in startups work damn hard and poured huge chunks of their lives into it, and it has not been fun watching them be offered meager positions post-acquisition, while their founder/CEOs get multi-million paydays.
> on the backs of their employees
Also employee owned cooperatives are cool, and I wish there were more of them.
Based on what?
You don't think it's fair -- fine, but what would be fair?
The fact is that the multi-billion payday would not be possible, had they not convinced so many talented people to work for equity-peanuts. Kudos to them!
Bay Area overflows with job opportunities.
If those talented people would rather get a risk-free work at Google/Facebook/Microsoft for $250k, why didn't they?
Majority of software startups require just as much work, pay even less in base salary and their equity is worth $0 in the end, because the founders didn't create a valuable company.
You say employees got screwed because they worked hard and didn't make tens of millions.
I say they got supremely lucky.
A 0.1% of 7.5 billion is $7.5 million, which is more than you can hope to make from cushy G/F/M jobs and certainly more than you can hope to make from an average Bay Area startup.
They'll need to be frugal to remain members of the 3 comma club.
In fact, they have 745 employees. That averages out to 4.6 million per employee. Now, there's probably a good bit of VC money in there diluting that, but i'd bet not by more than 50%. I think the employee equity pool did just fine here.
GitHub had 2 funding events.
https://www.crunchbase.com/funding_round/github-series-b--49...
$250M at pre-money valuation of $1.8B i.e. 13%.
https://www.crunchbase.com/funding_round/github-series-a--83...
$100M at valuation of $650 i.e. 15%
So ~28% to VC, 50% to founders, which leaves 22%
How much of that was actually allocated, I don't know.
Having been part of a billion dollar acquisition myself, I can attest that for the vast majority of people (myself included), it was equivalent to a nice bonus. Perhaps more people need to realize that and internalize that before they forego the higher compensation, and easier workload of an established company?
The only thing that will realistically get founders to share more equity is for the market to demand it. Personally I would not sign up for another startup journey unless I felt there was substantially more upside on the table. Otherwise, you’re better off joining BigCo or go further and start your own thing and get founder equity.
FWIW, I wouldn’t begrudge the Github founders... they’ve done an amazing job over a very long time. They rolled the dice and made it happen. Hats off to them!
Gates had 45% of Microsoft after its IPO after a similar length of time (a decade) that GitHub has existed. His position rapidly diluted after that with increased share-based compensation and Microsoft's size ballooning. Allen + Gates + Ballmer probably had 65% of Microsoft after the IPO.
Larry Ellison still holds 27% of Oracle after 40 years.
I don't think the GitHub distribution outcome is particularly historically unusual. One could argue obviously that from a strictly subjective moral basis that it's still not enough distribution.
The only thing historically unusual, is that the venture capitalists got such a small share of the outcome, courtesy of GitHub not drowning themselves in funding across a decade. In most cases these days, the VCs would be taking up a far larger portion of the founder's 50% position.
I'd guess the employees are getting 20%-25% of the $7.5 billion. That's maybe $2.25m to $2.75m average per employee, assuming a 600-700 employee range.
That seems like a pretty big assumption. And as mentioned in other comments, what about the employee stock pool? That must account for some chunk of it also.
they deserve it for the risk taking and management. github is a once in a decade, maybe century, company.
OTOH, anyone else think Microsoft has massively overpaid for Github? Feels like Satya's Nokia moment to me.
Certainly seems like it, but I was spectacularly wrong when I said that about Google's purchase of YouTube and about Facebook's purchase of Instagram, so I've learned to stop saying that.
I was in the same boat until I talked to someone working directly with youtube and that conversation cleared a lot of my questions. Allow me to do the same for you. :)
Think about it: Microsoft will know exactly who, when and from where people accessed your repositories. They will have detailed metrics on your commit/push patterns, the devices you use, etc...
A social network of developers is probably something very precious. And whether MS's motives toward open source are hostile or benevolent, it is a precious thing to have.
Even if they just want to kill it, that's probably the amount you need to spend on it.
I have no idea about whether the valuation is sane, but combining a powerful, intuitive tool (GH Enterprise) w/MS's sales channel is likely to drive a lot of new revenue. Lots of companies stick with IBM's revision control products because companies like Github might not be taken seriously by decision makers.
They've only massively overpaid if they rapidly confirm the worst fears that have been expressed and thus tank the value of what they've got; leveraged well—which will take a light touch—Github is of enormous value to Microsoft.
Most, if not all, big acquisitions are failures.
Stock doesn't seem to care about this because Microsoft's share price has barely moved.
MS stock has made ~4B today in the market so their purchase got partially funded
Higher valuation means MS have to give out less shares now for this acquisition. Although, it’s a complicated topic.
Trying to address your comment - MS makes money with stock market movement but not right away. Higher stock value means higher valuation. If MS decides to raise money by selling stocks then obviously they will get the higher dollar value at that time. Although, it will be painful for stock buyback program.
If you think - my understanding is wrong then please educate me
I don't think so. Of course it is an high risk investment for microsoft. But github is in a place like no other site nowadays. Just 1.5 million company customers make it quite valuable. And the fact that it is a standard in the open source world also means that more and more companies will use it in the future.
> hostile toward a rival or one believed to enjoy an advantage : envious > > His success made his old friends jealous. > They were jealous of his success
Do not help someone succeed.
Do not join startups where founders get 50%.
Employees of this startup just made the world more unequal.
Bill Gates and Steve Jobs became billionaires by making personal computers and software available to billions of ordinary people, making them more productive and wealthy.
Larry and Sergey became billionaires by making information and smartphones available to billions of people, and in doing so helping some of the world's poorest people lift themselves out of poverty.
What do you prefer: a world in which a handful of people are vastly more wealthy than the rest but where everyone's material wellbeing is improving, or a world in which everyone is equal but we all have little wealth and little technological progress?
I'm all for discussing ways in which society's wealth can be distributed more fairly and how the worst-off can be helped to live more comfortable and optimistic lives.
But the evidence would suggest that when you constrain the wealth-generating capacity of the highest-achievers to reduce the overall wealth being created by a society, the people at the bottom are the first to suffer.
The evidence I'm referring to is the comparison over the past 100 years or so between open economies where people can keep a substantial share of the rewards for their innovations, vs controlled economies where people can't. In any scenario, elites find a way to be elites. The comparison that matters most is how badly off are the poorest.
To answer your other comment and to avert a needless argument, I agree it's not black and white and I agree no system is perfect and that it's an unresolved question as to what kind of system is optimal in terms of generating wealth and distributing it fairly.
My initial comment was simply to point out to the root commenter that the action they recommended would more likely lead to the opposite outcome to what they hoped.
I don't see the need to migrate immediately, even if that need becomes evident later (I don't think it will, but yeah, it could happen).
I understand the reaction, but I thought we all migrated off Slashdot and spelling Microsoft with a $ a while ago.