Comment by mauriziocalo | Hacker News Reader

Comment by mauriziocalo | Hacker News Reader

Have you actually modeled out the potential payouts?

How did you choose the 1% number (percent of their equity that each founder contributes) as well as the pool size of < 25?

My quick back-of-the-envelope calculation:

Expected payout to each member would be:

  1% * avg_valuation_of_companies_in_pool * avg_percent_ownership_at_exit

Assuming an average valuation (in the literal sense, total exit value of all co's in the pool / number of co's) of $100M [2] and assuming that the founders own roughly 15% at exit, the expected payout would be only $150K excluding taxes, which seems quite low.

[1] Modeling should be somewhat doable leveraging public data. For example, you can use YC company data in https://ycombinator.com/topcompanies https://ycombinator.com/companies and simulate what the payouts would be if you were to choose 25 companies from a given batch at random.

[2] $100M is likely in the right ballpark. According to https://www.ycombinator.com/ :

> Since 2005, we've funded over 2,000 startups.

> Our companies have a combined valuation of over $100B.

the average valuation of YC co's would be ~$50M; if you exclude half of those that are in recent batches (haven't had time to realize their value and don't really contribute towards the $100B total) it might be closer to $100M.

Under a FounderPool model, an example of this would be a pool of 20 co's in which 2 companies end up exiting for $1B each and the rest essentially $0.

1) Pools sizes are not fixed number and more over, founders can invite other companies to existing pool on a rolling basis 2) We have done modeling, obviously selection is the top determinant of payouts (20% avg. success rate vs 40% success rate) but bigger pool sizes ensure potential for a breakout company. Happy to share if interested, contact us at contact at founderpools.com

> bigger pool sizes ensure potential for a breakout company

Yes, but the payout gets distributed among a larger number of companies. Increasing the pool size lowers the variance, but the expected value remains the same. Lower variance might be desirable for some people (more predictability -- at the limit it's as if you're investing 1% of your equity into an "ETF" of early-stage startups), whereas some people might prefer higher variance (higher potential upside if they join a pool with the next Stripe).

My concern is that if founders contribute 1% of their equity (not 1% of the entire company at exit), the expected value itself is quite small -- on the order of $150K under reasonably optimistic assumptions -- for something like FounderPool to make sense.

On the flipside, increasing the 1% by an order of magnitude might make more sense from a utility maximization point of view, but even less sense from an emotional standpoint.

Why would ownership at exit matter? If the founder only has 15% ownership then he will still have to give up 1% not 0.15% of total equity. This means the founder will be left with 14% equity.

The FounderPool website specifically mentions:

> You contribute 1% of your equity into your pool.

My understanding is that if a founder owns 30% (say) of the company when they join the pool, they would contribute towards the pool a number of shares corresponding to 1% of that 30%, i.e. 0.3% of the company. Which will presumably get further diluted by the time the company exits.

Having founders contribute X% of their equity at the time they join the pool is more reasonable from a practical execution standpoint than having founders contribute X% of the company the time of exit.

Agree. Founders contribute a percentage of the equity they would fully own, if fully vested to the pool, not a fixed percentage of the equity of the company.

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