Ask HN: How much did you earn as an employee from an exit?
If you joined a startup before as an employee, how much did you earn out when it exited?
By this point I'd lost sight of salary and bonus - I was working to try to avoid letting the team down by missing deadlines. As absurd as it sounds now, the atmosphere in the office made me feel I was part of something special, I was doing my part, and I was going to anything I could to keep up my part. I'd been hired part-time, but I worked full time, and then some, spurred on by my mis-placed sense of loyalty and necessity to cope with my workload. Then at the end of the year they said they couldn't afford to give me back the pay cut, and a couple of months later they announced they were going to be acquired - conveniently close to the year end to be a coincidence. I realised that I wasn't part of the team, I was just employee 3. I'd already started to suffer major burn-out / a bit of a breakdown, so I quit. That was years ago and I'm only just starting to get myself back together.
I blame myself entirely - I was naive and let myself be manipulated and used. By that point I was so deep into the "we're all in this together" that I couldn't see what was happening. But you're not in it together - there may be more honorable founders out there, but at the end of the day, you're working to line their pockets, and just because you've got a bit of paper saying they'll be nice doesn't mean they will. Trust no-one, get everything you're owed up front, and remember at all times that for you it's just a job.
Work to live, don't live to work.
(From a throwaway account for obvious reasons. Ahh, that's better ;) )
I was naive enough to don't get the raise I was promised because I cared about the company, got fired on December 22nd (I'd never forget that, since, I've already spent my money on gifts and stuff) after they got more funding and they went for more-experienced-talent.
Karma is a bitch though, most of the people they hire quit because of the working conditions, from a team of 10 (that I was managing) they're down to 2. Recently they asked me to join them again, I told them "fuck no!".
Now, I'm happy at another startup but making an industry level salary (probably more, since I live in Florida) and stock options (which are a bonus since I already make a good salary, and to be honest I don't care about them too much). Also I have time to live, I go out now, get drunk, clean my apartment, I started a company, I launched a product recently, we even got some customers already! I read books, do some consulting for friends.
I'd never let work affect my life again.
Noone's allowed to believe this in the startup world ;)
Should be revised to "Work to live, don't live to work. (unless it's your own startup)" :)
Perhaps his thread can also be good lesson for those trying to run a startup, to treat your employees fairly and don't take advantage of them (no matter if they are a programmer or not)
Rule 1: Get all compensation and consideration in writing. Even if you think the people on the "other side of the table" are trustworthy, you could face an entirely different set of people when the contract actually matters.
When did you sign over the IP? The absolute latest time to get your compensation (including what happens to your equity if you leave or get fired) locked down is when you assign the IP. If you've never signed over the IP, this is good news but you must talk to an attorney right now.
Rule 2: If you have any documentation, the court system is your friend. If there's a substantial amount of money involved, and it sounds like there was in the context of the acquisition, an attorney will take your case on contingency. Trust me: this is more common than you think.
You absolutely must get at least a settlement out of this. Being beaten down at a previous job makes it hard to keep on an even keel, emotionally speaking, at the next one. Even if the money means absolutely nothing to you, you must fight.
There are good startups and good founders out there. You just fell in with one of the bad ones. The good founders will set fair contracts (not just golden-road promises) in advance. Talk is cheap. It's easy to make someone "feel like" a real co-founder but it's hard to actually show that the person is one.
I was interviewed by the lead developer and the head of Human Factors. Fresh out of college, I didn't have much experience other than a campus job, so I was turned down for a developer role. Two weeks later I get a call saying they'd like me to join their Human Factors team.
I accepted. Three weeks in I was tuning their speech recognition applications and committing code to their main application repo. Six weeks after that I wrote an algorithm to optimize grammars on sentence fragments for searching databases by speech recognition. They moved to have it patented. However, they ended up firing my boss and they put me on more mundane tasks. I ended up leaving because the CTO was more impotent than my grandfather after a bottle of Jack and the president thought he was Steve Jobs. It became a terrible place to work.
They never patented my algorithm because I was the only one who knew how it worked. The other developers weren't computer scientists and were just wasting time trying to dissect an implementation of expectation maximization. I'm kind of glad they spent a boatload on lawyers and came up empty-handed.
I will never again work for equity or shares unless I really trust the organization or people involved. Money (cash) talks, and paper is used for wiping your ass.
2nd time was a little more than a quarterly bonus at last corporate job, so yeah wasn't much. was 2nd engineer hired.
I know its anti karma saying this but working at startups suck.
edit- I see people putting 18 / 20k and is probably good depending on what area you live in but for perspective my last quarter bonus was 10k.
What details is one meant to know?
I have not heard of cases where shares were vested then lost outright, except for perhaps Eduardo Saverin of Facebook. There are other (quite common) cases where the exit is not at a sufficiently high valuation compared to the most recent investment round and preferred shares cash out while common shares are reduced to little or no value.
The key thing to know is that not all stock is the same. "Owning" 1% of the company doesn't mean you get 1% of the exit necessarily.
In smaller exits those liquidation preferences can mean that the investors are paid out and nothing is left of the pie for you.
A good article on this:
http://web.mit.edu/e-club/hadzima/what-are-the-terms-part1.h...
+ who gets diluted
+ vesting schedule
+ does vesting accelerate with an acquisition?
+ liquidation preferences
+ how large is the employee option pool
+ what happens to your holding on a down-round or restructure (this is hard not to get screwed on if this is the intention)
+ not checking that the options agreement has been signed by the company
+ not signing an options agreement and taking the company and/or founder at their word that you have stock
founders usually give themselves a sweet deal. ask to see their agreement and compare it to yours.
while you are at it, check the structure of the board and if the board are able to block an acquisition. you may be working for a company who can't exit unless the investors get at least 4-5x, and if they don't, you get nothing
there are probably some things that I am missing, which is why it is worth paying a lawyer for 3-4 hours of time to go over it (not the company lawyer - see 'the social network')
PS: The law is on your side, as an employee lost pay is paid out before any other creditor but you need to list actual salary in $ and not just shares. You also can have issues with taxes so be careful.
Quarterly? So ~$40k/year in bonuses? You must either be at a company really generous with the bonuses, or making one heck of a salary.
I've now owned stock in five different companies throughout my career. The company I'm currently in is going through a buyout and it's the first time I'll ever see any money from any deal. I've been at this company since it's early days and watched it grow from an unknown company with barely enough money to pay it's employees, into a $16-18 million a year player in our industry.
At the end of the day my shares are worth about $100k, which if you average it out, brings my 5 years salary up to the industry average. When they first told me the value of my shares, I thought I was getting screwed, that they must have diluted the shares without telling us. Turns out that after all these years of hype, our shares ended up equaling 1x revenue instead of the 3x revenue they claimed would be the "bottom of the barrel" value in the event of a sale.
The work as always interesting, but the payout means having much less money then anticipated to start my own business.
I like to think I'm smart. Two years ago, prior to HNducation, many common-as-dirt features of cap tables like e.g. liquidation preferences would have been a totally successful ambush on me. (If you can't explain three ways why 2% of $40 million is zero, consider carefully whether your best interests are being represented in a negotiation with someone who can.)
1) Liquidation preferences.
2) "We wipe out common stock at acquisition and offer employees retention bonuses, leaving 2% owner who moved on totally shafted."
3) Pretend your corporate charter is a Ruby program and a malicious adversary gets write access to it. Seriously, the sky's the limit. Integers might be kitten pictures now, and multiplication returns shades of pink.
But the good news is that upper management and regular employees are in principle affected the same way by these vicissitudes, and in practice I've seen that mostly happen. Some exceptions include founders/upper-management getting special opportunities to cash out or receiving significant anti-dilutive share bonuses. I'm not saying that the founders and employees have exactly the same incentives here, but they are at least somewhat helpfully aligned.
2) Agree that I've heard gossip about these kinds of scenarios, but (I've often wondered) wouldn't this be a violation of their fiduciary duty to certain stockholders? Can a lawyer weigh in on whether (in theory) this scenario allows for a legal remedy?
3) True, the corporate charter is not a contract with an employee, and it can be rewritten at will by the Board. But it seems to me there are limits: if they edit the charter in a way that deliberately wipes out the value of your shares and had a choice not to, this resembles case 2, where I suspect one can seek legal redress (right?).
By comparison, YC is an early employee-comprehensible brand, and I'd expect anyone contemplating screwage would hear "You are about to chill hiring at several hundred companies in the mafia. Are you sane?! Don't do this. If you insist on doing this, we'll be forced to very publicly disassociate ourselves from your decision. You do not want to be the one ex-mafia guy in the Valley. It is a lonely place."
Lots of talk here about the myriad ways employees can get screwed, but sometimes they do great.
Another awesome company? Linear Tech. Not quite a startup anymore, but they do a lot of hardcore analog+digital EE design. Their engineers get design ownership over specific projects/chip designs, and are paid _a percentage of profits_ on that chip. So there are a substantial number of regular employees there who are millionaires because they designed something cool.
Anyway, I was an early rank and file employee at a startup that was acquired by WebMD. When WebMD merged with Healtheon in '99 - which I'm counting as an exit, since our office was shut down shortly thereafter - we were able to exercise our options. I cashed out a third of my vested ISOs to the tune of about $50K. Not FU money, but a nice boost to a 25 year old, and enough to put a substantial down payment on a house.
What I learned:
• Some of my coworkers thought I was loony for cashing out when I did - they thought the stock price would keep going up. And it did - for a while. Remember, this was 2000. We were all out of a job in six months. A bird in the hand, etc.
• Some people cashed out 100%, seeing dollar signs, and didn't get counseled on the tax ramifications. That ended poorly. These were young engineering types who chose not to listen to our awesome CFO/office manager/HR person back when we were a tiny startup. It's amazing how someone can grok Python, and not compound interest.
• The house I put 25% down on in 2000 sold in 2006 for more than twice what I paid for it, while the "nostalgia shares" I kept from WebMD aren't worth one-tenth of what they were in 2000. This was a valuable lesson in the benefits of diversification.
Finally, what I learned was that the only difference between gambling in Vegas and gambling with tech startup stock options is that in Vegas, you get free drinks.
My colleagues who ran into problems with Uncle Sugar are the ones who bought and held their stock for less than a year (but long enough for it to tank in value), didn't make estimated tax payments and were fined by the IRS, or otherwise made decisions based on irrational exuberance, like borrowing against their options to buy jet-skis and crap.
Hope this answers your question.
I understand that the good outcome was partly due to years of draining work and even more so due to very good luck.
Many developers are undervalued by employers, but shares can work out. It's worth taking the time to learn what percentage stake you're getting (if you ask and the employer doesn't tell you, walk away) and doing your own assessment of the possibilities and risks for the company.
Large comparison shopping site, I joined about 9 months before a majority stake was sold to a private equity group. They took a while to grant my options and by that time they were in talks about the acquisition, so the options were priced at the acquisition price (since once they'd seen an offer, they couldn't price "fair market value" below that). I didn't exercise, since at that price it wasn't going to perform better than any other stock and wasn't liquid.
Next time around, I got eleventy billion options in a "startup" around series G or H funding. They got acquired but did not cover the liquidation preferences for investors, so no employees saw a dime. They did hand out some pretty significant bonuses.
Despite my options having vested, investors held preferred stock which (since the exit was small-ish) left no liquidity on the table for the employee option-holders.
Then, because I was no longer working there at the time of the exit, nothing was negotiated for me as part of the sale. (Those employees who did stay on got something I think, not tonnes though AFAIK and they came with `golden handcuffs').
I had worked hard for them at well below market on the basis the options would make up for my opportunity cost. They didn't, despite the company getting an exit.
My advice would be always treat options as a `nice to have' not a replacement for salary, they're so hard to value effectively, and even in the event of an exit their value can still depend to a great extent on the goodwill of founders and investors at the time, on whether you're still working there and whether you want to work for the acquirer, and in general on so many factors outside your control.
2nd time, I was the first employee of a company that never got bigger than 15 people. I had 2%, with a quarter of that vested (0.5%) The company was acquired and I got nothing except one week's notice that I might need a new job and a lesson in liquidation preferences.
This time around I'm getting 25 basis points, and I'm employee number 50 or so. We'll see if the third time is the charm, but to be honest, I truly don't care. Equity is nice to have but it's worthless until it's not.
And founders/managers complain about not being able to hire talent.
I believe that's referred to as a "market disconnect."
Traditionally, you needed (say) 100 people plus a few million in servers. Now, you need 10, and a few bucks for the VM (figures exaggerated for rhetorical reasons).
You needed to raise big dollars to get to a MVP. You had more dollars being put in by early investors, so they quite rightfully wanted a large slice of the pie. And a small option pool being shared by 100 "early" employees won't make a lot of millionaires.
Now, you have less money being put in (I hope), and few early employees (I assume). The investors deserve less of the pie, and the early employees can get a greater portion each.
But the standard employment contracts are still written (thus anchored) to 1% or less per employee.
Employees complain about burnout and being treated like slaves and many end up leaving the sector never to return.
Owners & upper mgmt. do interviews on gamesindustry.biz bemoaning the lack of talent and blaming the governments for insufficient education.
2nd, after a year and a half, non-founder, was "could have bought a house and put kids through college if I wasn't young and stupid"-money.
3rd, founder, zero. Sucked up the money from 2nd, in fact; it was negative.
4th, employee, four years; would have been six figures had I bought my options when I quit (but even after that, I'd still recommend being wary of buying your options when you leave). But: you gotta put the four years you worked there in the divisor, too.
5th is current company, and I'm a founder.
i left my electronic trading job, which had great compensation, to move to san francisco and work at a startup. i knew i'd be taking a pay cut, but i did it for the experience, so i could be better prepared to do my own startup.
i'm glad i did.
Are you involved in customer development, talking to investors, making connections as part of the startup? If not, there's not much upside.
I'm really sick of companies that think I will take a 30-50% pay cut for a foosball table and Nerf-gun fights on Fridays.
2) You can gain valuable experience by starting your own company. There are plenty of blogs, articles, and sites like HN that can help you along the way.
In my experience the best reason to work for a startup is the freedom it gives you. No "architecture board" telling you what technology you can and can't use. No reprimands when you stray from your assigned niche.
I'd definitely advise against taking an insufficient salary and thinking the equity you may receive in exchange will cover the loss. The odds of that aren't really any better than gambling. Fortunately there are plenty of early-stage startups willing to pay fair salaries and decent benefits!
Tip: Do an early exercise (83b election) and convert your options into RSUs to avoid higher taxation.
http://www.startupcompanylawyer.com/2008/02/15/what-is-an-83...
Was it worth staying there for 2 more years? Dear god No. My opinion these days is that "most post-m&a situations suck", especially those where you're not immediately integrated into the acquiring's company culture, or promoted to lead them to better things. The problem is that it's deceiving at first. When you get acquired, you're like, "hey, my fellow engineering team stays the same, and all the crappy management from startup is out!". They built a new satellite office for us to move into with their other recent acquisitions. While it sounds nice, it's miserable if you don't see a growth path for yourself, and don't understand how the rest of the acquiring company functions. Why should I work for some options of a company I don't understand?
In the 2+ years, I've dealt with lack of funding for projects I want to do (project customers want and competitors already have), watched several very smart engineers (the ones you look up to) leave the company, as well as my own manager recently leave. Simultaneously, I feel like my work-life is more stressful as I have to work with "company-wide" field engineers that don't necessarily care about our product line, we've been losing customers since they notice us not shipping new parts and integrating our support across the company.
To help clarify, I'm an apps engineer - i.e. a mix of trying to do software development, customer support, working/managing a contractor, setting up our issue tracker, and dropping everything to hack something up for a tier-1 customer.
My advice to other non-founders getting acquired: If you're not in debt, don't worry about the money from your acquisition. Worry about whether you'll be gaining any new experiences post-acquisition. If the acquiring company is just dangling you along, leave. Be very weary of "retention bonuses" - they can alter the way you perceive your work for the worse.
Disclaimer: I need to start following the above advice.
I must say, though: I've never heard of anyone who was an employee at the last n or so startups similar to yours who actually made money off their options from an exit - though hopefully a certain large recent acquisition beats that average :)
Then I won't be able to attract any underpaid, overworked slaves for my crappy company!
I tell them that they'll learn about startups by sitting in their corner writing code while I hang out with the investors. I tell them any old bullshit about bonuses and vacations and the fools never ask for it in writing. Morons!
Haha, not to worry. Starry-eyed, "passionate" idiot nerds are born every minute. HN is the best place to find them.
Carry on, gents! I'm laughing all the way to the bank.
We then had a 10k payout for staying an additional year.
Considering everyone assumed that our internal stock would never be worth anything, I was fairly pleased overall.
It's like "working" by going to an apprenticeship. Your salary is lower, but you learn a lot.
If you're going to start your own business in the near future, then it might be worth it to work for a startup even if its a huge pay cut all things considered.
If you are working 80 hrs/week churning out code to realize someone else's "vision" who treats you like a slave not a partner, then what are you learning? Apart from not to get suckered again.
You have no idea if you're going to feel like a slave or a partner until you've already taken the job.
--
I'd say try it. Don't assume that you will be dissatisfied based on treatment you can't predict.
2) 0% - the company performed poorly, and I needed cash, so when salaries were cut, then cut again, then again, I bailed for the security of a bigCo. Apparently its now a pretty successful division of a bigCo.
3) Currently awaiting an exit, at the prices we're currently talking about I should see mid-six figures.
4) Still building (I'm at 3 & 4 simultaneously), co-founder of a bootstrap.
I've also worked at a couple bigCos in the meanwhile, but outside of some profit sharing that goes into a retirement fund...it's just salary and bonuses.
http://www.secinfo.com/d14D5a.uM1t.htm#_rom20596_5
With a little rummaging in LinkedIn you can figure out who started when. Multiply the number of shares times $500 or so and you'll know what they ended up with.
The first time as an employee, I would've received mid-five-figures, if only I'd been able to afford the $10K to exercise my options when I left. (Whoops.) I was employee #150 or so.
The second time as an employee, low-five-figures from the options, and close to $100K from a year's worth of retention bonus. Would've been more if I'd stayed for three years instead of one. Here I was around employee #100.
In both cases the startups were already mature when I arrived - not guaranteed to exit, but a stone rolling downhill. Whatever I made was gravy; I was paid at or close to market rate at both places.
In my opinion, employees do best at startups that've already had some success. Being the first employee is too close in risk to being a founder, but with just a fraction of the rewards.
http://www.stanford.edu/~rehall/HallWoodward6.pdf
High average returns driven by huge exits and most entrepreneurs earn 0.
ETA: Company sold out about 2 years after I started. I didn't make nearly as much as if I had continued being a contractor with a BigDumbCo. But I had a _LOT_ more fun.
When dealing with stock options the best advice is, IMO, always to exercise and immediate sell enough of the stock to cover the result tax hit.
Does that happen often? No.
Will it happen for early Dropbox and Airbnb employees? Yes.
Can you get the same options if you joined Dropbox today? No.
But it's worth keeping in mind that it's very common for employees, particularly early/key employees, to have significant additional upside after the deal closes: unvested shares, retention bonuses, etc.
All too often, people toil away their life for someone else's idea and then get kicked to the curb (it's happened to me a couple times too). If I'm going to be wasting my free time working, it's going to be for the possibility of a big payout..which will only happen if I own the company.
The only reason to hire someone at a above the market rate is if you're funded, and have no technical compentance of your own.
So, its doubtful that you'd be a startup employee.... but you're the right type to be a founder.
Left before the first year. Company was acquired later. The payout is engineers got to keep their job.
#2 Multinational:
The stock option I was granted once valued 500k at the peak of dotcom bloom. In the short window before the crash I've cashed out about 40k. It goes toward the down payment of the house. This might turn out to be the best financial gain thus far.
#3 startup:
The firm has over 100M VC funding and 300 employee when I join. My stock valued above 100k at acquisition. It has shrink about 25% when they are fully vested.
#4 startup (current):
I took about 25% pay cut to join this startup. If the stock makes the same money as startup #3 I will about break even. Financial aside I'm quite happy working here.
Longest engineer at the company when the acquisition happened, exit was around ~200k, pre-tax.
This has been a good thread to read about how I should protect my employees. I firmly believe in this rule: give a good deal to your VC's, co-founders and employees as it will make it even easier for your next startup to succeed.
We've got a nice big options block for our employees and I want to be able to say to every person in the company that has options that they'll get a cash-out.
They both have same problem of misrepresentation but at least the latter is easier to visualize.