That says it all really. $30M and you see under $100k as 24th employee. So 0.3%.
I got a huge windfall from a year and a half I worked for just 50bp, as employee #5 and a principal contributor.
Do the math. Cut 30MM in half, and give half to investors. That leaves 15MM. Divide that 24 ways and nobody's getting 7 figures. But of course, that's not how it works; at 30MM, even an extremely egalitarian division of what's left after investors recoup is still going to get you into low 6 figures.
The problem for this person isn't that 30bp is a stingy allocation. It's that for a company with 24 employees - or, very conservatively, a 4-5MM annual burn - 30MM simply isn't a very good exit, no matter how big that number sounds.
Of course in crazy VC world this is probably supposed to be $12billion valuation or some nonsense to be worth it.
* VC funded company
* 24 employees
* <80th percentile of SFBA burn rate (ie: in Portland)
It doesn't matter how the VCs feel about the company. 30MM is not a very lucrative outcome for that company, mathematically.
You can make 30MM be an amazing outcome, but not if you bought yourself to an exit at barely-profitable on 6MM annual revenue using VC money.
30MM is a fantastic outcome for a bootstrapped company.
I think the question of what is a good return these days is a bit crazy. For this size company VC's should be looking at wanting a $150-300m exit on the low end. But unicorns are polluting this kind of idea.
For non-VC funded (bootstrapped, etc.) it's about an expected sale price for an established minimally growing company.
VCs can want $100M or $1B, but it was the VCs that chose to sell this company for $30M when it could have been $300B
Here's the ground truth: VCs are idiots. Yes, that one too.
They have money, though, so people pretend otherwise.
Hopefully, nobody is saying employees shouldn't be wary of VC funded companies. They definitely should.
If you take someone else's money, they should get ownership proportional to their investment, yes. Their impact on whether original management retains control should be proportional to their ownership.
The problem is, the crazy ideology of VC worship that has taken hold allows VCs to get disproportional control and chunk of the proceeds.
People are saying that founders shouldn't be wary of VCs. VC blogs are full of propaganda and rationalizations for giving them more control and more upside than is proportional to their investment. When the blogs make it to HN, the commentary is universally in support wit the rationalization that "they're taking risk, they need to protect it". They are taking a lot less risk than the founders who can only work for one company, nota portfolio... and the risk VCs are taking is covered by their equity. They don't need second and third helpings of control and equity to cover the risk.
I'm getting downvoted for saying VCs are idiots. (elsewhere people are getting upvoted for saying "Deniers are morons", so it's not the name calling. Its' the "if I can just get thur YC and get VC funding I'll have it made!" ideology that pervades HN.
No, there's a critical difference between your statement and that one: VCs are an identifiable class of people. Saying they're all idiots (something you don't know, couldn't possibly know, and indeed is not only false but obviously so) is attacking a specific group of people. "Deniers are morons", while obviously not a high-quality thing to say, is closer to a tautology. Both break the HN guidelines, but the former is worse.
This is not ideological. One needn't agree with everything every VC ever did to insist that calling them all idiots is wrong, breaks the site rules, and is correctly downvoted.
Sam once wondered whether we should make it explicitly against the HN guidelines to attack whole classes of people. At the time I said that sounded too legalistic. But it stuck in my head, and I have to say that every example I've seen come up in practice since then has suggested the value of such a rule. This is a good example.
-- Set us back by 6-18 months. One of the decisions forced on us by the VCs was to build on top of [another one of their portfolio companies technologies, we'll call it FOO], but FOO didn't have the performance or features we needed. Literally lost at least half a year on the product because of this (And a whole lot of money paid to FOO and their consulting arm.)
-- Forced us to sell before we were ready. When the economy looked like it was turning the VCs needed to raise cash to make their funds look successful, and decided that we weren't going to get 5 years after investment, since they could offload us now for a nice multiple they did so.
It happens this company could have gone without the VC round and bootstrapped its way. If it had done so, it probably would have exited for around $1B, maybe much more given that it was kicking google's ass.
There's not a lot you can do as an employee about mismanagement that results in crappy outcomes. But it's an orthogonal concern to how equity is allocated. The commenter upthread was right when they said: part of your job as an employee is to pick the right company to work for.
The reality is, VCs are herd animals, and when the herd is spooked they make a lot of stupid decisions.
I've seen this more than once-- a later company was forced to sell for $10M, by the VCs, during another "oh the money spigot might be turning off!"
It is not an orthogonal concern-- how was I to know the VCs were going to screw us over? The return would have been dramatically better if that hadn't happened.
So the lesson learned is-- the right company to work for is one where the founders either don't take VC money or are very distrustful of VCs and only take it on favorable terms.
Nobody is entitled to venture capital. Plenty of people start companies without it.
From a founder view, we shouldn't be carrying the weight of the effective cost of the fact that the VCs can't pick companies worth a damn and want to make it up on us, if we happen to be good.
Nobody is entitled to venture capital, and starting a company without it is a good idea.
And VCs are not entitled to more equity & control than makes economic sense for the founders. That's what I'm opposing, but I don't think you disagree.
People don't sell equity to VCs because they've been snake-charmed by them. They do it because if you need 2MM+ for your company, they're the only realistic option. Ever talk to a bank about a line of credit against receivables? That's a fun conversation.
But they weren't chasing a unicorn.
There's a lot of delusion among "unicorn chasers" that I've seen-- but that may not be the same group you're referring to.
If you can bootstrap, you virtually always should.
Obviously it's highly variable depending on the role. #24 could be a COO or could be a receptionist. But for the sake of argument let's assume they're a mid level engineer (taking a stab at what MCRed might have been at the gig in question).
Remember, in a lot of companies, the founders are diluted way back below 10%.
Make good decisions. Join the right team.
For instance, when youtube got bought, VCs were all interested in investing in online video companies. At that point, though, Youtube had already been bought! They were like 5 years too late.
-- Either be a founder if you want to be there in the early days.
-- Or join a "sure thing". EG: Google, Twitter, Facebook about a couple years before they went public were already household names and really well known.
I don't know how much upside you get joining a sure thing like that, but that's how you make sure your options will come into money.
Being employee number 5-100 of the average Silicon Valley startups is a losing proposition because the risk adjusted value of your options will never compensate you for your lost salary. (especially if you have to live in California- you're better off working for a startup in Austin than California due to the cost of living and tax situation. The higher salaries in California don't cover the difference.)
And yes, blame me, I turned down being employee number 13 at what became a $6B enterprise software company. Would have been CTO or way up in the executive team because they were a bunch of biz guys who needed a hacker. Instead I worked for just a year for a small business (not really a startup this was before "startups")
But it's damn hard to tell the difference at those early stages.
And when questions like "what's the total number of shares outstanding on a fully diluted basis?" (back when companies would say "You'll get 10,000 shares!!!!111!!") are met with "sorry that's confidential" during the hiring process, it is a bit difficult to do proper due diligence.
(I started at Google in 2004 and did pretty well.)
There is another facet to your second point, I think. Even if the upside from the "sure thing" two years before they IPO is not great from a financial perspective, the career growth is much faster than joining a mature mega-corp. For example, many people who joined Google/FB/Twitter a year or two before the IPO are very senior at those companies now. Granted, not everyone who joined Google in 2004 is a VP, but the probability of rapidly growing your career as the company grows is much higher than for someone joining Microsoft in 2004.
That fast career growth leads to either 1) High compensation ten years later as a director/VP or 2) Exec roles at sure-thing unicorns with meaningful equity, should they choose to leave Google/FB/Twitter.
I think there are two justifications to go early stage if you care about the financial aspects:
1) Be the founder, as you said
OR
2) You have concrete reasons to believe that the company has a meaningful competitive advantage in a large market.
These examples are far and few. For example, Google in 1998 had a meaningful competitive advantage, but Facebook in 2004 certainly did not. WhatsApp in 2010 did not, but I'd argue with Carmack, Oculus might have had (although unsure in this case). As you said, it's really hard to say at such an early stage.
Of course, if financial upside is not a major concern, then impact, agility, working on interesting stuff, avoiding mega-corp red tape, are all valid reasons to go early stage.
My equity at hiring time was probably %1.5, I think. But there was vesting, of course, and also a whole lot of unsavory business, mostly perpetrated by the VCs.
Trying to go into the detail and tangle out exactly why I got what I got would be just airing a lot of drama from the past and not really applicable to others.
I only presented those numbers because they're two objective facts from the best payout I got working for a startup.