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http://hunterwalk.com/2015/12/18/sorry-startup-employee-100-you
Sorry Startup Employee #100, Your Equity Probably Won’t Make You Rich
Posted on December 18, 2015 by hunterwalk
Bloomberg’s article about lower-than-expected financial gains from startup
IPOs for midlevel employees stuck in craw this week because there’s a
handful of complex issues at play here. In no particular order:
Startup Equity Is Unlikely to Make You Fabulously Wealthy After Four Years
Unless One or More of the Following Apply…
You were a founder
Your company ends up being worth more than $10b
Your company raises very little capital and sells for $500m+
You join at an executive level pre-IPO for a company that already has huge
potential
and so on. Even in successful companies, most initial equity grants will be
worth a few hundred thousand dollars to perhaps $1-2m, when fully vested.
Rising in an organization and getting more grants pre-IPO helps but
generally, it’s just math. Assume you get .25% of a company and you’re
diluted 50-75% before IPO. For an “average IPO” it’s just not millions
and millions of dollars. It’s real money. Real good money. But don’t
assume one IPO turns you into a multimillionaire.
It’s Often Not Employee’s Fault That They Don’t Understand This
We need to move to more transparency for employees. When I started at Google
, all they told me was the number of shares in my grant. Not the company
valuation, or ownership percentage or even grant price! Just the number of
shares. Being how exceptional Google performed as a company it all worked
out, but a company which prided itself on data and hiring analytical
employees gave me a number which didn’t mean anything. My question back to
them was, “why even tell me the number of shares?”
So I generally advocate more transparency, helping employees understand
different scenarios and being generous with employee grants over time. On
the employee end they should realize there’s often a tradeoff between
salary and equity. Be willing to take below market salaries if you’re able
and load up on equity.
Being Part of a Successful Startup Early in Your Career is Often About
Getting Rich Later
With the experience, relationships and nest egg from an early startup
success you’re able to take more risks – start a company, join in an
executive capacity at one that has huge momentum. These are the ways to
really get wealthy.
The Wealth Ball Bounces in Really Strange Ways in Tech. Sometimes Dumb
People Get Rich.
You gotta relax about comparing yourself to others and the anger that can
occur when someone who you think isn’t as talented or hardworking as you
just happens to make millions because they were at the right company at the
right time. Focus on what you can control.
Post IPO, You Have Choices: Hold or Sell
Some people suggest you should sell 100% of your holdings as quickly as you
can post-IPO. It’s the diversification theory and also based on the
statement that if someone gave you $1m cash today, you wouldn’t necessarily
use 100% of it to buy your employer’s stock. While this is logically true,
life isn’t that simple. First, people feel like they don’t want to miss
the upside. They experience loss regret. Second, people are loyal to their
employers. I generally believe holding a large amount of company stock is
fine if you can truly understand the company’s next 1-2 years.
My approach with Google at the beginning was to sell a fixed dollar amount
each year, whether that took 50, 100 or 200 shares to hit that number. And
it was more about diversification than changing my lifestyle.
Sorry Startup Employee #100, Your Equity Probably Won’t Make You Rich
Posted on December 18, 2015 by hunterwalk
Bloomberg’s article about lower-than-expected financial gains from startup
IPOs for midlevel employees stuck in craw this week because there’s a
handful of complex issues at play here. In no particular order:
Startup Equity Is Unlikely to Make You Fabulously Wealthy After Four Years
Unless One or More of the Following Apply…
You were a founder
Your company ends up being worth more than $10b
Your company raises very little capital and sells for $500m+
You join at an executive level pre-IPO for a company that already has huge
potential
and so on. Even in successful companies, most initial equity grants will be
worth a few hundred thousand dollars to perhaps $1-2m, when fully vested.
Rising in an organization and getting more grants pre-IPO helps but
generally, it’s just math. Assume you get .25% of a company and you’re
diluted 50-75% before IPO. For an “average IPO” it’s just not millions
and millions of dollars. It’s real money. Real good money. But don’t
assume one IPO turns you into a multimillionaire.
It’s Often Not Employee’s Fault That They Don’t Understand This
We need to move to more transparency for employees. When I started at Google
, all they told me was the number of shares in my grant. Not the company
valuation, or ownership percentage or even grant price! Just the number of
shares. Being how exceptional Google performed as a company it all worked
out, but a company which prided itself on data and hiring analytical
employees gave me a number which didn’t mean anything. My question back to
them was, “why even tell me the number of shares?”
So I generally advocate more transparency, helping employees understand
different scenarios and being generous with employee grants over time. On
the employee end they should realize there’s often a tradeoff between
salary and equity. Be willing to take below market salaries if you’re able
and load up on equity.
Being Part of a Successful Startup Early in Your Career is Often About
Getting Rich Later
With the experience, relationships and nest egg from an early startup
success you’re able to take more risks – start a company, join in an
executive capacity at one that has huge momentum. These are the ways to
really get wealthy.
The Wealth Ball Bounces in Really Strange Ways in Tech. Sometimes Dumb
People Get Rich.
You gotta relax about comparing yourself to others and the anger that can
occur when someone who you think isn’t as talented or hardworking as you
just happens to make millions because they were at the right company at the
right time. Focus on what you can control.
Post IPO, You Have Choices: Hold or Sell
Some people suggest you should sell 100% of your holdings as quickly as you
can post-IPO. It’s the diversification theory and also based on the
statement that if someone gave you $1m cash today, you wouldn’t necessarily
use 100% of it to buy your employer’s stock. While this is logically true,
life isn’t that simple. First, people feel like they don’t want to miss
the upside. They experience loss regret. Second, people are loyal to their
employers. I generally believe holding a large amount of company stock is
fine if you can truly understand the company’s next 1-2 years.
My approach with Google at the beginning was to sell a fixed dollar amount
each year, whether that took 50, 100 or 200 shares to hit that number. And
it was more about diversification than changing my lifestyle.
