Re:LivingSocial: Employees' and Founders' Common Stock Now W...
by drusenko on Thursday February 21, 2013 @10:45AM
(#5258032)
I would be surprised if even 25% of those startups had a meaningful exit. But even at 25%, we're a very long way from the lottery odds -- that comparison always strikes me as quite misleading.
Re:LivingSocial: Employees' and Founders' Common Stock Now W...
by hapless on Thursday February 21, 2013 @01:14PM
(#5258977)
As repeatedly mentioned, a "meaningful exit" can make the founders extremely rich, and pay employees the equivalent of a routine annual bonus at a normal firm. ($5k-$25k)
Candidates have no way to evaluate the value of the equity pressed upon them, but even in the case of a successful exit, it's usually quite small.
Re:LivingSocial: Employees' and Founders' Common Stock Now W...
by confluence on Thursday February 21, 2013 @01:16PM
(#5259000)
Depends on your definition of meaningful exits, actual number of meaningful exits, and dilution between rounds.
Indeed if you put a margin of safety on valuing any arbitrary startup before they get traction - EV does hit on or near zero.
A more accurate statement would be "...is not a good universally-applicable rule...".
To add some numbers to the discussion, there are currently 203 startups listed on Angel List as hiring for full-time dev roles in the SF Bay Area. How many will exit in such a manner as to yield financial rewards via equity / ownership / deferred compensation?
Note the bar has been set considerably lower than for the companies you listed (e.g. big-name successes), and my sense is that we're still talking about fewer than 50%.
It's quite difficult for new hires to correctly gauge a startups long-term potential. After all, professional investors (who by definition do this for a living) routinely mis-calculate. Given this, it seems fairly sensible for potential hires to err on the side of caution.