Yeah. I've not had an exit that high, but I've had an exit where my 25% initially was whittled down to 10k, and frankly I was surprised I got anything at all - in the end I was diluted to hell and back, but none of the later rounds had any liquidation preference that got triggered. It's easy to see a large exit number and assume it means it's a success, but in the case in question the (significantly more modest than $559M but still significant-sounding) exit was even below the total amount raised, and I'd written it off as a failure and left when we needed to staff down and I didn't feel I was needed any more about 5 years before the company was finally sold.
It sucks to see "your" (at this point it did not at any point feel like it was "mine") company selling for huge amounts and get nothing or near nothing, but it's worth people understanding that a large-sounding exit does not automatically mean it represents a success.
E.g. in this case the last round in 2015 apparently valued them at over a billion. Going from a $1bn valuation to a $465m exit is not great...
It's easy for people to think these terms were onerous, but if they could get $275m (the size of the last round) at those terms they likely could've still have found significant investment at less onerous terms if they wanted less risk. They chose to take those investments.
Taking VC cash is very often a game of deciding whether you want to gamble it all on faster growth or take less risk for less cash, but with the additional caveat that the investors you take on often will cheer for the "gamble it all" option as they have many parallel bets while you as the founder has one.
I've taken VC money several times and been part of early stage VC funded startups several times (including a VC), and I wouldn't rule out doing so again at some point, but it's important to go in understanding that the VC's incentives and yours are different, but if they are too different, then taking VC money might not be right for you, and that's fine.
Stories like this often have a lot of missing details that would provide more context and explain why things played out the way it did. I have no doubt the founders knew the risks they were taking and signed up for it. However, the big question is whether the employees knew the risk they had been signed up for. The lack of transparency for employees is where the big problem lies. If you are a non-exec level employee at a startup where most of your compensation is in private securities, you should apply a significant discount to your valuation to account for this opacity.
That's true, and good advice. I tell people straight up when I interview at startups that I value their shares near zero until/unless they can prove to me they're not. If they can't, that's fine, and I'll apply a significant discount no matter what, but my base salary need to be accordingly.
For starters, in any early stage startup I'd discount by 90%+ just because it's a startup, entirely irrespective of whether I like the idea, and what investors think.
> you should apply a significant discount to your valuation to account for this opacity.
It wouldn't suprise me if the estimated value of those is negative. I.e. your wage will be lower due to "wage dumping" by gamblers. I did not find amy stats on the median or average payout.
> Taking VC cash is very often a game of deciding whether you want to gamble it all on faster growth or take less risk for less cash, but with the additional caveat that the investors you take on often will cheer for the "gamble it all" option as they have many parallel bets while you as the founder has one.
This shall be printed in block letters in a red frame ahead of most Paul Graham essays about milk, honey and richies in startup land.
He and VCs push theirs agenda because he has hundreds of bets, while founder has one.
They play different game and are quite quiet about it.
Sure, it ought to be clearer, but apart from maybe the first time, I still would have taken VC cash because it allowed us to do things we otherwise wouldn't have been able to try, and it was a fun ride. Even without any large exits, if you negotiate then you can still come out very well.
But, yes, people ought to go into it understanding which game they're playing, and understanding that your odds are different. Not least because it might make a difference in how you judge advice from your investors.
(There's also only one decision I regret us making due to investors being too willing to take risks; in retrospect I was firmly proven right but whether the board vote going the other way would have made a financial difference in the long run I can't say)
It sucks to see "your" (at this point it did not at any point feel like it was "mine") company selling for huge amounts and get nothing or near nothing, but it's worth people understanding that a large-sounding exit does not automatically mean it represents a success.
E.g. in this case the last round in 2015 apparently valued them at over a billion. Going from a $1bn valuation to a $465m exit is not great...
It's easy for people to think these terms were onerous, but if they could get $275m (the size of the last round) at those terms they likely could've still have found significant investment at less onerous terms if they wanted less risk. They chose to take those investments.
Taking VC cash is very often a game of deciding whether you want to gamble it all on faster growth or take less risk for less cash, but with the additional caveat that the investors you take on often will cheer for the "gamble it all" option as they have many parallel bets while you as the founder has one.
I've taken VC money several times and been part of early stage VC funded startups several times (including a VC), and I wouldn't rule out doing so again at some point, but it's important to go in understanding that the VC's incentives and yours are different, but if they are too different, then taking VC money might not be right for you, and that's fine.