2. It all depends on what your failure rate is. It'd have to be astronomically high to truly "approach zero".
3. You're acting as if somehow VCs putting in millions of dollars are doing it for the express purpose of creating a fake valuation to screw employees. This is a spectacularly self-centered point of view.
The reality is that what you call "valuation leverage" doesn't matter. The valuation set just determines what % of the company the investor owns and if they can make a return if someone else decides that the company is worth more than that or if the company goes public.
The valuation of an investment round is actually fairly meaningless if you really think about it. The only one that really matters is a sale or IPO.
Besides, you could say the same thing about valuation leverage with an IPO. It's rare for 100% of a company to be traded, that doesn't mean that each independent party isn't acting in their own rational best interest by trying to accurately place a value on the company.
5. There are certainly counter-examples, I won't deny that.
6. I've had this discussion here a million times before and I don't want to have it again. We're not EA, we're not forcing anybody to do anything, and I wager our average work week is 45 hours. But suffice to say, if you never want to work a minute over 40 hours, then don't. Nobody is forcing you to take the job, make your intentions clear when you interview.
> "It'd have to be astronomically high to truly "approach zero"."
No, it doesn't. A low failure rate can still work out to an EV of near-zero for the employee. You're disregarding powerful effects:
- dilution between grant and exit
- amount of equity being offered in the first place
- opportunity cost of passing up traditional cash/stock bonus structures at BigCos
The fact of the matter is, a meaningful exit for the founders is almost always an insubstantial exit for the employee. Owning 20% of a company is very different than owning 0.05% of a company, post-dilution through additional rounds of financing.
The culprits here aren't VCs. The VCs are putting in the money the company needs to do its thing. Valuation isn't the problem - the attitudes of founders is. I've found that founders mentally grossly overestimate the value of the equity they're handing out. I've seen people demand 5-figure pay cuts for 0.1%-level equity, and this isn't uncommon.
The amount of equity being handed around by founders, even to early employees, is not high enough for anyone to seriously consider taking a pay cut.
If you want me to take a pay cut, give me an amount of equity that might actually result in a meaningful exit. Of course, at the current salary/comp level of competent engineers, we're talking >1% levels of equity, and no founder is willing to part with that.
2. Dilution, liquidation preferences and different stock class rights do indeed push it towards zero.
3. No I'm not. I'm merely indicating that valuations are bogus.
6. Implicit force is still force - just because you haven't mandated it doesn't mean it's not enforced via threat of firing and peer pressure dynamics.
In short, 13% of VC-backed startups exit for over $10M, 5% exit for over $50M, and 2% exit for over $100M, which is what I'd call a meaningful exit for all parties involved.
I have worked at three startups where I joined at <10 employees. Best result was stock-options worth less than the price. Worst was they owed me a paycheck. I had fun, and we had a good chance of making it big with all of them. I like to think that if I'd been offered the chance to join Google at <10 that I'd have been wise enough to spot the potential value of the company and take more stock. Unfortunately: a) I was not asked and b) I probably would not have had that wisdom. However, if I had been asked, but had not taken more stock, I'd still be a millionaire, just not a billionaire.
2. It all depends on what your failure rate is. It'd have to be astronomically high to truly "approach zero".
3. You're acting as if somehow VCs putting in millions of dollars are doing it for the express purpose of creating a fake valuation to screw employees. This is a spectacularly self-centered point of view.
The reality is that what you call "valuation leverage" doesn't matter. The valuation set just determines what % of the company the investor owns and if they can make a return if someone else decides that the company is worth more than that or if the company goes public.
The valuation of an investment round is actually fairly meaningless if you really think about it. The only one that really matters is a sale or IPO.
Besides, you could say the same thing about valuation leverage with an IPO. It's rare for 100% of a company to be traded, that doesn't mean that each independent party isn't acting in their own rational best interest by trying to accurately place a value on the company.
5. There are certainly counter-examples, I won't deny that.
6. I've had this discussion here a million times before and I don't want to have it again. We're not EA, we're not forcing anybody to do anything, and I wager our average work week is 45 hours. But suffice to say, if you never want to work a minute over 40 hours, then don't. Nobody is forcing you to take the job, make your intentions clear when you interview.