The perception that many people have about the Valley is that these clueless young engineers are either bad at math or forgot to ask how many shares were outstanding, and that's why they throw down 60-hour weeks with a sub-1% slice. From my experience in the Valley, that isn't it. Most of these young engineers (accurately) perceive that their likelihood of getting rich of their tiny option allocations is very low.
What the clueless young engineers tend to overestimate is their likelihood of being a founder in the next go 'round. They're smart enough to realize that their option grants won't make them rich, but they think that if they work 70 hours per week, they'll be promoted rapidly and getting personal introductions to investors, from the CEO, inside of two years. Of course, that's rarely how it happens. If everyone could hop into the founder ranks just by working hard, who would be left to be the employees on 0.05%? The Valley doesn't mislead young people about their equity grants (because that would be illegal) so much as it tends to mislead them about reporting structure, project allocation, and expected career trajectory. Consequently, you have a lot of startups where on a team of 10 people, you have 6 people who think that they're the boss (because of implicit promises made to them in the hiring process).
During negotiations with a startup once, when I asked about the number of shares outstanding (and, thus, what percentage I was being offered), they told me: "Don't think about it that way..."
But: that's the only way I can imagine thinking about it.
I was being offered, say, 0.1% of the firm. If it ends up being valued at $100M at acquisition, that means my stake is worth $100K. Assuming we go public and it's a $500M valuation, my stake would be worth ~$500K (assuming no dilution, which probably isn't realistic).
I can see why they didn't want me to look at it that way. They were asking me to take a pretty large reduction in my annual compensation because of the equity...unfortunately, the equity they were offering me wasn't going to be very valuable even in the optimistic case (and that's ignoring the substantial risk that the equity could also end up being worth nothing, or considerably less).
Yeah. The founders I know who got funded just talked to the right people, tried random emails to investors, family friends introductions, networking events accelerators to get connections
I don't think you get that just being an employee. You just have to do it. Founders may not be particularly skilled or experienced, they just talked to the right people.
It's a bit of a scam that theyre selling employment as a way to get those connections really. The last thing they want is theyre employees going off for their own startup.
After I left a company and was speaking with them about exercising my vested options, they flat out refused to tell me how many shares were outstanding. In writing via email. I don't know if that's kosher or not, but I can't be the only one to have an experience like that.
What the clueless young engineers tend to overestimate is their likelihood of being a founder in the next go 'round. They're smart enough to realize that their option grants won't make them rich, but they think that if they work 70 hours per week, they'll be promoted rapidly and getting personal introductions to investors, from the CEO, inside of two years. Of course, that's rarely how it happens. If everyone could hop into the founder ranks just by working hard, who would be left to be the employees on 0.05%? The Valley doesn't mislead young people about their equity grants (because that would be illegal) so much as it tends to mislead them about reporting structure, project allocation, and expected career trajectory. Consequently, you have a lot of startups where on a team of 10 people, you have 6 people who think that they're the boss (because of implicit promises made to them in the hiring process).