Very useful rightup and specially thanks for the market figures link to venture hacks.
About your .5% example, the math really helped put the amounts in perspective. Does the following variation make sense.
One point, for the $50M exit, won't there be a different breakup for preferred and common, while the .5% is for common. So, in effect, it would be 0.25% or less. Then there are common variations like removing invested money before, different multiple for each category and so forth. So, now it is down to maybe 12%. That is $15k return with risk for $10k per year.

Amit

Very useful rightup and specially thanks for the market figures link to venture hacks.
About your .5% example, the math really helped put the amounts in perspective. Does the following variation make sense.
One point, for the $50M exit, won't there be a different breakup for preferred and common, while the .5% is for common. So, in effect, it would be 0.25% or less. Then there are common variations like removing invested money before, different multiple for each category and so forth. So, now it is down to maybe 12%. That is $15k return with risk for $10k per year.

Amit

This is a great article on how to look at startup compensation from both sides. I particularly like the section entitled “Your buying more than just a high risk investment”. It really helps entrepreneurs formulate an incentive argument that doesn't necessarily cost us much in terms of equity and cash.

Great job and keep it coming!

You're right, in a lot of ways, that the current boomlet is going to be a little lower key, but one of the things I notice from those lists is that the companies who actually have a product/service they sell (as opposed to media outlets, where they only make money by advertising) are consistently going for more. 'Profitable' isn't a dirty word anymore. 🙂

As for the IPO's not having the run-up, I completely ignored the 'opened at $20, jumped to $200' type of IPO. Opening at $12, and jumping to $20 is _awesome_, and is what made me a paper millionaire back in 1992. (Being profitable for 2 years before going public, and an obscene profit margin helped.)

As for your article, you also should note the differences between Non-Qualified options and Incentive Stock Options, as they have very different tax implications.

— Morgan

In reality you want to know the total number of fully diluted shares outstanding, with preferred converted to common. Of course it would be nice to understand all of the terms of the everyone's employment, investment agreements, liquidation preferences, participation, etc. to really understand how the picture would look in an exit. Most of these details are going to be closely held, but some will freely share them.

If the company you're considering working for doesn't even have the decency to give you a rough idea of what percentage of the company they are offering you, I would strongly urge looking elsewhere. This is a pretty strong indication that management has little respect for its employees and is not going to be forthright in the future. How are you even supposed to evaluate such an offer? A million-option grant looks pretty good until you find out there are a trillion outstanding.

Subsequent rounds will dilute your position, but ideally, the cash influx will make your shares more valuable. So if you owned 50% of a $1,000,000 company and then took another million in funding, you'd then own 25% of a 2,000,000 company. In theory (and on paper) than has the same value– the idea is that additional funding can be leveraged to make the company more valuable. In practice, that money is sometimes used to “stay alive” rather than move the ball, so it leaves you with less equity.

[edit: It important to note that all sorts of crazy stuff can happen on subsequent funding rounds– they can functionally do stuff to dramatically change the position of people who've left the company– to incentivize the folks who are still slogging away]

At Jobster, they were pretty open book with the # of outstanding shares (we are at RescueTime as well). I would insist on knowing the # of outstanding shares– if they wouldn't share that #, I'd focus entirely on the salary.

http://startup.partnerup.com/2008/01/02/2007-ac…

That's a list of acquisitions in 2007.

http://searchstorage.techtarget.com/news/articl…

Those are the top Tech IPOs in 2007 (a much shorter list of companies that had a long, hard, and expensive road).

I think the first boom minted quite a few more (paper?) millionaires than this one has (or will).