[LRUG] [JOBS] Ruby developer for new startup

David Burrows david at designsuperbuild.com
Wed Jul 11 10:21:27 PDT 2012


The difference between an employee taking equity and other gamblers (like
VC's) is that you can only make one bet every few years - VC's overall are
looking for a decent return on their overall portfolio, most companies they
fund will fail to have any return at all, but a few big wins like Instagram
make up for the rest.

Taking that into account, it's a fact that most equity will have a zero
return no matter how hard you work, equity is a gamble, pure and simple -
and everyone likes a bit of a gamble! The trick is to not gamble more that
you can afford and make sure to take into account the other benefits you'll
get from working for a startup, which can be huge when your younger but may
be less attractive when your getting on a bit ;)

-- 
David Burrows
079 1234 2125
@dburrows

http://www.designsuperbuild.com/ | @dsgnsprbld



On Wed, Jul 11, 2012 at 10:53 AM, Paul Robinson <paul at 32moves.com> wrote:

> On 11 Jul 2012, at 08:45, Alan Buxton wrote:
>
> Pick an exit value. Have a look on vc blogs to see what is happening in
> Europe.from memory about £40 million would be as good a point as any.
>
>
> I really don't want to resurrect this thread, but that's a bit simplistic
> on multiple levels and needs challenging:
>
> - Why choose £40 million as an average of exit values? Exits have ranged
> from zero to $1 billion in the last 12 months for a wide range of companies
> in the tech sector
>
> - Why choose £40 million as an acceptable exit value for the specific
> circumstances involved in the specific case somebody might evaluate? Some
> firms will never be worth more than a few million even if they take 100%
> market share, and others will be worth many tens of billions with only 10%
> of market share. Not all of us are building "social tools" for hipsters you
> know...
>
> - Exit value is itself a poor measure if there is a strong likelihood of
> dividends being part of the company's cashflow forecast. Some companies
> like dividends, others hate them. You need to find out what the plan is on
> that, and how it works in relation to the specific options you are being
> offered, the strike price, etc. - it could be you would make more than
> market rate years before an exit. Understanding the specifics of the
> business is vital.
>
> - There is considerable tax benefit in being offered a tiny piece of
> equity for a solid firm that is paying dividends over a salary. A £20k
> dividend replacing £20k of salary for a higher-rate tax payer could put an
> extra £4k in your pocket thanks to the tax breaks on offer. If you're a
> director as well, you should be ideally looking for 100% of your income to
> come via dividends if you can, and there will be few accountants out there
> who disagree with me...
>
> Now think of your chance to successfully get to that exit. You may as well
> pick a number out of the air but let's say 10 per cent for the sake of
> argument
>
>
> Why? Each year 6.3% of businesses in the IT sector, and about 8% in the
> marketing and media sectors fail in the UK, so how have you extrapolated
> that into 90% of all startups failing before "exit"?
>
> I'm sure you can do the sums yourself but the upshot is that: if your
> equity stake percentage starts with a decimal point then it ain't going to
> be life changing, given the amount of time you well have to work for it.
>
>
> I sure would have loved 0.1% of Instagram - a crappy photo filter app -
> even if you wouldn't.
>
> Why didn't I? Because I didn't know the guys involved, I wasn't offered a
> job, and I didn't have a chance to talk to them about their exit plans. If
> I had all of those, I'm sure I would have been a very happy man.
>
> And you would have still told me that despite having that information to
> hand not available to the general market, that it was all futile and
> pointless and I should demand £60k-£80k/year and x% in employer pension
> contributions?
>
> No wonder the UK startup scene is in such a mess if this is the level of
> defeatism that is prevalent within the community... :-)
>
> Sure there are instagrams now and again but frankly you may as well do the
> national lottery.
>
>
> I can't control how much money I win from the national lottery above £0
> (i.e. I can choose not to play). If I work hard in a business with a team I
> trust and who share my goals, and we are constantly iterating and learning
> from our failures, whilst quickly getting to a product/market fit and
> keeping our heads above water, I can clearly have *some* input into how
> much money I can make.
>
> They are therefore not comparable.
>
> I have never seen a company where options were on the table, but the
> employees receiving them could not have significant input into the business
> as a whole, and its future successes and failures would be in no small part
> of their making.
>
> Please stop trying to convince people who have a bit of entrepreneurial
> spirit that they shouldn't even try.
>
> Options aren't given to developers who just want to develop. They're given
> to people who go above and beyond and become part of the management culture
> of a firm. People who are evaluating them are ultimately seeing themselves
> in a more entrepreneurial light, and you're telling them it's pointless.
>
> You might set out to make a healthy pot of cash within a few years, you
> might set out to just take a market rate salary instead, but whichever
> choice you make: you'll be right.
>
> And really, really stop confusing highly probabilistic random lotteries
> with the ability to build one's own future through a deterministic process
> that is being repeated over and over again every day.
>
> But back to the question about how to put a cash value on equity you are
> offered. if the company has had angel or vc funding then they will have an
> idea on current valuation so you could ask for this. Then the value its
> pretty easy to work out.if they're bootstrapped and not revenue generating
> or profitable then your guess is as good as anyone else.
>
>
> Do you even understand the phrases "pre-money valuation" and "post-money
> valuation" or how Angels and VCs come to these figures? By your reckoning,
> they're guessing unless there is already revenue in the business, and have
> no idea what they're doing.
>
> I accept company valuation is a bit of a dark art, but there is a lot of
> experience out there and if multiple investors are trying to get into the
> same piece of equity on a funding round, you can almost guarantee the
> valuations are about where the money should be.
>
> FWIW, it's not always the case the higher valuations win out. There's a
> reason for that, and it's the one that undermines most of your assumptions
> about how businesses succeed and fail. I won't go into that here though.
>
>
> If you really love what the company is doing and want to be a part of it
> and want to eventually share in the upside if there is any then just work
> out how much you need to live on comfortably and make sure your salary
> covers this, and them take the rest as equity, just as long add the equity
> feels right.
>
>
> This is the only bit of your email I even remotely agree with. :-)
>
> I for one would encourage far more equity options being put into UK
> startup recruitment offers (they're primarily not because how the hell do
> you structure them with most recruitment agency contracts?), because it's
> the only way to generate the scale of growth we see in the valley. It's not
> "risky", it just requires more skills than going onto monster.com and
> doing an averaging job of the first 10 ads you see.
>
>  Paul
>
>
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