How much are startup options worth? Posted: November 23rd, 2010 | Author: Dan | Filed under: Startups | 29 Comments Startup pay kind of sucks.
This is not a well-kept secret. A great startup with a dozen or so people will typically pay its employees about a third less than a big company. Some will argue that that’s because of the value of the equity that startups give you. I argue that that’s the price of doing something that’s more fun but of unproven economic value. But regardless of why you’re doing it, there’s no question that startups ply you with ownership in the company, typically in the form of stock options.
I’m going to give you a few tools you can use to take a swag at that value. Note that many people would prefer you not know this stuff. Me? Let’s start with the basics, which are completely misleading. The value of a whack of equity is this: Quite simply, it’s your percent ownership times the company’s value. This isn’t some sort of rant: it’s basic economics.
The basic math for this one is: 125-(30*3) = $35mm. The Paradox Of VC Seed Investing. Editor’s note: Brian Singerman is a partner at Founders Fund.
He previously worked at Google and There. This is the first in a series of articles I am writing to bring more transparency and honesty to the field of venture capital. While many of the themes may be contrarian or controversial, I have two primary goals: First, I want to help entrepreneurs and startup enthusiasts understand what motivates investors. Second, I hope to draw attention to some of the fallacies venture capitalists use in their negotiations with entrepreneurs. Aligning the incentives of entrepreneurs and VCs will lead to much stronger relationships and innovation. Entrepreneurs regularly come to Founders Fund asking us to lead or participate in their seed/angel round. The economics of VC explain a lot about why large funds should not do seed investing, so let’s start with a quick review of those dynamics.
There are many reasons to work in venture capital. The 26-Year-Old VC Who Cashed In On Instagram. How venture capital is broken. I read quite a lot of papers about finance and investing, but I can’t remember the last time I came across a 52-page paper which I simply devoured, avidly, reading every word, and even following the footnotes.
But such is the latest publication from the Kauffman Foundation, a truly wonderful report on the foundation’s own experiences in the world of venture-capital investing. This is required reading for all institutional investors with any kind of exposure to VC, and I sincerely hope that it succeeds, at least at the margin, in forcing those institutional investors to behave a bit more like investors, and a bit less like chumps being bullied into throwing millions of dollars into a series of opaque black boxes delivering decidedly subpar returns. The Kauffman Foundation was created to encourage entrepreneurship; its endowment currently stands at some $1.83 billion. Institutional Limited Partners Must Accept Blame for Poor Long-Term Returns from Venture Capital, Says New Kauffman Report.
Media Contact: Rose Levy, 646-660-8641, rose@goldinsolutions.com, Goldin Solutions Barbara Pruitt, 816-932-1288, bpruitt@kauffman.org, Kauffman Foundation After Fees and Expenses, Most Investors Will Do Better in Public Markets (KANSAS CITY, Mo.), May 7, 2012 – A compelling new report out today from the Ewing Marion Kauffman Foundation describes how most institutional investors, including larger state pension funds, endowments and foundations, may be shortchanged by their investments in venture capital funds.
Over the past decade, public stock markets have outperformed the average venture capital fund and for 15 years, VC funds have failed to return to investors the significant amounts of cash invested, despite high-profile successes, including Google, Groupon and LinkedIn. The report, "We Have Met the Enemy … And He is Us," is based on a comprehensive analysis of the Kauffman Foundation's more than 20 years of experience investing in nearly 100 VC funds.
Kauffman report : Broken VC, Guilty LPs, and the way forward. The Kauffman Foundation seeks to put the final nail in the coffin of the VC malaise, with a thoughtful and evidence based recap of what we already know: “VC is Broken” and driving the point home to Limited Partners: “we have seen the enemy and it’s us”.
The notion is that insufficient focus on alignment of interest and sloppy performance measurement has led the majority of LP’s down the garden path when it comes to actual performance. You can go read the report if you want all the gory details and I wrote a rant about this in February of last year. I am going to focus on the way forward for LP’s. How do you diligence a VC ? Pretty much every VC firm does a similar song and dance when raising funds. Entrepreneur referencing. Digging into the VC’s culture, compensation and methods.