meh

When raising funds are the only option, then yea of course you do it.

When it comes to having already raised money, then sure, raise ****loads more.

But when you are starting out and considering 500k-10million you are so much better off not doing it.

Valuation is a term attached to a private fund raise and not indicative of EV.

This is just totally wtf and wrong.

Can we go back to what daveT is ranting about? And how he magically pretends that Wal-Greens doesn't charge more for the same **** at Wal-Mart.

So, because someone is... special (?), they can ask people to work for free? There's more than one way to make money in the world, and there are plenty of ways to make decent money without employing other people at all. Some grit, earning your way, and making some extra cash to get work done from people you are paying sounds like a decent life strategy, especially when you are asking others to work for you or depend on you. How many lessons does one gain from running even a small one-person business, and wouldn't you rather work with someone that knows the lessons gained from slowly building up a dollar, building a business, and intelligently using money? Call me old fashioned, but when the complaint is "I can't afford to pay people but I need it now" is playing the world's smallest violin.

I'm not basing it on my situation, I'm basing it on exploitation in general, and I would feel that way no matter how rich or poor I was or am. I am admitting that I am generally paranoid and suspicious of anyone that would ask for free work, and that is a little bit of carrot where I'm accepting others have a slightly different viewpoint because they don't have the history like I do.

We should openly encourage everyone take out home loans as well.

I really don't see how a business owner could sleep at night knowing this is the risk he or she is putting people through.

This is where we have to agree to disagree. I'm all for well-intended, but driving Appalachia during a snowstorm isn't smart.

LOL wat? Equity has a value period.

Of course, Option value != Equity value. There is a time premium involved in valuing options. The Black–Scholes model for valuing options is the classic. There has been a lot of time and money spent on deriving proprietary valuation models for options too.

I still don't really know how this statement is being measured.

In most cases where companies raise money they're better off after raising money than they were before - assuming we're measuring that with something like ability to achieve the companies mission, be financially successful, EV of shares, or things like that.

There are some companies that are raising seed/A rounds that probably shouldn't be - but I don't think it's the majority or anything like that.

Right. And my original point (probably poorly written) was just this.

Mihkel then reinforced why I was making my point with his statement that its just as simple as an option turns into a common share at exercise. But that's not the whole story when it comes to valuing options.

So obviously it does. I don't understand what your confusion is. Valuations in private funding rounds are arbitrary and attached to a tranche that isn't representative of the employee option pool. Using a term attached to a different financial product that has no bearing on the enterprise value of the company is totally idiotic.

Maybe I'm overstating the ability for people to educate themselves on basic financial matters. Perhaps jj is right.

Employee options are nothing like public options. Attempting to use tools for the latter on the former is... misguided at best. ****ing horribly dumb would be a better term.

I honestly can't think of a single metric where most companies are worst off post-raise. There are a handful of predatory angel investors who totally **** companies in the ass, but they don't fall in the 500k-10m which is mostly the purvey of micro-VC/Actual early stage VC. (Even most YC companies aren't raising more than 10m pre-PMF.)

LL is just way way off base. There is probably a rather entertaining story that is shaping his worldview on this. Atleast I hope. Maybe this is just another daveT.

So an example in an effort to not talk in overly broad and semi-useless strokes. Lots of companies are moving to stronger control of secondary markets and being able to cut employees from option pools at their whim. I'm not a fan of this but it exists.

So basically if the person buying your company hates you, and you signed a ****ty option contract (one that allows a company to repurchase shares from you post-termination), they could force a company takeover of your shares at a prior valuation (generally a fraction of the value of the company) before they buy the company. If you came on with 3% at a 20% discount to a 3m valuation and you hear rumors of 100m acquisition. You'd assume a ~40x return. Gonna suck to get a 20% return. (In reality, depending on how its split amongst preferred/common, you'd always get less than 40x)

Even more nefarious is forcing layoffs they'd normally do post-acquisition as a condition of the acquisition, allowing the company to pick up a giant chunk of their option pool.

Yes, they can ask. And I'll trust the other person to make the decision that is right for them.


This isn't old fashioned. It's just kind of clueless. It's not necessarily about making money or taking shortcuts. Sometimes people have something they want to accomplish that brings value to the world and the best way to accomplish that is to find like minded people and work together on that goal without worrying about money.

Lots of great innovation has happened because people were willing to work for significantly below their market price on something they believed in. It had nothing to do with making money or trying to shortcut some bull**** valuable lessons about the value of a dollar.


I don't know if you do this on purpose but your position is something more akin to "Home loans are bad! Nobody should be allowed to offer them. Don't people want to own a house after working for it and learning the value of money!"


Simple. You treat people as adults capable of living their own lives. And you know that if that person has to quit or the company isn't working out fast enough there are no hard feelings.

Edit: Obviously having employees not getting paid weighs on a decent employer. But life is best lived outside of a bubble and if you're transparent then it's up to other people to decide what's best for them. Not you.

I guess we'll just agree to disagree. Since we are basically talking in circles, I'll cry uncle and leave this with one last anecdote / personal experience.

A few years back, I started selling on eBay. I quit doing it for quite a few reasons, but...

I started up with $500. Actually, it was more like $250 one week, then another $300 a few weeks later. This was legit nearly the last pennies I had. Within 6 months, I sent a P.O. of $6,000 to China.

I needed things, like someone to take photos and do PhotoShop. I had an acquaintance to do all of this for me, and since he knew me, he charged me way too little. In response, I paid him more than whatever he asked for. It would never occur to me to pay him too little. I just don't have that capacity. (silly aside, he actually offered to work on equity but I refused)

This is what gets me. I'm not the slightest bit enterprising. I don't want to run my own business, have no desire to "disrupt" an industry I don't understand at all. Despite this, even I was able to generate money from basically nothing. I know that if I started with $10k, I would be able to spin that up to a pretty high number, and certainly enough that, if I wanted to pay a programmer to work on a project, I'd be able to do it within fairly short order.

This is why I don't buy into it at all and why I call it playing the world's smallest violin. Nothing about it sounds correct to me, and I feel I would rightly make assumptions about this person's business-running history. Take care of yourself before taking care of other people. Prove your mettle on your own dime and time.

daveT,

Are you against bonuses? What happens when you get a pay package with options/bonus?

Free advice: Other than getting a better grasp of ethics and free will. Don't mention this insanity in front of your boss. I'd totally can someone for this sort of toxic behavior.

Dave, that post just reinforces that you have little to no idea what you're talking about. I don't mean that in a mean way - just that making sweeping generalizations about every industry ever based off of your very limited experience and very narrow view of what companies need to get started... is silly.

Also, just to be clear - you don't really believe the comment about $10k because if you did you'd be doing it.

If you can't grow a business enough to have $150k in hard assets to pay 2 developers for 6 months and have a little for yourself, then it is outright silly to pretend you can run up a business to the scale that offering equity in lieu of play is profitable and intelligent for everyone involved.

As for the $10k, I may not have $10k, but since I'm so confident, I may just find someone who has it and ask for equity, yeah? I do know what I'd be able to do because yes, I know how to run e-commerce profitably at every level. I'm dead honest when I say I don't want to run a business and that's all there is to it.

You also dilute the equity you've given to employees lessening their financial investment in the company which decreases their emotional commitment. I guess sometimes it's unavoidable in order to grow the company to take advantage of market opportunities but having my shares get diluted over and over is annoying.

Thinking like this (which is totally standard) is why it's good to emphasize value per share instead of percent ownership.

Seeing the value of your shares double is more positive than seeing your percent ownership go down by 25% (no attempts were made to make those numbers equivalent).

Edit: nm.

Every business is like a house of cards being held together by the employees working there or machines if its self automated.
The people get paid to hold each card in place from falling and continue to live life.
Dave doesn't like the idea of a person working there for ownership of a card or multiple cards.

A lifestyle of going from one house of cards to the next, before seeing the end result may be safer in the long term ROI.
Yet, some may be sick of playing that game and want to settle down with a place that they see as it.

Preventing someone from trying the latter or getting disturbed in a sense by being asked is silly if you're trying to play the hero in the story.

man, this thread has been cancer ever since all this equity good/bad/evil talk started...

Can we get back to making fun of ruby?

I think we might just need a bit more hands on modding. Pull these derails out of the LC thread and into their own threads.

Even better, move it to Business Finance and Investing.

I think it's reasonable to have some of these conversations here since they are related to many programming jobs. It's not like it would crowd out all of our other threads.

The decision to take 100% equity, 100% salary, somewhere in-between, or even work on something completely for free is a personal one. Everyone has a different level of experience, risk-tolerance, satisfaction from the job/project, willingness to sacrifice short-term $$ for long-term potential, a myriad of other factors, etc.

I don't see much point arguing about it as only the individual knows all these internal metrics. Discussing the job itself out of context is only half the picture.