Timeline for How does start-up equity end up paying off?
Current License: CC BY-SA 3.0
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| Mar 6, 2015 at 13:07 | history | edited | Steve Jessop | CC BY-SA 3.0 |
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| Mar 3, 2015 at 18:48 | comment | added | Steve Jessop | But actually it is more complicated than I set out. If there was $50m set aside for guarantees amounting to 50% of the total equity, and I had 0.5% of stock, then for a sale price of $60m I'd actually get more than 0.5% of the price over $50m. In fact of that $10m I'd get 1%, $100k, because the guaranteed investors already had their 50% of that slice, and my equity is 1% of the remaining non-priority equity. Once the price hits $100m or more, then the guarantees no longer have any effect, so the priority shareholders would be getting 50% of the total and I'd be getting 0.5% of the total | |
| Mar 3, 2015 at 18:43 | history | edited | Steve Jessop | CC BY-SA 3.0 |
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| Mar 3, 2015 at 18:38 | comment | added | Steve Jessop | @ACD: because of "a priority class of share that's guaranteed at exit to pay out a certain multiple of the money invested before the older, inferior classes of shares receive anything". So if I'm a VC and I put in $10m with a guaranteed return of x5 at exit, then I'd get the first $50m of the sale price and everyone else would get squat if the price is <= $50m. This is why you need to pay attention at each investment round, exactly what is being sold to the new investors. | |
| Mar 3, 2015 at 14:09 | comment | added | ACD | Can you explain this more: "Your 5% could turn into a nominal holding that hasn't really "survived", that entitles you to 0.5% of any sale value over $100 million. Then if the company sells for $50 million you get $0, while other investors are getting a good return." How could you have 0.5% of 100 mil but not 50 mil? | |
| Mar 3, 2015 at 13:42 | comment | added | user26035 | Ah, I read "It is very rare for startups to pay anything." as anything at all. | |
| Mar 3, 2015 at 13:09 | comment | added | Steve Jessop | @evandentremont: yes, I've worked for a startup. They never paid any dividends on my shares. They paid my salary, of course, but the question isn't about that. | |
| Mar 3, 2015 at 12:44 | comment | added | user26035 | It is very rare for startups to pay anything. Have you ever worked for a startup? Most do pay. | |
| Mar 3, 2015 at 12:07 | history | edited | Steve Jessop | CC BY-SA 3.0 |
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| Mar 3, 2015 at 11:55 | history | edited | Steve Jessop | CC BY-SA 3.0 |
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| Mar 3, 2015 at 11:50 | history | edited | Steve Jessop | CC BY-SA 3.0 |
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| Mar 3, 2015 at 11:44 | history | edited | Steve Jessop | CC BY-SA 3.0 |
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| Mar 3, 2015 at 10:20 | history | edited | Steve Jessop | CC BY-SA 3.0 |
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| Mar 3, 2015 at 10:06 | history | edited | Steve Jessop | CC BY-SA 3.0 |
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| Mar 3, 2015 at 10:01 | history | answered | Steve Jessop | CC BY-SA 3.0 |