

6% Ain’t Really That Much - mqt
http://mattmaroon.com/?p=433

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helveticaman
Good article, but you're wasting your breath. Sarah Lacy's article had such
little substance and thought behind it that pointing out the errors in it is
like picking apart scientology.

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soundsop
Agreed. In some cases, the best response to an argument is silence.

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tptacek
6% is 1-3 rock stars --- your best lead developer, your CEO. It only seems
small when you're just getting started. It's a _very significant_ amount of
equity. Yes, companies trade 40+% for VC all the time. But they're also buying
a _guaranteed 2 year runway_ and a war chest to offer those same rock stars
150k-200k in year 1.

I'm not making a value judgement here --- maybe YC is worth that much for you.

(I read the article, I know "6%" isn't really the point here; it's just the
one nit I have with the discussion.)

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dshah
I don't think 6% will get you 1-3 "rock stars" at the stage that most YC
companies are. Much too early for that.

At that stage (where cash compensation is minimal if not non-existent), the
equity that would need to be given a real "rock star" would be considerably
higher.

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tptacek
You're right, but what does that matter? When you give up 6% of your company
in 2008, you're out that 6% in 2009. In 2008, a CEO costs 33% of the founder's
pool. When the company survives into its first cash-flow-neutral year, that
CEO costs much less.

The idea that you can just keep peeling 6% (or 40%) every round is also a
fallacy. You can keep doing that exactly until the point where your
shareholders stop letting you do it.

Again: it's really easy to devise an argument that says a YC endorsement is
worth 6%. I'm not going there. I'm just asking you to think about the real
value of that equity number, and I'm doing that because I think to a lot of
people, 6% sounds low. I had less than 2% of a very small company that got
acquired in '98, and I ended that year just shy of 7 figures.

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mattmaroon
It matters a lot. 6% of a company in the idea stage is worth a lot less than
6% of a company that's been in motion for a year. Earlier stage = more risk =
less value. It's that simple.

If a company in the idea stage were to hire a rock star, they'd almost always
need to give way more than 1 or 2%. A company that's already gone through YC
and/or done an angel round might give away that little.

And even then, bringing on a CEO would be way more. You wouldn't want a CEO to
only get 1 or 2% equity.

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tptacek
You're obviously right. I've just had the experience of wishing I had that
kind of equity to throw around. I'm "arguing" a point you didn't really make
--- is YC worth 6%? _I don't know_. But I do know that it's more significant
than it might sound.

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mattmaroon
Well, like PG says, it only has to increase your expectation by 6.4%. For some
people, it probably would not. Early paypal employees, people with other
successes, etc, have unlimited access to funding/capital.

I would say that for most first timer's though, it's a clear win. If nothing
else, PG's guidance probably saves you from well more than 6% wasted equity
later on.

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zasz
I'm sorry, but...WHY do you keep referring to Sarah Lacy as "he"?

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aneesh
Because Sarah Lacy didn't write the original article. A guest poster hiding
behind the name "Paisano" wrote it.

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zasz
Oh. Oops.

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mattmaroon
Fair enough. I probably could have made my pronoun usage a little clearer.

