
Startup CEOs who gave up fortunes to turn employees into millionaires - whyleym
http://www.businessinsider.com/non-greedy-startup-ceos-who-turned-employees-into-millionaires-2014-9
======
Arjuna
Although Woz wasn't a CEO... for those that don't know about this, I thought
you would find it interesting [1]:

 _" And when Jobs (in the movie, but really a board does this) denied stock to
the early garage team (some not even shown) I'm surprised that they chose not
to show me giving about $10M of my own stock to them because it was the right
thing. And $10M was a lot in that time."_

[1] Woz's entire post is on this page:

[https://plus.google.com/+CarmsPerez/posts/GnVTvQNgvpf](https://plus.google.com/+CarmsPerez/posts/GnVTvQNgvpf)

~~~
soperj
I truly hope that Woz is remembered as the guy behind Apple's early greatness
and Jobs as just a dickhead who set us all back. Not just developers with his
no compete bullshit, but everyone with his stupid no ports aesthetic. How are
people supposed to learn to tinker when everything is locked down??

~~~
cjslep
I believe it was Steve Kent's _The Ultimate History of Video Games_ Atari
portion that really fleshes out Steve Jobs. The two anecdotes I remember are:

1\. People in Atari generally considering him an oderous hairy hippie who once
disappeared from work to go to India for self-enlightenment, but returned with
Hepatitis.

2\. He (Steve) was once offered $100 per transistor he could eliminate below
the 100-transistor mark for an arcade game (I believe it was mid 150 count at
the time), so he went to Woz and paid him on the order of $100 to eliminate
the transistors (Woz was woefully unaware of the deal between Steve and
Atari). Woz got it down in the low 30's or high 20's, Steve got the large sum
of money and Atari wound up adding transistors back because while it worked
they couldn't figure out how.

~~~
Cyph0n
Holy shit. ~30 transistors make a game? Woz was a genius.

~~~
defen
I believe it was TTL chips and not transistors proper.

------
wuliwong
When I joined a startup a couple years ago as a very early employee. The
equity they offered was some tiny percentage, like 0.1%. I did the math and
said, "you know, we would need to exit for a billion dollars for me to receive
a million?" The founder seemed surprised at that. Nevertheless, I joined the
startup.

What I don't understand is if the company does sell, and I only get my 0.1%, I
should be upset or call the founder "greedy" if he doesn't give me more money
than what was in my contract?

If I'm going to take less than what I believe to be the "market rate" for my
services in lieu of some equity and my motivation is to make money, then I'm
going to do the math and weigh the probabilities of my equity and the lower-
than-market salary being more lucrative than taking a job with no equity and a
market rate salary.

I just don't see how founders who honor contracts that employees sign as being
greedy. Arguments that the founders take more risk or work harder or whatever
seems to me to be beside the point. If the employee doesn't think the
percentage of equity is good, then they shouldn't sign the contract. That's
how I see it. And maybe if more of us took that stance we wouldn't have to
hope that founders would just give us money out of the goodness of their
hearts and instead have satisfactory agreements already in writing.

~~~
timr
_" you know, we would need to exit for a billion dollars for me to receive a
million?"_

It's worse than that. By the time you factor in preferred shares and other
investment dilution, your 0.1% will be more like 0.00001%[+]. Few people think
about that, and unless someone is actively looking out for your interests
(e.g. someone giving retention grants -- or you demanding them), it's
difficult to make a lot of money as an early startup employee. You can easily
find yourself in a situation where you vest your grant, leave the company, and
later find out that a new hire is making an order of magnitude more money than
you in an exit. That's startup life.

The game here is predicting the expected value of an extremely improbable
future event, and sacrificing _present day_ money in favor of that event.
There's no "fair" way to do it, so if a founder is asking that kind of
commitment of you, they should be looking out for your interests over the long
term as well.

[+] edit: I overstated my case here. You can probably expect 1-2 orders of
magnitude dilution, but it doesn't really change the argument.

~~~
emmett
That's a gross exaggeration. If you own 0.1% of the company, you're likely to
be diluted to around 0.02% at the very worst, and most likely 0.04% or so
assuming 3 rounds of funding.

That's assuming a positive outcome that clears preferences of course - if the
company goes in a fire sale you're not going to make anything at all. But
assuming a billion dollar exit means you're assuming not a fire sale.

~~~
JohnTHaller
So, if we take the above poster at their word that it would have to be a
billion dollar exit to be worth their while (and net them a million dollars
for X years at below market salary) and assume your dilution numbers are
accurate, they'd only get 200 to 400k. There would have to be a 2.5 to 5
billion dollar exit for their diluted tenth of a percent to net them a
million.

~~~
nedwin
You're assuming all startups pay below market.

~~~
JohnTHaller
I'm taking the post we're responding to at face value: "If I'm going to take
less than what I believe to be the "market rate" for my services in lieu of
some equity and my motivation is to make money, then I'm going to do the math
and weigh the probabilities of my equity and the lower-than-market salary
being more lucrative than taking a job with no equity and a market rate
salary."

------
apalmer
I dont think startup CEOs have any requirement to do this type of thing. On
the other hand I think there is a powerful reality distortion field around
start ups. Its literally more work than at bigco, for about 70% of the salary,
for a lotto ticket that has a 1 in 1000 chance of pay off, and the jackpot
payoff is something like 50K-100K.

Really Really doesnt make sense unless you enjoy the atmosphere you are not
going to get rich as an employee in a start up, even if the start up sells for
500 million. you are going to get back the 30% a year you lost by not going to
bigco unless the founders just feel like making everyone rich.

~~~
sharkweek
Good points, but one thing to keep in mind - a lot of people just enjoy
working at smaller companies.

I did some time at a large financial institution making great money, but
absolutely hated how empty it all felt. Nothing got done, nothing changed,
nobody listened to me.

I work at a much smaller company now, and almost everything I do on a daily
basis has a measurable impact. I can literally watch the things me and my team
do increase the bottom line. I derive value from this myself, as it allows me
to grow my team, hire new employees, give people responsibility of their own,
etc.

~~~
pm90
I can totally relate. I mean, I've only ever worked for small companies for
that very reason.

Have you tried working for a big software company instead of a financial
institution? I know that banks don't treat software devs all that well, but
shops like Google, FB, Rackspace etc. have a pretty good reputation of having
a great culture and work environment.

Personally, I've only worked for small shops. Nearly all the places I'm
currently interviewing are BigCo's though, and I'm not sure how that is going
to turn out.

------
discardorama
Beyond a certain amount of money (I'll throw out a number and say, $10M), the
incremental gain is not much. The change in your lifestyle in going from $0M
to $5M is huge; but from $10M to $15M? Not much. So these CEOs are doing the
_smart_ thing (in addition to the _nice_ thing). They know that when they get
the inevitable itch to do the next startup, they can count on a stellar
reputation and recruit some great talent.

~~~
autism_hurts
I think a game changer cash position for most people is 2.5MM liquid -- not
tied up in real estate.

5MM means you're flying business/first with your family anytime/anywhere. You
may have a pied a terre somewhere.

10MM means you're angel investing, vacationing, and not generally "working"
anymore.

15M++ means you bank with The Private Bank of Wells Fargo, have a ridiculous
line of credit // no checking account, multiple properties, trust, etc.

~~~
refurb
$5M doesn't go that far anymore. If you're young and you have $5M, you could
take 4-5% per year and make it last 40-50 years.

That's only $250,000 per year, pre tax. Good money, but certainly not enough
to not have to think about money anymore.

~~~
mikeyouse
Your $5M liquid would be earning interest the entire time too. With that much
money, it'd be 'easy' to make 4% - 5%/year, so you could live on $250k/year
and never touch the principle.

~~~
refurb
That was my point. A good rule of thumb is that you can pull 3-4% out of a
investment each year and you will never run out. Increase that to 4-5% and it
should last your entire life.

Don't get me wrong, $250K per year pre-tax is a very comfortable lifestyle.
However, it's not so much money that you can spend without thought.

------
dsirijus
Ask HN:

So, I'm the sole founder here with investor. The dude's awesome, but the
contract we signed puts me in significant financial risk if the company
doesn't turn up profitable.

I have more than several employees (some of them will probably read this) who
I pay regular and competitive money though I'm not particulary pleased with
their output (but hey, it's improving, and there's not much of a talent pool
here). Most work on their hourlies, and if milestones/deadlines are not met, I
try to find somebody else and handle all the consequences of that myself.
Basically, I handle entire risk and stress.

Now, if what we work on turns profitable, or has a successful exit or whatnot,
you know how much of that money do I think it's fair to give to them?

Nada. Zilch. Zero. Go through the shit I'm going through yourself if you want
a big payout and then we'll talk.

What do you think?

~~~
cm2012
If you really think your employees will read this and know that you wrote
this, you should probably delete this or reword this. Its bad for morale to
appear flippant about employees.

~~~
dsirijus
The more I push the line of "I don't care what others think about me" to its
absolute, the happier I am as a person. That does not neccesarily mean me
earning more money or having a better team morale.

~~~
unchocked
Your attitude is probably pretty standard fare for business overall. That
said, you're probably going to continue to have the same problems that
business overall has these days; detached employees, mediocre performance, and
a generally escalating bitterness that the world does not love you as much as
you think you love yourself.

Have fun with that.

------
erobbins
It's sad that this behavior is unusual enough to be noteworthy.

~~~
vinceguidry
This comment reads as entitled to me. Startup founders have an insane number
of things on their plate, and that list just keeps growing and growing.
Startup employees work hard, but the founders still bear most of the risk and
responsibility.

What really needs to happen is for new ways to organize startups to distribute
the risks and responsibilities better, so that it's not up to the goodness of
the founder's heart to ensure a good outcome for the employees.

Of course, this implies that the pie is being made bigger, the risks and
responsibilities being spread out are actually building more value in the
company so as to generate a bigger exit. So far though founder-level
discipline and risk-taking is rare enough in one individual that this is the
situation we have to deal with.

~~~
x0x0
And great employees can always go to {google, fb, twitter, microsoft,
salesforce, etc} and get paid $250-$300 / year in cash or cash equivalents,
instead of $125-$150 plus lottery tickets.

In fact, I remember reading that round A is the worse time for an employee to
join a startup: the large grants are gone, but the business isn't derisked, so
your lottery tickets still have shit ev.

~~~
JimboOmega
Is the going rate $250-$300k these days?

Honestly, though - beyond just larger equity grants, I'd like to see companies
have people get rewarded when the company does well... Through some kind of
bonus (in equity or cash).

It seems like most companies either have bonuses that are pretty much an
expected part of salary, or they have no bonus in any situation. I've only
really been part of the latter, though.

~~~
x0x0
For a highly experienced senior engineers capable of largely independent
delivery of projects with roughly 8-10 years of experience on a platform, very
deep understanding of at least one language with a bunch of experience in one
or two more, etc etc seem to be getting about that much including grants at
the big companies, particularly after being there perhaps 3 years and getting
grants annually.

~~~
deskamess
What is a grant? Familiar with the term in an academic setting, but not that
much in a work setting.

~~~
vinceguidry
[http://fairmark.com/execcomp/grants.htm](http://fairmark.com/execcomp/grants.htm)

------
clamprecht
The article says:

> There’s a startup in New York everyone talks about, and the things they say
> aren't very nice. The startup sold for ~ $80 million and the founders got
> rich. But, as the rumors go, no other employee made more than $50,000.

Does anyone know which startup they are referring to? carrentals.com?
something else?

~~~
georgemcbay
Hunch fits the location and approximate acquisition price, but I can't speak
to how screwed over the non-founders were (or weren't).

Not sure that "everyone talks about" it (though that applies even more so for
carrentals.com, IMO). Maybe they meant "everyone in NYC talks about it".

~~~
taylorbuley
With Chris Dixon being praised in the piece, I have trouble believing the
writer had Hunch in mind.

~~~
georgemcbay
Good point! You're probably right.

------
gkmoyn
It'd be great if instead of founders generously giving to employees post-
facto, startup contracts were more employee-friendly from the beginning. How
much % should engineers 1-10 demand? _One percent_ is typical for eng #1. On
day one, with no code written, where the founders depend entirely on the
engineers, where it's just an idea and investor money, they're only a
hundredth of the value of the company.

------
abat
Do employee stock options usually not vest automatically upon acquisition? The
SinglePlatform story made it sound like employees get screwed if there's an
early exit before their options had fully vested.

~~~
jacquesm
That very much depends on the contract. I have said this before and I'll
repeat it on the off chance that it will save someone's bacon one day: insist
on accelerated vesting clauses in change of control situations.

~~~
ashbrahma
Is it easy to negotiate a change or add an acceleration clause in the options
grant? Seems like those docs are set in stone and very hard to change without
board approvals etc.

~~~
jacquesm
Then you go somewhere else. Nobody forces you to take a job with extra risks
and a contractual situation that allows others to pull the rug out from under
you when the pay-off materializes.

Really, the only potentially bad contracts are the ones that you've signed. So
as long as you haven't signed you have negotiation room and if your choice is
between being paid 'market rates' versus being paid 'half of market rate +
options' and those options are subject to change without notice then you're
just setting yourself up for being hurt if you chose the second.

Nothing is set in stone, that's more a matter of self-confidence and knowing
when to walk away.

------
peter303
Steve Wozniak for one. Steve Jobs wouldnt share his Apple stock with anyone.
He repeated this with Pixar.

In the 1980s a decent IPO would be about $100K for workers. It would go
towards a home down payment.

------
lazyjones
Misleading title IMO. None of these CEOs gave up their fortunes, they just
shared a (small) part with their employees.

------
yeukhon
I think (still looking for opportunity in a startup) if I had to choose, I
choose a startup based on

(1) the missions

(2) the investors

(3) founder(s) history and attitudes

equity is always a nice thing honestly there are startups that will never go
IPO and there are the ones that will fail in a year or two, and there are ones
that will go on for a very long time and held privately by founders and there
are ones that will be acquired within a few years. The chances are, before
your company is sold, you might be looking for another job already.

Also, read the equity/stock agreement CAREFULLY before you sign one and
understand what you are signing up for.

------
todd8
Tivoli Systems, where I worked, went public in 1996. Not long after that it
was acquired by IBM (which bought control of the company through a tender
offer for the shares). 26 or 27 of the original employees of the company made
over one million dollars. Even the administrative assistant, hired in the
early years, was able to pay off her house.

~~~
johnward
Same buyer didn't work out as well for us

------
god_bless_texas
I feel stupid. What is "signaling"?

~~~
mareofnight
Basic meaning: doing a thing to send a message about yourself to others. Like
wearing expensive brands to signal that you're rich.

But _good_ signalling involves some additional factors. Signalling is usually
used when you want to say something about yourself, but it's something that
people would want to say about themselves whether it was true or not, so you
have to say it in a way that is difficult or impossible to fake. A good signal
is one that is highly visible (in the context where it matters; clothes are
good for in-person signaling, profiles or photos are good for online
signaling), and either cannot be sent without having the quality they're
supposed to signify (you can't afford expensive things to show off if you
don't have money), or are much easier to send if you have that quality than if
you don't (it's easier to get a high StackOverflow score if you're good at
programming and communicating than if you're not).

If you're giving employees extra stock to signal loyalty and trustworthiness,
it's "cheaper" to do that if you actually value being loyal and trustworthy
(rather than just wanting others to think that of you), because then you get
value from being the sort of person you want to be _and_ being thought well of
by others. At least, that's the theory; you could just want other people to
think you're a loyal person really, really badly.

------
wellboy
Awesome, this is how it´s done. Finally some real founders start to be out
there!

------
alexweberk
It comes down to trust, really. What goes around comes around.

------
EGreg
Someone should mention Steve Wozniak here

------
vishalzone2002
are there any such pre-exit companies out there?

------
kjs3
They gave up _some_ money to reward valuable employees. That's not, _per se_ ,
being magnanimous or generous, it's being smart businessmen. All of these
founders made out just fine, financially. When they start their next big
thing, they'll be remembered not only as the guys who had a successful exit,
they'll be remembered as the guys took care of their people along the way.
That's about the smartest way to recruit top talent you can come up with.

~~~
teej
I don't think you are giving these founders enough credit. Startup
acquisitions, not unlike fundraising, can be very emotional. Acquirers can go
from hot to cold very quickly if they hear the wrong thing or get the wrong
vibe. The founders went to great lengths to structure the deal in a way that
compensated their employees like this. It's likely that they put the entire
deal at risk to do so. That, in my mind, strongly shows generosity on the part
of the founder.

~~~
kjs3
_per se_ : by or in itself or themselves; intrinsically.

I understand that some (most) of these guys are, in fact, doing this because
it's the right thing to do and they are, in fact, that invested. I merely
wanted to point out, counter to the tone and implication of the article,
that's not the only reason to do this and they were still handsomely rewarded
for the risk they took.

Conversely, I want to point out to anyone who thinks _not_ doing the right
thing wrt your team so you can pocket a few extra percentage points can have a
negative consequence.

~~~
jacquesm
Sure they're smart businessmen (and women), they built awesome companies and
successfully negotiated substantial exits. If they weren't smart then neither
of those would have happened in the first place! But in the article there are
some very good examples of situations where _most_ C level teams and founders
would have happily made off with the loot without sharing any of it with their
co-workers, as one CEO in the article put it 'the ones they went to war with'.
And there would be nothing or nobody to stop that from happening, and because
this is 'normal' nobody would have likely even said anything about it beyond
some grumbling at the watercooler and a maybe slightly higher turnover
directly post acquisition.

So I read their generosity as the first driver to do this, and that there
_maybe_ is another reason is possible but I've yet to see a repeat successful
team which would allow the conclusion to be that the second reason is also a
motivator.

They're doing good, and good by their people, and that's about it. No need to
search for an ulterior motive.

And there are very few if any negative consequences to not doing 'the right
thing' with respect to your team, because that - unfortunately - is business
as usual. These are the exceptions, definitely not the rule. I hope it becomes
more common though.

