

Why You Probably Won't Get Rich When Your Startup is Acquired - Chikodi
http://prtipsforstartups.com/startup-jobs/

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mikeyouse
For startup employees, it often doesn't matter whether or not the acquiring
party pays in shares or in cash. The more important consideration is that in
low-price acquisitions, the investors will get the lion's share of the
proceeds.

If the company in question raised $2mm and was acquired by a company that just
raised $11mm, it's probably safe to say that the purchase price was less than
$5mm.

If you assume that the $2mm investment represented 50% ownership, the math
looks like this:

* $1mm acquisition - Preferred sees $1mm, common stock sees $0.

* $2mm acquisition - Preferred sees $2mm, common stock sees $0.

Depending on the cap on the participating preferred, the rest could vary, but
if you assume it's at least a 2x;

* $3mm acquisition - Preferred sees $2.5mm, common stock sees $500k.

* $4mm acquisition - Preferred sees $3mm, common stock sees $1mm.

So in a best case scenario, 1% ownership would be worth $10k, and would
probably be worth much less than that. Do you care if you get your $10k in
stock vs. cash? You're probably not indifferent, but that amount won't move
the radar for most of those with equity in the startup world.

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Chikodi
Thanks for your analysis. As you mentioned, it's a best-case scenario, too. If
the payout comes in cash, at least you have some extra jingle to buy your mom
a nice gift. After that, it's back to the office on Monday.

