
Venture-capital infusions shrank Box founders’ stakes, ignited strife - pierrealexandre
http://www.wsj.com/articles/rich-but-not-silicon-valley-rich-1429842736
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kzhahou
> Aaron Levie and Dylan Smith are worth more than $100 million combined after
> turning the cloud software firm they started in a Berkeley, Calif., garage
> into Box Inc., with 1,200 employees and expected revenue of $285 million
> this year. ...But getting there took 10 years.

This illustrates very well the disparity between founder and non-founder
equity. It's considered a negative that Levie and Smith got _only_ $100
million combined. They're not Sergey-rich, but it's still fuck-you retire-
early start-a-foundation become-an-investor money for each of them.

Meanwhile, given that the sum of non-founder equity (i.e., all employees
combined) typically adds up to less than the founders', you've got at most
$100 million to spread over 1200 employees. Employee number 1 might have a
couple million dollars bonus from his 10 years, but it'll go down quickly from
there for everyone after the first few. Where's the WSJ article on them, and
the thousands of others who are never written about when silicon valley
companies go public? The ones who joined a company early, or when it was in
the red, or under pressure from all sides, and helped it grow and succeed...
and they walk away still not being able to afford a house in Mountain View,
while their founders pick out colors for their Ferraris?

~~~
kareemm
This is why being a super early employee is one of the worst deals in tech:
marginally less risk than the founders, long hours, minimal equity, and likely
below-market salary.

There are upsides, but outside of a few rare cases, I can't imagine joining a
company at this stage.

~~~
gregcohn
It's very easy to justify turning down early-stage jobs with that mentality --
and I've turned down a number that would have made me retirement wealthy based
on precisely that logic.

But now that I'm a founder I'd take issue with the "marginally less risk"
comment. Quitting a six-figure job, forgoing income for a year-plus, taking
the risks of never getting liftoff or financing, taking another year or more
at way-below-market angel-funded salary... this is not "marginally more risk"
than someone who comes in with a salary from day one at a company that is in
motion. The early employee has much less opportunity cost (and -- worth noting
-- can also pull out much more easily if things seem to be moving sideways).

Furthermore the theory of "implied pot odds" applies. You're not just getting
the returns on the deal, you're getting all of the career and relationship
equity of having been a key player on a huge success.

I would argue that early-stage roles, if you can tolerate the opportunity cost
over the near term, are one of the better deals going, and likely (though only
arguably) better than being an under-ready founder with a high likelihood of
failure.

~~~
kzhahou
Yeah, being a founder is higher risk. Correct. At each stage towards success,
a company is de-risked.

But founders' equity usually totals the equity of all employees combined. Did
the founders' risk --and their contributions-- equal the total of everyone
else in the company, combined?

I'm arguing the numbers in today's equity distributions are wildly out of
proportion.

~~~
interesting_att
1) "Did the founders' risk --and their contributions-- equal the total of
everyone else in the company, combined?"

It depends on how you define the founders' risk as well as their
contributions. Both are highly subjective. In Box's case, they could've failed
due to an infinite number of potential causes, leaving Levie penniless. We
don't consider them because Box is now a huge company. As for a founder's
contribution, a prescient business strategy and the ability to handle stress
is worth its weight in gold. Who would have thought of starting a cloud
storage company in 2005? Who could have raised funds for a tech company in
2005, especially someone as inexperienced as Levie? Additionally, founders
have to deal with way more stress than an employee. Founders end up thinking
about their startups 24/7, because that is their future. An employee can walk
away at any time and just get another job.

2) "I'm arguing the numbers in today's equity distributions are wildly out of
proportion."

This assumes there is some ideal proportion, one that leads to some optimal
social outcome. High equity payouts for founders mean there will be more
founders, as average long-term compensation will go up. High equity payouts
for first-employees will mean there be more people who want to join semi-
stable startups as employees #1 and #2. Which leads to a better social
outcome? I don't really know. I would guess we would be better off trying to
encourage people to become founders rather than employees. What I do know is
that if you don't think equity is good enough for you, you can always try to
start a negotiation or start your own company.

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gkoberger
Stories like this make me think it's almost not worth starting a company. Give
1,200 talented people an awesome place to work, be CEO of a company you truly
enjoy leading, provide thousands of companies with a service that makes their
lives easier, entertain 150k Twitter followers, make a bunch of your employees
first-time millionaires, make millions for your investors, make yourself more
money than you'll ever be able to spend... and people still consider you a
failure.

~~~
declan
This article was on the front page of the Wall Street Journal today. One thing
that struck me when I read it this morning is that the headline is practically
unrelated to the article: the word "rich" appears only in the article's 7th
paragraph, and the bulk of the piece is pretty straightforward reporting on
Box's fundraising efforts.

Box's market cap is approximately $2B. If the founders ended up with, say,
$150M combined (the article says over $100M), it may be a relatively small
slice -- but of a pretty big pie. I suspect 99.9999% of HN readers would be
happy with the results that those two folks managed, and the fact that the
company, in this post-Sarbox era, conducted a successful IPO. To put it in
perspective, I'm not aware of a single YC-backed company that has had an IPO,
though Dropbox seems a likely near-term candidate.

~~~
dang
We replaced the title with the subtitle, which is hopefully more accurate.

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equil
mirror that bypasses the paywall
[https://archive.is/WKcLi](https://archive.is/WKcLi)

~~~
oaktowner
Thank you!

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driverdan
> Mr. Cuban put in $250,000 and got a nearly one-third stake in the fledgling
> firm.

Why would someone give up a third of their company for $250k? That seems crazy
to me.

~~~
gkoberger
Less crazy when it's 2005 and you're a college student with no money, and you
look at Cuban as a business partner rather than an investor.

------
wilsynet
Success in a VC backed company means dilution. Massive success means massive
dilution.

The only time it doesn't mean that is when we're talking about super unicorns
(Facebook) or primarily self-funded early on along with early traction
(Workday).

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jtzhou
> In May 2011, Citrix Systems Inc. offered to acquire Box for about $600
> million, nearly triple the online storage company’s value in February.

> Draper Fisher Jurvetson, of Menlo Park, Calif., pressured Messrs. Levie and
> Smith to think long and hard about selling. The venture-capital firm stood
> to get $9 for every Box share it bought for 29 cents.

One reason one should hesitate about taking big-name VC funding is that you
can get stuck in the "home run" mentality.

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oh_sigh
It's only their own fault...not sure how this is news worthy.

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vitalus
Behind a paywall :(

~~~
curiouslurker
google the headline to get a direct link!

~~~
evunveot
Note: this trick doesn't work in Firefox now that Google defaults to https.
Firefox won't send a Referer header when you're going from an https page to an
http page, so wsj.com doesn't know you're coming from Google. (I don't know
whether it sends one for https-to-https cross-domain links.)

 _Ninja edit:_ that is, this is how my Firefox behaves. Not sure if it's
caused by an add-on like HTTP Everywhere or something like that. But it seems
like I read something from the DuckDuckGo blog describing this behavior.

Chrome sends a Referer of "[https://www.google.com"](https://www.google.com")
(i.e. just the domain), so wsj.com lets you past the paywall.

