A few things make the data slightly misleading. In cases of multiple founders (so most of the data points), only one founder seems to be represented by the "Founder Ownership" percentage. Additionally, in some cases the percentages are representative of voting rights not actual monetary value of said "ownership".
This causes some founder/ceo/early teams to appear over represented: Sergey Brin, Larry Page & Zuck, while others appear under represented.
I can't help but feel that these flaws make the final assessments tilted toward the point of the article which appears to be something along the line of `owning 11% at IPO is totally normal, don't sweat it`. This is VC content marketing through and through. Additional note: "That means smaller investors and employees owned 27% of these businesses at IPO." The idea that employee pools make up a sizable chunk of most of these companies is completely laughable.
Atlassian, which just IPOd this year, was famously bootstrapped. There are two founders, each with 37.7% [1], so the table is misleading and the should really be 75.4%. Atlassian eventually took funding from Accel, 8 years after its founding.
It is also curious the table rounded Accel's ownership up (12.7 -> 13), but truncated the founders' (37.7 -> 37).
Atlassian's funding wasn't typical VC growth money either. The first round was taken off the table by the founders and was primarily a mechanism to get board members in preparation for a US based IPO. They also took a second round, 100% of which which went to early employees in the form of a secondary market sale for stock options.
There are many more notable bootstrapped exits, e.g. Mojang/Minecraft.
Lots of bootstrapped companies that could IPO, e.g. Mailchimp
And many other examples of companies that took very little money making their founders richer than comparable funded founders. E.g. Each of the founders of Wayfair made more than EVERYONE involved in the sale of Zappos.
But a good proxy for VCs, where most non-IPO exists are basically considered a failure. 1.5-3x returns from a "successful" sale to a larger company is a failed investment for most VC firms.
> This is VC content marketing through and through
There are some unexplained things like Apple founders "Steve Jobs, Markula[sic], Scott" having 35%. First, why is Mike Markkula (which is the correct spelling) included as a "founder or CEO". He was an investor in every history of Apple I've read. Second, is Steve Wozniak included or not included in that 35% of founder ownership? I recall reading that Wozniak had approx. 7% share at the time of Apple's IPO, so not huge but not tiny.
The person they list as "founder or CEO", Jay Hoag, is an early investor and Netflix board member according to Forbes[1]. Wikipedia says Netflix was founded by Reed Hastings and Marc Randolph[2] and makes no mention of Jay Hoag.
So, yes, I'm confused too. It doesn't seem that they should list Hoag as the "founder or CEO", and why exclude the actual founders which is what the article is supposed to be about?
Taking a quick read, I see all sorts of issues with this dataset. Jay Hoag was not founder/CEO of Netflix, he was a growth stage VC and these are likely not his personal shares but his firm's. Dick Costello wasn't a founder of Twitter. TripAdvisor was acquired by IAC in '04 and then spun out; Barry Diller wasn't a founder.
For all those wondering about Priceline (CEO Ownership 47%, VC Ownership 74%), where the total ownership exceeds 100%: Walker Digital Corp, one of the VCs, was founded by Jay Walker, the CEO of Priceline.
Also, Zuckerberg exceptionalism strikes again: he was the highest ownership-retaining CEO on the list, at 57% (closely followed by others at 55 and 53).
It's not actually 57% of facebook's value (since that would make him by far the richest person).. It's voting rights. Facebook stock is split into 2 classes.. I think monetary value wise, he holds a much smaller chunk of FB. Same for Larry Page/Sergey Brin for Google.
Rather than percentages, the median/mode of absolute monetary value would be more useful, since that gives you a directly number you can compare to non-VC startup (lifestyle startup). If you own 2% of a 100M VC startup, maybe it's the same to fully own a 2M fully owned lifestyle startup.
Both monetary value and voting rights would be useful metrics, since different founders care about different things. Zuckerberg is absolutely obsessed with retaining control of his company, even at a significant cost to his net worth.
On a side note, I was like "wait a second, 2M is now considered a lifestyle business?" but then I remembered that crazy P/E is the norm around here, so a valuation of 2M probably means that the founder subsists on ramen... :(
Crazy P/E is the market outcome in any low interest rate environment. If an investor wants to get 2% over the safe (read: government bonds) rate of return and the safe rate is 4%, then the investor wants a 6% return and that gives you price/profit ratio (not quite the same as P/E, I know, but for purposes of lifestyle business income this is the relevant number anyway of about 16).
If the safe rate is 0%, then the investor is willing to settle for a 2% return and you get a price/profit ratio of 50. Given identical profits that means 3x the valuation.
In real life this is a bit more complicated, because investors may not necessarily seek a simple additive percentage on top of the safe rate of return, but the same dynamic plays out in general.
Or to put another way, say you have a lifestyle business with $100k/year of profit. That's nothing too special. What valuation should that correspond to? Depends on risk, of course, but $1-2M doesn't seem unreasonable; that corresponds to 5-10% annual return, which is pretty good right now.
Zuckerberg was given a gift. Sean Parker was kicked out of his startup Plaxo by the VC's. He didn't get mad, he educated himself and by helping Zuckerberg structure Facebook stock into two classes before VC investment he not only got even, but made quite a bit for himself.
He also made certain that Zuckerberg got to appoint a majority of the board. Once they had the initial deal with Peter Thiel on future rounds Facebook was such a hot investment they didn't face serious pressure to change things.
It would be interesting to see the same data on old tech companies for comparison -- to see how the trends have changed.
I noticed Apple on the list, but I also like to see Microsoft, AutoDesk, Cisco, UUNET, etc., and also really old ones like Hewlett-Packard, Intel, Texas Instruments, etc.
It may be my misunderstanding, but isn't 11% ridiculously low?
As I founder, if I sold almost 90% of MY company along the way, I would feel like I didn't do good enough job of building it without relying too much on other investors.
True, but you can hardly call a company you only own 11% of - your company. It's someone else's.
But then again depends what and why your doing it. If that 11% is worth enough to you (and the company is otherwise healthy), then you might not even care.
For example if your market requires large capital investment, e.g. insurance, banking, you could expect to part with a good proportion of your equity at every raise.
If you're a non-capital-intensive business and you still ended up with 10% at IPO I really wouldn't beat yourself up too much... You still did what very few people in the world have managed.
Yep. It totally depends. At the end of the day, if the company exits for $1B, whether I've got $110M or $470M is big in some sense, but immaterial in other senses. And how that money is raised is subject to so many factors that interact with where the business is and where the external market is. The way I look at it, the big differences in ownership stake are 51% vs. 30% vs. 3% versus 0.3% versus 0.03%. Do what you gotta do to be successful in the first place, don't worry about percentages of percentages.
A couple low ones surprised me. How did Aaron Levine wind up with so little of Box? Many cofounders to share with? Large server costs requiring VC? Down round?
Box spent a lot of money on sales and marketing acquiring customers and so IPO'd after in 2014 after being at a net loss of $168M over the course of 2013. Levie had to give up a lot of equity to justify raising more money. More in this TC article: https://techcrunch.com/2014/03/24/hotshot-ceo-aaron-levie-wi...
He was ruthless about keeping overhead low. Low margins kill you when you have higher fixed costs. He also didn't need to share as much with co-founders. They also had their IPO much earlier in the corporate life cycle than companies do today. His dilution happened with and after the IPO.
The best businesses need to raise less money because they can fund themselves via profit or manage burn rate to a high degree via cost cutting. If you don't do one of those, you will need to raise more outside capital. Thus sell more of your company. Notice how the most successful companies have leaders who sold the least of their ownership? There's a reason it correlates.
Revenue is not profit. Only reason Amazon had so many losses over quarters during the years because it was a managed tax avoidance measure, not because they had unfixable costs.
This causes some founder/ceo/early teams to appear over represented: Sergey Brin, Larry Page & Zuck, while others appear under represented.
I can't help but feel that these flaws make the final assessments tilted toward the point of the article which appears to be something along the line of `owning 11% at IPO is totally normal, don't sweat it`. This is VC content marketing through and through. Additional note: "That means smaller investors and employees owned 27% of these businesses at IPO." The idea that employee pools make up a sizable chunk of most of these companies is completely laughable.