- when you join a company as an engineer, the best case scenario is probably something like 1%.
- a pretty good case scenario would be for a company to be bought in the $100M range. Say, $250M? You'll have cases in the billion-range, but that's exceptional.
So that's $2.5M! Nice! But a couple of things:
- you've been diluted in the meantime.
- investors have liquidation preferences, so your percentage is coming out of a smaller amount.
That $2.5M got reduced a bunch. And you'll have to pay taxes on this. So, you're likely under a million in the bank at that point. That's honestly fantastic. But it won't last forever (meaning you're not set for life) and to compare it fairly, you'd want to divide that amount by the number of years you've worked for the company. (compared to a more stable job that pays more, with a regular bonus plan, less hours on the job, probably better benefits, etc.)
But the thing is that in most cases, people don't get 1% and in most cases, companies don't get bought for $250M or more. So, no you most likely won't get rich. Some do (the people at Instagram and Tumblr recently), but they are lucky exceptions. And even then, reports say that most people at Tumblr would get somewhere around $350k. Certainly very nice, but not life-changing and the reason it's been discussed at all, it's because it's an exception.
Yep, totally agree. I like to juxtapose it with the relative likelihood of exits at various orders of magnitude. A $1mm exit seems way easier than a $100mm exit, right?
In the ideal case, how much would you make on that $1mm exit if you were the sole, bootstrapping founder?
How much are you going to make in the ideal case as an employee at the $100mm exit after Series A and B rounds of funding when your initial stake was 1%?
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I often present it this way:
- when you join a company as an engineer, the best case scenario is probably something like 1%.
- a pretty good case scenario would be for a company to be bought in the $100M range. Say, $250M? You'll have cases in the billion-range, but that's exceptional.
So that's $2.5M! Nice! But a couple of things:
- you've been diluted in the meantime. - investors have liquidation preferences, so your percentage is coming out of a smaller amount.
That $2.5M got reduced a bunch. And you'll have to pay taxes on this. So, you're likely under a million in the bank at that point. That's honestly fantastic. But it won't last forever (meaning you're not set for life) and to compare it fairly, you'd want to divide that amount by the number of years you've worked for the company. (compared to a more stable job that pays more, with a regular bonus plan, less hours on the job, probably better benefits, etc.)
But the thing is that in most cases, people don't get 1% and in most cases, companies don't get bought for $250M or more. So, no you most likely won't get rich. Some do (the people at Instagram and Tumblr recently), but they are lucky exceptions. And even then, reports say that most people at Tumblr would get somewhere around $350k. Certainly very nice, but not life-changing and the reason it's been discussed at all, it's because it's an exception.
Yep, totally agree. I like to juxtapose it with the relative likelihood of exits at various orders of magnitude. A $1mm exit seems way easier than a $100mm exit, right?
In the ideal case, how much would you make on that $1mm exit if you were the sole, bootstrapping founder?
How much are you going to make in the ideal case as an employee at the $100mm exit after Series A and B rounds of funding when your initial stake was 1%?