Startup Equity Survey Synopsis: You Are The 99%
The startup equity survey I started several months ago is up to 78 responses (as of March 20, 2012), and with my upgraded SurveyMonkey membership I can now share the results here. If you work in startups you had better read this, as there's a ton to learn about the huge disconnect between the startup equity dream and startup equity reality.
Only 38.5% of respondents know within 2% accuracy the total number of shares outstanding in the startup they work at.
72% don't know what the preference structure is at their startup. You might want to, for two reasons:
1. Whether your startup is Standard or Participating Preferred can have a 30-40% effect on the value of your common shares in a liquidity event;
2. I can virtually guarantee you that if the preference structure at the startup you work at or are interviewing with is gonna f#&k you in the keister upon liquidity, you never asked the right question and your employer consciously avoided disclosing what you'd have wanted to know.
Only 9% legally have any control over what role & responsibilities they'll have post-acquisition. Now do you understand why so few startup employees are truly happy with their role within the acquirer? Reality is management oftentimes doesn't think it through - either in terms of the employees' best interests or, frankly, the best long-term interests of the acquirer - because a) they have no incentive to; and b) you the Common shareholders haven't used your leverage to gain basic control over what happens post-acquisition.
A strong majority (66.7%) of startup workers don't know what the industry average is for equity given to people in similar positions. This wouldn't be an issue for you, the Common, if 50% of you weren't expecting that your startup options will be worth $100K-$1M and 20.6% $1M+. It's a dog-eat-dog startup world, and you 66.7% are wearing Milkbone underwear.
Only 29.5% of you are certain you have any type of trigger clause in your employment agreement with the startup you're at, and even fewer (10.7%) negotiated that language. A trigger clause gives you partial or full vesting acceleration should you be a) fired without cause; b) put into a role inferior to that for which you were hired; or c) upon acquisition. Given its importance, employees' profound lack of knowledge in this area is why a much higher percentage of VCs drive luxury cars while you drive Pinto's.
Dreamers Dream, But Lawyers Wake Them Up
42.3% of respondents expect their startup equity to be worth $100K-$1M after 4 years' vesting, and 25.6% expect $1M+. [Generously] assuming $100-$150K annual salary, people are clearly dreaming that their startup equity will have a big & positive (quite possibly life-changing) impact on income. Yet, only 23.1% have had two or more liquidity events. I realize in retrospect that I should've asked people what, if any, money they made from their equity in those exits, but anecdotally I've heard from several people that by no means did liquidity events always correlate to income events for them.
So what does this all mean? Two things really:
1) A strong majority of non-founding startup employees don't know what they need to about startup equity, and as a result are putting themselves at the mercy of founders and investors for receipt of a chunk of change that they largely expect to change their lives;
2) The glaring lack of knowledge on the part of Common shareholders at startups is a major contributing factor to the huge gap between startup equity income expectations and reality for non-founding startup employees.
I've had 4 startup strikeouts, 2 singles, a double, and an RBI triple on an at-bat that took 8.5 years. That's a .500 batting average; not bad but definitely better than those surveyed. The pain of walking back to the familial dugout after those strikeouts, coupled with the pride of digging out an infield single has taught me a ton about startup equity. If you need help, reach out [chris dot zaharias at gmail dot com] and maybe I can help.