I think this is the 2nd such interview where an early employee was a founder of a different YC startup that fizzled out. I think it underscores one of the powerful aspects of YC as a network–the startups that fail become a solid pool of candidates for the ones that take off. They've already been vetted as resourceful hackers (or they wouldn't have go into YC) and they're already accustomed to the startup life (not like you're trying to poach them from Google).
If it was planned this way, it was very smart. If it was an unintended consequence, its very fortunate.
Something similar happened to me going through the Startup Bootcamp incubator in Europe. In the end, the best leads come from your network. As you said they are already vetted and you have already worked with them through the program so the decision becomes much easier.
So as employee #1 of a ten billion dollar company, what was the equity portion of his compensation like? So many YC companies sell equity as a higher risk replacement for salary. What does the outcome look like in a case like Airbnb where the company was a huge success?
Has he even been allowed to keep his shares or sell them on a secondary market like early facebook employees did?
Here's my example from LinkedIn: I joined early (company had a founding team of almost 10 people, and I was the 3rd or 4th hire after that). I got 0.3%. I vested about 0.135% before going to another company. Sold 1/5 of that in secondaries before the IPO, leaving me with ~.11% undiluted. After all of the dilution, it was more like .05%. I sold that shortly after the company went public (at an avg. valuation of roughly $10b). Uncle Sam took a big chunk. I have a few software eng friends who joined LinkedIn shortly after I did, stayed well past their initial 4-year grants, and IIRC after full vesting they had 0.10%-0.15% after dilution at the time of IPO.
On thing to add: early equity grants used to be much smaller in 2003, so I wouldn't be surprised if an early employee of Airbnb or Dropbox or a similar company will have more like 0.3%-0.5% after dilution at the time of IPO.
Thanks for being so open. I like hearing real world experiences. My take away here is that unless you are founder, or the company goes for billions, you don't really make much.
I think that's probably true. One exception might be very early employees who get 0.5%-3.0% equity in a company that sells for $100m or $200m. You can probably walk away with $1m or $2m for a couple of years of works. With a multi-billion-dollar exit, you might end up with $10m or $20m someday, but it'll be many years into the future -- and there will be many tempting opportunities to sell stock early along the way.
> many tempting opportunities to sell stock early along the way
This. It's really easy to make money in hindsight. If you'd bought GOOG at the IPO in 2004 and held it until 2007 you would have had a 6.6x return. If you'd held it until today you would have had a 13x return, but a much lower IRR. On the other hand, if you'd bought Zynga at the IPO you'd be down 66% five years later and still waiting for it to bounce back.
It's a lot easier to make hypothetical money in the past than it is to make real money in the future.
I have always lived by the rule "would you invest your money in the company?" when deciding whether to sell RSUs. I'm not sure if it would be any different with larger equity %s.
On one hand, the only reason to work for a start up is to take the risk and go all or nothing. On the other hand, I would never invest in a start up.
I probably would sell off a huge portion (~70%) of equity before the start up reaches $500 million given the chance
I think this would have been a good question to answer. I recognize that Nick might be uncomfortable answering it.
There are always questions around how "successful" employees are versus founders, and the situations all are a bit different. For example, in my experience I was employee #9 at GolfWeb (a startup in 1995) and my stock was worthless when CBS Interactive acquired the company, I was employee 1990 at Sun and at Sun's peak valuation in 1998 the total stock I had owned would have been worth over $10M (I didn't have it all at that point :-), having sold much of it for mundane things like down payments on houses and cars and such, but the point was the equity from Sun was much higher than it was from the "startup" and I wasn't a founder in either case) People who joined Google (or Apple!) in 2009 and are still there, probably did quite well on their stock if they held it.
To answer your more basic question, when you exercise your option at a non-publicly traded startup, your shares will be covered by the purchase contract that is included in the option. That contract can (and often does) restrict to whom you can re-sell those securities. As the company keeps the books on who actually owns the shares, they have a lot of control over them. For example they can refuse to transfer them to a buyer when you and the buyer approach them to settle your transaction.
And since there aren't a lot of liquidity events where employees can sell stocks these days, its an interesting question to explore.
Why are there such restriction on who can sell and to whom? And these sound really arbitrary: seems like the company can deny the sale of shares for any reason whatsoever.
> Why are there such restriction on who can sell and to whom?
Why?
Power and incentives.
Power because when you have equity you are an owner, and founders and investors of private companies (and public companies for that matter) are concerned with who shares ownership.
Incentives because if they restrict your options, you might stay longer and work harder to have a liquidity event.
If your securities are not publicly traded there is no legal way to sell options on them. About the closest you could come would be some sort of proposition bet which is illegal in pretty much every state of the USA. And as I mentioned before, at the end of the day your "stock" in a privately funded company, is simply a ledger entry on a spreadsheet somewhere. And without the active participation of the CFO/Controller/accountant/and-or/Counsel there is no way to durably transfer ownership to anyone.
That said, I don't doubt that you might find someone with excess cash who would be willing to front you the money to exercise your stock and pay the taxes and a perhaps a premium on the stock, for a promissory note to hand them over the stock at the time it becomes publicly traded. That too it illegal under securities law but would be fairly difficult to prosecute.
He likely owns about 0.5 - 1.5% of the company, after several rounds of dilution. So at a $30 billion valuation he is worth somewhere between 150 - 450 million.
There is always a way to sell shares, although I don't know if Airbnb has made a formal offering available to employees.
I'd guess more .2 - 1.0 after rounds of dilution, but it depends on when he came on board. The $30B valuation is preferred shares, right? If he sold any before liquidity, it'd be common shares, which is often deeply discounted (~33% of preferred).
Yes I agree, 0.5% is quite a high estimate for being the low end of the range. Airbnb common shares as well as those of other hot startups (e.g. Uber) are trading fairly close to the price of preferred though if one obtains liquidity.
Thats also assuming he was able/willing to exercise a bunch of options when he left or along the way .. likely but given the AMT/Tax implications not necessarily a given
The importance of having an MVP out there that potential first employees can play around with:
'Whereas with the Airbnb guys, they were super early and small but they had a product, a V1, that was up and running. And the product was working. I used it as part of my application process and was like “Yes, this is super cool, this works, I can totally envision this growing and taking over the world and I want to help do that.”'
If it was planned this way, it was very smart. If it was an unintended consequence, its very fortunate.