equity, startup-costs, stock-options, valuationThis is a question regarding speculation and the bubble in the startup world.
I work for a very small startup. As part of my contract, I got a stock option plan that granted me the right to buy 4% of the company for 40€ after two years as employee.
It’s been almost 18 months, during which the company has had a total revenue of 1000€ and spent around 200K€. Traffic, return ratio, all numbers are tragic. The founder is looking for VC investors but I think they’re all refusing to throw in any money (he’s very opaque about everything, so I don’t have all the information).
Last month, he fired two people, leaving only him and me in the company, because apparently one of the angel investors that had to do a payment refused to do so. He hired them back two weeks later when another angel investor, that had already a 10% of the company, bought an extra 3% for 90K€. This seems insane to me, because values the company at 3M€. It could also be that the founder is lying to me, it wouldn’t surprise me.
So my question is, does it make any sense for me to keep wasting my time and money (I could earn double anywhere else) waiting to get this equity? The company is absolutely unprofitable, but that guy investing extra 90K confuses me and, again, the startup world is in a ridiculous bubble. Have you seen cases where such a failing startup ends up being worth (or at least being bought for) anything? What are the chances of that happening now that investors are more seasoned?
If you are staying there for the equity then I would recommend you leave.
If you are staying there for other perks, payment, lifestyle, cool project then it is worth thinking about.
If you do not trust your employer, then I would leave - in a team of two of you then you need to be a trusting team relying on each other. Especially when things are going badly.
If he has just sold 3% of the company for 90K it is unlikely that he or this angel investor will be happy with you receiving 4% of the company for 40. Also, if I was being offered equity as an employee then I would expect it to be offered in some kind of option pool. If it is in an option pool then it will have usually been discussed with investors and lawyers to create a tax efficient package ensuring that you don’t get a hefty tax bill on receipt of the shares.
My guess is that it is highly unlikely that the company will be worth a tremendous amount (many many start ups fail). If there is an angel investor involved it could be that they are investing in a highly tax efficient way in which there is very little risk to their money, or they are putting more money in in the hope to protect their initial investment. That 90K also wont go very far usually,. It may give him enough time to go out and raise another round of investment. In which case he is stuck in an investment cycle with an unprofitable company and very little way of employing more staff and growing.
I am making a lot of assumptions above as I don’t know all of the details. But it is not an unfamiliar story in start up circles
It doesn’t sounds as though you have much faith in this company. Picture another “opportunity” that would cost you 40€, but had about the same odds of success. Would you spend your money on that? Do the same thing with this “opportunity”.
(Note that the founder does not sound terribly scrupulous, and may not honor your “40€ for 4%” agreement anyway.)
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