By: Noam Wasserman for Inc.com
Dead equity — equity held by employees and founders no longer working at the company — is a large and growing problem.
Facebook’s IPO minted many millionaires and even billionaires. One who attracted much attention is David Choe, the graffiti artist hired to paint the company’s first headquarters. Choe opted to forgo a cash payment “in the thousands” for the equity equivalent at the time. Thanks to that one decision, he owns nearly four million shares of stock, worth in excess of $100 million. Choe’s equity is a headline-grabbing example of “dead equity”: equity …Read more →
By: Noam Wasserman for Inc.com
Mark Zuckerberg and his executive team have been extremely successful at retaining equity in their company. But how well do most other founders do? Even as Facebook prepares to go public, Mark Zuckerberg, the founder and CEO, still owns 28% of his company. As a whole, Zuckerberg, his co-founders, and his former and present employees, own about 55% of Facebook. How did they do this?
Fear vs. Greed
Each time founders seek capital they face what my colleague Bill Sahlman refers to as the fear versus greed tradeoff. On the one hand, founders fear …Read more →
Is there a Gender Salary Gap in private ventures?
My previous post showed the percentages of men versus women in IT versus Life Sciences executive teams, across various VP-level and C-level positions. In this post, I focus on salary differences by gender, first describing the overall results using our full 2008 survey results, then delving into various subsets of the data.
The regressions included data on 2,200 executives from almost 480 private IT and Life Sciences ventures. The regressions controlled for differences in the following factors:
- Positions — separate variables for each of 15 VP-level and C-level
…Read more →
“I’m negotiating my equity-compensation package. How frequently do people get accelerated vesting on change of control?”
In private ventures, vesting of equity stakes is the major form of golden handcuffs (see posts here, here, and here) used to keep executives at their ventures. However, other terms, such as accelerated vesting on change of control (AVCoC), can shorten those vesting periods. (See Brad Feld’s description of AVCoC in the middle of this post, or the VentureHacks overview here.)
I recently got an email from a serial entrepreneur who has been brought on as the …Read more →
Does the founding team’s equity split affect the team’s stability as the venture grows?
As I described in my original “Splitting the Pie” post almost a year ago, my initial interest in equity splits was sparked by the contrast between how the founders split the equity in our “Zipcar” case versus my “Ockham” case. Specifically, those two cases suggested that the equality of the split could have important implications for the stability of the founding team. Last month’s post about the initial quantitative analyses of my equity-split data summarized the factors that increased or decreased the likelihood that …Read more →
What makes a founding team more likely to split equity equally?
In this year’s Entrepreneurship and Compensation Survey, I added questions about equity splits within the founding team. These questions were sparked by my cases and field research about equity splits, which indicated that:
- there might be systematic patterns to which teams split the equity equally vs. unequally, and
- how the equity is split might affect the stability of the founding team over the first couple of years of venture existence.
This is the first in a series of posts presenting the results of quantitative analyses of my …Read more →
The “Summary of Vesting Data” post presented the overall patterns in my vesting data and delved into the founder vs. non-founder differences. My “Early Analyses” post listed both the most significant drivers from my regression analyses of vesting periods and some of the not-significant factors. The core table from that post is reproduced here:
This post presents my initial interpretations (and those of the 2 entrepreneurs and the 2 VCs who contributed their insights in response to those posts), along with follow-up questions in italics below. As always, love to get your input on all of this!
Significant …Read more →
To complement the detailed early results, here are some high-level summary data on the years of vesting.
Across the full dataset (1163 executives from 225 companies), the range of years is 1 year to 5 years. The widespread rule of thumb is that vesting occurs over 4 years, and as expected, the most common period is 4 years. However, more than a quarter of executives (28%) have vesting periods different from that rule of thumb, which is what originally triggered the question for me of what was driving vesting terms.
More specifically, the average years of vesting …Read more →
For people holding equity that has not yet fully vested: Does the vesting status affect your thinking about when you might leave your company?
For investors or CEOs: Are you worried that a key employee will leave your company when his or her equity vests?
Some background: My Founder Discount paper examined how founders’ “psychological handcuffs” affect (negatively) the amount of compensation founders want and/or can demand from their boards. Because these psychological handcuffs tie them more tightly to their companies, founders are much less likely to leave if they are being under-compensated. Therefore, founders are paid significantly less
…Read more →