![]() Twelve years later, Salesforce’s market cap was $18 billion, Google’s was $162 billion, and Amazon’s was $17 billion. Before these three went public, they weren’t unicorns – that is, their market cap was less than $ 1 billion. The three examples Suster uses–Salesforce, Google and Amazon– show how much more valuable the companies were after their IPOs. The entire premise of growth capital is that by staying private longer, all the growth upside that used to go to public-market investors (Wall Street) could instead be made by the private investors (the VC’s and growth investors.) Instead of a startup going public six to eight years after its founding to raise capital to grow the company, today companies can do $50 million-plus private raises at that point, deferring the need for an IPO to 10 years or more after launch. The first big idea is that unlike in the 20 th century when there were two phases of funding startups– Seed capital and Venture capital–today there is a new, third phase. And Mark Suster of Upfront Capital has a great post that summarizes these changes. Much has changed about the economics of startups in the last two decades. Of the four startups I worked at that went public, it took as long as six years and as short as three. In the 20 th century, the best companies IPO’d in six to eight years after startup in the dot-com bubble of 1996-1999, that could be as short as 2-3 years. Therefore, the time until a liquidity event was crucial. ![]() Everyone-investors, founders, and startup employees-was in the same boat. And just to make sure you stuck around, with most stock option plans, unless you stayed an entire year, you wouldn’t vest any stock.Īll employees – founders, early employees (who received far fewer options than founders, but more than later hires), and later ones all had the same vesting deal, and no one made money on stock options until a “liquidity event.” The rationale was that since there was no way for investors to make money until then, neither should anyone else. The stock trickled out over four years, as one would “vest” 1/48 th of the option grant each month. If the company was successful, the employee could sell the stock at a much higher price when the company listed its shares on a stock exchange (an “initial public offering”) or was acquired.Įmployees didn’t get to own their stock options all at once. Mechanically, a stock option was a simple idea – an employee received an option (an offer) to buy a part of the company via common stock options (called ISOs or NSOs) at a low price (the “strike price”). ![]() This “we’re all in it together” kept founders and employees aligned on incentives. Back then, when earlier angel and seed funding didn’t exist to get the company started, founders put a lot more on the line– going without a salary, mortgaging their homes, etc.
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