Clark Kokich has built a career helping brands master digital technology. So it’s only fitting that Kokich, the chief strategy officer at Marchex, former Razorfish CEO, and author of Do or Die, has created 20/20, the world’s first narrative live-action short film shot with Google Glass. The five-minute movie, which follows a day in the life of a young man through his Google Glass, makes a powerful statement about personal privacy and the power that technology assumes in our everyday lives. For as long as I’ve known him, Clark Kokich has always been fascinated with the way that digital technology can both disrupt and shape the way we live and do business.
20/20: romance competes with technology. Which will win?
In the following interview, he discusses the themes of 20/20 (a product of his film company, Perché No?) what it was like to make a movie with Google Glass, and his views on technology and privacy (including his opinion of Edward Snowden). Check out what’s on his mind — but more importantly, take five minutes to watch the provocative 20/20. This movie will make you think.
What inspired you to make this movie?
Last spring I was having coffee with Margaret Czeisler, global vice president of the Razorfish xLab. She pulled out a Google Glass for me to try. It was the first time I fully understood the power of the technology. Then, as I was driving home, the idea for the film just popped into my head. I more or less wrote it in my mind in the car and typed it up when I got home.
In the movie, Google Glass is omnipresent, and not always for the best. Where do you think Google Glass is headed in the next few years?
It’s hard to say. I used to work at Code-A-Phone, a company that made telephone answering machines. Remember those? Our biggest issue was confronting the backlash from people who became pissed off when they had to leave a recorded message.
In the 1990s, I worked for Cellular One. At that time, cell phones were regarded as a smug status symbol. “What kind of an asshole takes a call in their car?” We’re seeing that kind of backlash right now with Google Glass. And I suppose this film doesn’t help, does it? But who knows what will happen.
In the end, if the technology solves a real problem, people will get over it. Right now, I don’t think Google Glass solves an obvious problem in the same way answering machines and cell phones did.
The movie’s subtext about spying is obviously quite timely, with Edward Snowden recently speaking at the 2014 SXSW Interactive festival. What’s your view of Snowden? Hero or a traitor?
I do think he broke the law, and there should be consequences for that. But I don’t consider him a traitor. If I had to guess, 50 years from now he’ll be regarded as an important historical figure; someone who took a huge risk – and sacrificed everything – so that the rest of us could know what the hell is really going on.
I could relate to the scene where the protagonist is multi-tasking too much with technology at the expense of the people in the room with them. How do you avoid that happening in your own life?
I’m actually pretty good about that. I’ve never used technology just because it’s new and cool. I can admire it, and want to learn more, but I’m not an automatic adopter. I also think it’s important to be doing the things that are important to you, not that are important to others. For instance, if I’m on the road, I don’t answer emails on my phone just because they came in. My fingers are too big for that kind of nonsense. If something’s critically important, maybe. But for the most part, I decide what’s important to get done right now, and I only concentrate on that. Just ignore everything else.
What was it like shooting a movie in Google Glass? What did the experience teach you?
It was a pain in the ass. We tried to monitor the shooting in real time through an iPhone, but doing so was too clumsy. So we ended up shooting a scene with no idea what we were really getting. Then we had to wait to download the file and check it on the computer. If there was a problem, you had to start over. It took forever.
What’s next for your filmmaking?
We’re going to shoot another short this summer. This one is more serious. No more Google Glass fun and games.
CIO — For decades, the American Dream was the Silicon Valley dream: Catch on with a startup, ride its entrepreneurial energy, and strike it rich when the company goes public or gets bought for billions of dollars.
But this dream was shattered at the turn of the millennium when the dot-com bust left hard-working dreamers jobless and holding stacks of worthless stock options.
But the good times just might be coming ’round.
“Looking at the successful IPOs and launches of companies in the Bay Area, it has kind of rekindled that entrepreneurial spirit,” says David Knapp, metro market manager at staffing firm Robert Half Technology in San Francisco. “It’s got people excited again.”
Knapp won’t name companies specifically, but we will. The biggest tech news in recent years to light up Silicon Valley has been Facebook’s acquisition of WhatsApp for $19 billion. WhatsApp is a five-year-old company based in Mountain View, Calif., posting $20 million in annual revenues. Thanks to the sale, its co-founders have been made super rich overnight.
Last year, the public markets for tech companies took off. Twitter was the highest profile IPO raising $1.82 billion, but there was an assortment of lesser-known companies that went public, too, such as Relypsa, Marketo and Fireye.
All tallied, 2013 saw more companies going public and more money raised than in any year since the dot-com bust, writes Cromwell Schubarth at Silicon Valley Business Journal.
[Related: Top 10 Silicon Valley Tech Job Trends]
The jobs are back, too.
“The market right now is kind of feeling like the dot-com days,” Knapp says. “There’s a war for talent.”
Companies are wooing tech talent with sign-on bonuses and crazy work perks again, which pretty much disappeared after the dot-com bust. Salaries are rising across the board, as shown in the 2014 Tech Salary Guide. Despite some tech companies putting the breaks on flexible work schedules and telecommuting, most notably Yahoo and Cisco, the majority of Silicon Valley companies use them in hopes of retaining talent.
Demand is up for network engineers, software engineers and Web developers. Tech workers with “sweet spot” skills such as .Net, Java J2EE, PHP, Sharepoint and mobile are getting multiple offers, Knapp says. Everyone from tech giants to startups, healthcare to finance are in hiring mode.
Startups, in particular, have had a hard time convincing top talent to come on board, because they simply couldn’t compete on salary with the likes of Google and Facebook. Recently, a Silicon Valley startup tried to woo a Google programmer away by offering a $500,000 salary, but the programmer said he was making $3 million annually in cash and restricted stock units.
What do startups have to do?
They have to get creative, Knapp says. They can offer an easier commute, flexible schedules, work-life balance, an entrepreneurial culture, higher roles, an inspiring mission and, yes, the potential for a big payoff. With the recent rash of startup successes, a windfall sounds more realistic, and recruiting is a little easier.
“It’s like anything else, you’re selling the dream,” Knapp says.
Tom Kaneshige covers Apple, BYOD and Consumerization of IT for CIO.com. Follow Tom on Twitter @kaneshige. Follow everything from CIO.com on Twitter @CIOonline,Facebook, Google + and LinkedIn. Email Tom at [email protected]
“It’s not about fitting in, it’s about standing out.”
So goes Ben Horowitz’s theory of music and, judging by the tone of his (very) recent book, “The Hard Thing About Hard Things,” his theory on much more than just music. The co-founder of Andreessen Horowitz, which has become one of the most successful venture capital firms in Silicon Valley since its founding in 2009 managing $2.5 billion in investments from Rap Genius to Twitter, Horowitz has been on a whirlwind promotional tour, from New York to Arizona to Austin, Texas in the span of a week.
Fresh off a chat with Nas (yes, Nas) given to the Austin Convention Center’s largest room, we caught up with the fascinating, frank mogul while en route to one of many industry events he had planned for his time in Austin.
Billboard: The biggest question I have, is the problems in the music tech space, in terms of drawing investors or innovations.
Ben Horowitz: Oh yeah, very problematic. There’s a couple problems. One is the history — you know, venture capitalists put in a lot of money, the labels sue the company and the company goes away. That’s pretty rough. And then the very tight, central control of the content makes it so the leverage is with the content owners, which makes it scary. Now, there are guys who have seemingly started to break through, and we have an investment in a company called Rap Genius that kind of starts with music and then expands beyond it, and by doing that it makes it much more investable.
You mean with their annotation technology?
Annotating everything. Because other areas are just easier to license, and music is notoriously difficult.
It’s pretty hermetically sealed on a vast scale.
A vast scale, and in a way that’s weirdly disconnected from the artists. If you talk to the Spotify guys, they’re like, ‘We’re delivering a lot of money.’ If you talk to the artists they’re like ‘We never get any money.’ So either somebody’s lying or somebody’s getting all the money in between the artist and the company.
Is this why you or Andreessen Horowitz haven’t invested in more music tech companies?
That’s basically what keeps us away. Just uncertainty with the music labels, for sure.
Do you think Bitcoin could play a part in reinvigorating that space?
There’s a real interesting technical possibility — well there’s a few: One is just more ability for an artist to go direct. A very difficult problem for an artist selling directly is taking credit cards. The biggest kind of fee is going to end up being the credit card and the largest number of people being turned away is going to be due to fraud risk. Bitcoin gets around those. And particularly internationally it has some interesting properties there. But more interestingly, Bitcoin is a way to transfer, not copy, but transfer, a piece of digital property from one owner to another. And that’s never been possible. So all the [past] DRM solutions, the issue was you could copy them but nobody ever knew where the copy came from . But at least it’s theoretically possible now to basically have serial numbers by track, and you would know who the owner of the track was. And if somebody who had it wasn’t the owner, they clearly would have stolen it. And that’s never been possible to detect in any meaningful way.
How do you think traditional music executive have handled the ‘hard things’ in the last 15 years?
I wrote a post called ‘Why We Prefer Founding CEOs‘ and that’s, I think, a huge problem with the music industry, is that the guys who started the businesses either sold out or died. And the new guys left. So when technology changed the new guys were like way, way, way reluctant to innovate against it. It’s really ironic in music because the whole industry was started with the invention of the vinyl record, and the length of songs changed when they improved the vinyl record technology and the whole business was re-birthed on the CD. So for them to get caught with their pants completely down around their ankles on the next technological shift — it’s kind of ironically tragic. And there were obviously many opportunities to handle it better than they did.
There was a moment, right before the labels decided they wanted to shut Napster down, where they were negotiating with Napster. And if you could rewind history and say ‘Ok, what if they had done that deal?’ It would have been very, very interesting in that everybody was on Napster. So it was the most convenient thing. The big thing that the labels did is that they tried to make all the convenient ways of getting music illegal, and the most inconvenient ways — like crack a CD open and pull it out and all that — legal. So it was more than just free or not-free, it was a product problem. And I think the product problem was way underestimated, bigger than the free or not-free thing. So if they had just made Napster for money, it probably would have been a 90-10 to the labels and not a 70-30 [Apple's iTunes store takes 30% off the top of most sales]. It would have just been a better outcome for sure than what they ended up doing. And in talking to the Napster people, it sure sounded like it broke down at least partially over Napster wanting to track what every artist had sold and report it, and the labels did not want them to do that.
It shocked the shit out of me when I heard it.
That’s a large part of what we do at Billboard.
So the question is, right — and you guys have to do it the hard way — but there it was, perfect record of every sale.
And you would think the companies would want that anyways.
Unless they’re stealing the money…
You think that’s true?
The more I talk to people in the music industry, the more that seems like it’s potentially, viably true. But I don’t know if that’s true.
What’s an upcoming, music-focused tech company or innovation you’re interested in?
This isn’t necessarily one that would be a venture-backed thing, but Ryan Lesliehas a kind of new theory on how to do music distribution. I was very impressed with his thinking. He’s an artist, a very well-respected musician and rapper, but hasn’t necessarily had a giant mega-platinum career, but he has a very good idea for a company.
Which is… like Soundcloud?
Not like Soundcloud, it’s much more like, ‘How does an individual artist make money in today’s world?’ So it’s kind of rethinking what a label would be if you invented it tomorrow.
And that’s on the immediate horizon?
Yes he’s working on it now.
Now an easy question: What’s been your favorite rap record over the last couple years? It’s been an interesting time in rap.
The last couple of years? I’d have to say “Yeezus,” if I”m being honest. I could make something up, but that was my actual favorite.
In September 2012, shortly after Marissa Mayer took charge of Yahoo, she moved swiftly to try and rectify what was considered the search giant’s biggest problem: a lack of talent. The company’s long-serving head of human resources departed, and aformer private-equity executive, handpicked by Mayer, replaced him.
Since then Yahoo has been on an acquisition spree—or more accurately an acqui-hire spree, buying some 37 companies and their staff, according to CB Insights, the biggest of which was the $1.1 billion purchase of blogging service, Tumblr.
And now Yahoo thinks the problem is solved and its talent crisis is over. At least, so suggested its chief financial offer, Ken Goldman, who spoke at a Morgan Stanley investor conference in San Francisco this week. Goldman was asked whether an exodus of Yahoo veterans to places like Facebook, Google and startups could affect the quality of its services.
“There’s no question that we lost a number of folks along the way. We lost that because, in some respects, we pushed them out,” he said. ”When we came to the company, and we talked about acquisitions…frankly, companies did not want to be acquired by Yahoo…and for us to even acquire them we would have to pay a ‘Yahoo premium’ because they didn’t want to come here. That’s not the case any more.”
Competition for talent in Silicon Valley is fierce, and of course the CFO is going to talk up Yahoo as a good place to work. But Goldman’s statement is backed up by the company’s annual report, which claims that it received more than 340,000 job applications in 2013, double the number in 2012. According to the career site Glassdoor, Yahoo was the third-highest-paying company in Silicon Valley for engineers last year, behind Juniper Networks and LinkedIn.
But salary isn’t everything; unlike Facebook, Google or Twitter, Yahoo did not make it into Glassdoor’s separate list of the 50 best places to work.
Mayer has received her fair share of criticism for not letting staff work from home and for scheduling weekly meetings on Friday afternoons. But if the company is to be believed, the cultural change she has instigated is working.
“She deserves the credit relative to changing the attitude and morale and the desire, if you will, to… attract new folks as well as to retain folks we have,” Goldman said. “So I think – I’m very confident. If you talk to anybody at Yahoo today you would find them, whether they’ve been here for a year or five years, they’re very, very pleased with what they see in working at Yahoo. I’m absolutely, very confident in that relative to attrition and our ability to hire all points to that.”
It’s been quite a week for major Bitcoin exchange Mt. Gox.
The leading Bitcoin exchange shut down, filed for bankruptcy, and gave a hint of just how much control it’s lost. Bitcoin owners are freaking out, and they have their reasons.
Don’t worry if you haven’t kept on top of all the news. We’ve gone ahead and encapsulated it all.
First things first: After Mt. Gox discovered a possible hack and the theft of hundreds of thousands of Bitcoins, including some of its own, the exchange shut down on February 25.
More than $400 million in Bitcoin has gone missing.
On Feb. 28, Mt. Gox filed for bankruptcy.
The exchange said it was under order not to pay its debts and apologized to users “for causing so much inconvenience.” Its liabilities far outweighed its assets. In fact, Mt. Gox wasn’t even sure how many Bitcoins had vanished.
A Mt. Gox help line wasn’t very helpful to some people who were trying to call in yesterday, Bloomberg reported.
Yesterday, in a Bitcoin chat room, a user named nanashi____ surfaced with word of a 20 GB file representing sensitive data of an undisclosed nature that Mt. Gox stored. Apparently, people hacked in to Mt. Gox and were trying to figure out what to do with the data.
Also over the weekend, someone posted some curious code on the text-pastingwebsite Pastebin. It seems to be from Mt. Gox’s back end, and it seems to contain a means to route Bitcoins to places where they aren’t supposed to end up. At least that’s the way Ars Technica is writing about the code.
A class-action suit is being organized against Mt. Gox’s chief executive, Mark Karpeles, to recover the Bitcoins that went missing in the apparent hack, Bitcoin news outlet CoinDesk reported today.
At one point, Mt. Gox was the largest Bitcoin exchange. But BTC China took that title, only to have BitStamp claim it later, according to a 91-page report on Bitcoin that CoinDesk released last week.
During all the tumult, Bitcoin prices haven’t dropped off, believe it or not. At one point on February 25, the price sat at $452.22; and earlier today, it hit $656.20, the highest point since Valentine’s Day, according to CoinDesk data.
Even so, the dismantling of a major Bitcoin exchange should serve as a yellow flag for anyone thinking about buying, selling, or mining the digital currency. Clearly these systems can get sabotaged, and the lack of insurance means no there’s no guarantee to get your money back.
If you’re still not sure WTF Bitcoin is in the first place, read our introductory guidefrom last month.
Beats Music’s Chief Executive Ian Rogers on Tuesday announced his company is acquiring Topspin Media, a platform that lets artists sell merchandise and albums directly to fans.
Rogers, who had left his position as CEO of Topspin a year ago to join Beats, announced the deal in ablog post, saying, “The acquisition brings a team of talented people who have spent years working on building and fine-tuning the artist-to-fan connection into the Beats Music experience. Topspin + Beats Music combines music discovery and direct relationships between artists and fans in a revolutionary way.”
Terms of the deal were not disclosed. Beats Music declined to comment further beyond Rogers’ post.
After a year of watching artists bash streaming music for not paying enough to musicians, Beats Music launched its service in January with an eye toward positioning itself as a service that is friendly to artists, a message that Rogers re-iterated in his blog.
“We’re committed to establishing Beats Music as a conduit for the artist-fan relationship, a platform where artists have a voice, and a provider of useful data and analytics on how fans interact with artists and their music,” Rogers wrote. “This acquisition puts our money where our mouth is.”
Over the last three years I’ve been on both ends of job offers at startups. One thing that’s struck me is how little most applicants know about what to expect in a job offer, and in many cases, what the written offer they’ve received actually means. I was extremely fortunate that the first startup job offer I received was written by a pair of founders who had the utmost integrity and explained things very clearly. Since then I’ve learned that not every employee is so lucky.
This post doesn’t aim to teach you negotiation itself, but rather to acclimate you to the standards and vernacular of startup negotiations. It assumes you’re a startup newcomer.
One of the biggest myths that I’d heard while tucked away in my big company cubicle was that in order to get into the startup game, you had to take a substantial paycut. This is false, especially if you’re a developer in today’s funding climate. VC funded startups pay very close to market rate salaries. Your ask should be the same number it would be at a more established company with hundreds or thousands of people.
An exception to the above statement exists for companies who have raised very little capital and are not generating revenue. These companies do not usually have full salaries budgeted into them. If you join such a seed stage company, you should expect to work for less than a market rate salary until a larger round is raised. However, you should be compensated for this with increased equity.
It’s also a good idea to have a discussion about what your market rate salary will be after raising a Series A. This avoids surprises later. Because you haven’t yet demonstrated your skills inside the company and because the funding timeline is indefinite, it’s difficult for either party to make specific promises. My recommendation is to have something written that states what market rate would be for you right now. This way, if it takes two years to raise a Series A and you’ve grown into a bigger role during that time, you aren’t boxed into a number that you arrived at two years earlier and whose value you’ve surpassed, but you do have a quantitative starting point for determining what your salary will be.
Other methods of compensation and risk adjustment may also arise. For example, when I joined oneforty in 2009, I took a 30% pay cut. We expected to raise money in 6-12 months, and structured my employment offer such that I would receive a 30% bonus upon the raising of a Series A (subject to “outstanding performance” per my manager’s discretion). The offer also stated that at that time, my salary would be raised to a market rate. It did not specify what that market rate would be. Before joining, I informed the founders via email of the other offers I was prepared to pass on, and they told me that what I cited was “in a reasonable range.” The entire process from initial offer to post-Series A adjustment went very smoothly and without any surprises for anyone.
Whatever agreement you come to, make sure you get it in writing. This protects both parties and ensures that everybody leaves the conversation with the same impression. Every lawyer I know attests that there are more fights over what was said than what was written.
Startups do not typically offer cash bonuses unless they are generating substantial revenues.1 For nonprofitable entities with limited runway, it is much better for everybody that the company provides monthly compensation without accruing variable costs of ~10% of annual payroll every year. It’s easier on the books and it prevents the company from setting expectations that it may be unable to meet. Though your cash compensation will likely be comprised only of salary; you can certainly use a bonus you’d earn elsewhere as leverage during negotiations.
Equity procedures and vernacular are by far the least understood component of startup job offers. Especially for employees with no background in business law or finance, the specifics pertaining to equity grants are often wildly misunderstood.
Four years ago, a company granted you 0.5% of it to join as a seed stage engineer. The company has now raised a Series B, and you’re ready to take your shares and move on.
Not so fast.
First, the company didn’t really grant you 0.5% of it. It granted you the option to buy 0.5% of it at some discount from its seed stage valuation (when you joined). Let’s say that discount was 70% and that valuation was $5M, so you have the option to buy 0.5% ($25k) of it at a 70% discount of $7,500. You decide you’ll just wait until it sells or goes public, then buy your shares for $7,500 and then sell them at market price.
That won’t work either.
Leaving the company invokes your exit clause, which stipulates that you have 90 days to purchase your options, or else you completely forfeit them. The company is not obligated to remind you of this. If you forget to exercise your options during this period, they’re gone. If you don’t have $7,500 to spare during this period, they’re gone. Your only option is to cough up $7,500 or relinquish all of the equity you were told you’d been “given.”
If you’re leaving Facebook, this is a no brainer. But you’re probably not leaving Facebook. You’re probably leaving a B stage company that is growing fast but still has problems with churn or customer acquisition or scalability or some other solvable but imminent problem, and while promising, its success is far from certain. You have to decide whether you want to place a $7,500 wager on this company.
You place the wager, and two years later, the company sells for $20M after a year of mediocre numbers and failing to raise a Series C in a downward-sloping economy. It’s not the beachhouse you were hoping for, but your $7,500 investment looks to be worth $100k based on a 4x multiple of the original $25,000 value, right?
Your stock was common, not preferred. Investors have “preference,” which means they get reimbursed for what they put in before anybody else sees a dime. The company raised $18M in combined seed, Series A and Series B investments. First, those investors get their $18M back. Then, there’s $2M to be distributed proportionally among stakeholders. You’ve come out a narrow 25% ahead because of your discount price ($5M * 0.3 vs 2M). You leave with a $2,500 pre-tax profit on your $7,500 investment.
When the company issued new shares to Series A and Series B investors, you got diluted. Your 0.5% of the company now constitutes only 0.35% of it. 0.35% of 2M leaves you with… $7,000.
That’s right. After four years of work and digging into your savings to preserve your stake in the company, you’ve lost $500. You let out a long sigh, lamenting that this “granted” equity became a $500 loss.
This story is contrived, but it is not absurd or unrealistic. I recount it like this to emphasize how important it is for you to understand how equity distribution actually works when you’re negotiating it.
Equity is given in the form of stock options. Stock options are not gifts; rather they are “options” to buy some amount of stock at a fixed, usually discounted price. The nice thing about this system is that, at least in the ideal case, you don’t need to buy the options until you are ready to sell them.
For example, you have options on 1% of a company valued at $1.6M. There are 100k shares outstanding, each worth $16. Your strike price is $0.80, so you make $15,200 before taxes upon selling them:
There are too many variables (company stage, company valuation, employee experience, employee domain knowledge, employee salary requirements), let alone disagreement among industry veterans2, to generalize how much equity you should get and when, but Babak Nivi put together a table of option grants that rings true based on my experiences:
Title Range (%)
CEO 5 – 10
COO 2 – 5
VP 1 – 2
Independent Board Member 1
Director 0.4 – 1.25
Lead Engineer 0.5 – 1
5+ years experience Engineer 0.33 – 0.66
Manager or Junior Engineer 0.2 – 0.33
You’ll notice that Nivi talks about equity in terms of percentages. As Chris Dixon explains, this is the only number you care about in your equity offer:
The only thing that matters in terms of your equity when you join a startup is what percent of the company they are giving you. If management tells you the number of shares and not the total shares outstanding so you can’t compute the percent you own – don’t join the company! They are dishonest and are tricking you and will trick you again many times.
It’s a dangerous game to try to anticipate what your shares will be worth, but if you want to indulge, take your percentage, divide it by two to account for dilution and a low strike price, and multiply it by whatever you think the company might sell for. That’s the ballpark of what a home run hit gets you. Let’s look at a few examples:
You get 0.5% of a company that sells for $25M: 0.005∗250000002=$62500
You get 1% of a company that sells for $15M: 0.01∗150000002=$75000
You get 0.25% of a company that sells for $150M: 0.0025∗1500000002=$375000
Though it’s tempting, if you’re a startup employee, I caution you not to think about equity in such absolute terms, as they are difficult to predict. Look at your equity as a great bonus if things go well. The sad truth is that an overwhelming majority of startups fail, so for the sake of personal financial planning, assume it will amount to nothing. In the best case scenario it will buy you a nice car or provide a down payment on a home. It’s not a ticket to establishing independent wealth or never to work again.
There are a few situations after joining when you may be granted additional equity: first, as new shares are issued, you may be allotted some of them to avoid dilution; second, equity is sometimes used as a performance bonus, especially when companies don’t have enough revenue to provide extra cash; third, equity is often granted as compensation for a promotion.
Your equity should begin accruing as of the start of your employment. Do not listen to any hiring manager who tells you that in order to protect the company, you need to work for a while before you’ll receive any equity.3 There is a process called “vesting” that takes care of this and any founder who is both honest and knowledgable uses it.
Vesting lets the company give you some fixed number of stock options, subject to your working at the company for some period of time. Brad Feld explains the standard 4/1 vesting schedule:
Industry standard vesting for early stage companies is a one year cliff and monthly thereafter for a total of 4 years. This means that if you leave before the first year is up, you don’t vest any of your stock. After a year, you have vested 25% (that’s the “cliff”). Then – you begin vesting monthly (or quarterly, or annually) over the remaining period. So – if you have a monthly vest with a one year cliff and you leave the company after 18 months, you’ll have vested 37.25% of your stock.
Vesting is great because it protects everybody. Employees know exactly what they will get if they put in their time, and companies avoid the risk of an employee who takes equity and runs away with it.
Some employers talk about equity and salary as dials that you can adjust, increasing one while decreasing the other. Since startups are strapped for cash, this is always presented as the employee giving up some salary in exchange for more equity.
Sometimes these deals are fair, and sometimes they’re not. What makes them difficult and often unfair for the employee is that there are a handful of existential disadvantages that come along with taking equity as a substitute for salary. It’s important that they be understood so that they can be overcome:
Now that you understand the inherent disadvantages of this trade, you want to know if the specific deal on the table (to exchange some $x in equity for some $y in salary) is a good one. The best way to determine this is to look at the deal that the investors get, and compare it to the deal that you’re getting. You want a risk/reward ratio that is better than theirs.
Let’s say we have an engineer who is getting .5% of the company vested over 4 years. He’s making $80k, but probably could make $90k at a company with limited equity opportunity. Let’s assume a target exit price of $50,000,000 (oh, happy day!).
Our engineer is spending $10k per year to have a shot at a $62,500 per year. If he spends the full four years there, he’s “invested” $40k for a shot at $250k (a 6x+ return– not bad). When you run the same scenario with a billion dollar exit, it’s starting to look a lot prettier. When you run it at a Flickr-sized exit ($20m), it’s not looking like that great of a bet.
A 6x-exit does sound rosy, but when you’re shooting for a big reward, you must also consider the big risk. If you were this employee and you dug into the details here, you’d see that:
Let’s say you got into the company when it had a $4M valuation (A $90k engineer receiving a 0.5% equity grant implies (s)he is early). Your 0.5% entitles you to buy $20k worth of its shares at that valuation. That means that after four years, you’ve given up $40k in cash for $20k worth of illiquid stock. If you were an investor in the company, your money would have bought you $40k worth of the stock, it would be preferred stock rather than common stock, and it would not be subject to any vesting period. Dollar for dollar, investors got twice as much stock as you did, and they got it on much better terms.
Now let’s change the hypothetical to show when taking equity might make sense. A Director of Engineering comes on for $110k and 1.25% (he would normally make $140k) after the company raises a Series A and is valued at $14M. He is giving up $120k over four years to pick up $175k worth of options, earning 46% more stock per dollar invested than the investors who put in money at a $14M valuation. This increased reward helps to compensate for the increased risk stemming from the aforementioned disadvantages of taking equity over stock.
If you can afford to play the risk/reward game and want to turn up your equity in exchange for some salary, by all means see if you can find a deal that makes sense. There are founders who offer very meaningful equity grants to employees who are willing to sacrifice a portion of their paycheck. But in my experience, this latter example is the exception and Tony’s example is the rule. Whatever’s on the table, do the math and be cognizant of the tradeoff you’re making.
Your equity will be worth something or it won’t. Which side of that coin you land on matters more than anything – more than how quickly you vest or how much equity you get or what kind of discount you get or what stage you join at. A bad negotiator at a successful company will wind up with more equity value than a shrewd negotiator at an unsuccessful company.
Betting on equity should imply that you believe in the vision of the company and that you have immense faith in the people you’re working with. At the end of the day, those things will impact how much your equity is worth more than any of the aforementioned advice.
With the exception of health insurance, benefits are less numerous and less generous at startups than they are at established companies. Very few startups offer 401k plans; even fewer provide employer matching. The startups I’ve seen or been at that offered 401k plans instituted them because there was some bloc of employees who wanted to put away more than $5k per year ($5k is the maximum you can do on your own via an IRA).
Startups that have raised funding of any sort should provide your health insurance and they should pick up most if not all of the bill. If the startup doesn’t offer a healthcare plan, it should reimburse you for an individual health care plan. The more generous of startups will provide you with dental coverage.
The difficult part of negotiating a startup job offer is learning the inside baseball. If you can get past the jargon that you never saw until today, you’ll find that, like most negotiations, it boils down to math and common sense.
There are plenty of things to adapt to when you switch to startup life – culture, work hours, individual autonomy – but unless you’re committed to joining at the seed stage or earlier, a jarring compensation reduction isn’t one of them.
If you still have questions about your offer letter, or if something seems a little fishy, you can ask questions in the comments and I will answer them, or if it’s confidential, you can email me at [email protected] and I’ll respond privately. If you email me, please ask specific questions that I can answer so that I am not left guessing what you are wondering.
Exceptions exist for roles whose market compensation is typically paid in the form of bonuses, e.g. sales executives who are paid according to how much revenue they bring in.↩
Some companies require a board meeting to issue your equity paperwork. This is fine, but the agreement should be retroactive back to your starting date when you receive it.↩
Tony describes only the situation; it is my claim, not his, that the equity tradeoff is a bad one.↩
Startups are all the rage these days. Individuals have arrived in startupland as a result of an exodus from the worlds of finance, law, and other more traditional industries. Some came with knowledge, others looking to learn. But for the most part they came with the hope of making it big. It’s not their fault, most people enter the startup scene following the allure of Facebook a and Google -like exits.
Unfortunately there is a dirty secret in startupland: unless you start your own company, are a C-level executive, or join a rocketship, you will not make the much admired and sought after “FU money” in an exit scenario. This isn’t to say you won’t have a favorable outcome. Taking a $10-20k less salary than you normally would, getting $20k worth of options and having them worth 10X more within the 3 to 5 years is a great situation. But try living in a startup hub (NYC or SF) for the rest of your life on that $200k exit. It’s just not feasible.
Before I continue, I should note that joining a startup and building products shouldn’t be about the exit. The goal should be to build something that will make a difference in the world. It could be helping people find information, democratizing creativity, making money move faster and cheaper, or something else entirely. Money is just a byproduct of this. You need money to live. People like to live comfortably. Don’t think anything more of it.
Here are three different scenarios to reach the promised land of wealth creation.
Starting Your Own Company
This route is by far the most difficult, but has the most upside. For tech startups, having founder equity can make you a paper millionaire overnight although that money can take years to actually reach the bank. Because of this, some founders take money off the table even before their company exits by selling a piece of their shares in round of fundraising (usually a series B or C). Taking money off the table has a different effect on different people. For some it motivates them to go for the grand slam (i.e. nothing to lose), for others it makes them too laid back about actually getting the product rolling (i.e. having comfort of newfound money).
In terms of actual economics: Let’s say you start a company with three people. There isn’t always a clean split of equity, but we will evenly divide it for the purposes of the exercise. Each one owns 33%. If the first round of seed funding yields $1M at a company valuation of $5M, the investors in the seed round have claimed 20% of the company, or ~7% from each of the founders’ original stakes. The founders now own a total of only 80% of their company; equally diluted means that each founder owns about 26-27% of the company. This hypothetically means that each founder has $1.3M in equity.
But this number only exists on paper. Without any product or revenue, this won’t continue to increase. That value can certainly multiply over the course of the life cycle of the company, but this is why founders try to start companies with their own funds to avoid diluting their stake.
A great article to read that makes a case for starting a company to build wealth was written by Paul Graham in 2004. You can find it here.
Being a C-level Exec
Joining a startup as a CEO, CTO, COO, or some other chief can give you more than a favorable outcome. Not only will you receive a non-startup level salary (if you are sought after they will try to bring you on with a high salary). On top of that you will command a percentage point or more of the company. There have been cases in which non-founder CEOs of various stages of the cycle get up to 7% of the company. COOs or GMs can earn 1-3% of the company for joining in the early stages. People can make careers of joining startup as the seasoned veteran, getting a big chunk of the company, and helping take the business to the next level.
Joining A Rocketship
Out of the three possible options this is the easiest. It’s also hard to do right: there are only so many rocketships to join. Rocketships are companies like Twitter, Facebook, Google, Groupon , Instagram, Dropbox, Airbnb, etc. If you begin working for one of these companies, there is the potential to earn significant capital if there is an acquisition or an IPO. The difference between joining a rocketship and joining another regular startup is that if you get 0.3% of the company (a possible scenario if you are an early employee in a key role), for a regular startup with a $50M exit the .3% is $150k, whereas a $1B exit in the same scenario is $3M (both scenarios assume there is no more financing after you get your options).
Bottom line: If your goal is to break into the startup space and make gobs of money, you should understand that unless you are in one of the above scenarios, your chances of cashing out for life are very slim. A more realistic goal is to join a normal startup (i.e. one that isn’t considered a rocketship), learn from the founders, execs, and investors, and then go and start your own company. Make sure you learn everything from building, shipping, scaling, raising, closing, and more, so that you can take some of the best practices with you onto your next endeavor.
At Samsung's satellite Galaxy S5 launch event, the company also unveiled its Gear Fit smartwatch/smart band hybrid.
SEE ALSO: Samsung Gear 2 and Gear 2 Neo: Hands On
Of the three products, the Gear Fit is the most interesting — not just in terms of its design — but in terms of its positioning and functionality. With the right marketing and the right set of features, the Gear Fit could be the type of of mass-market wearable Samsung needs to wash away the taste of the Galaxy Gear.
Samsung dropped the "Galaxy" moniker from its wearable line — ostensibly because it wants to keep "Galaxy" focused on tablets and smartphones. The name change isn't the only strategic shift.
Even though the Galaxy Gear was unveiled only about six months ago, it has already been replaced with a better-designed Gear 2 and Gear 2 Neo. Mashable Editor-at-Large Lance Ulanoff argued Gear 2 is everything the original Gear should have been, and I totally agree with his assessment. Genuinely, its hard to look at the original Galaxy Gear and see it as anything other than a stopgap that was released with the hopes of capturing some holiday wearable dollars.
The difference with the Gear family in 2014 — aside from a better design and more refined components — is that there are now multiple products available.
The Gear 2 is being positioned as the high-end smartwatch. It's the flagship. The Gear 2 Neo is a cheaper smartwatch for the everyman. The Gear Fit has a lot of smartwatch-like functionality built-in, but it's clear Samsung is using it to target the burgeoning fitness band market.
Interestingly, it's the fitness market — a place Samsung hasn't been actively focused in the past — that may provide the best path to mainstream success.
The market for fitness trackers and health bands — let's just call them smart bands — is growing. Fast. Canalys reportes that 1.6 million smart bands shipped in the second half of 2013, up 700% from the first half of the year.
Canalys predicts 8 million smart bands might ship in 2014 and that by 2017, the shipments might be as high as 45 million units. Right now, the dominant players in the field includeFitbit, Jawbone and Nike — but there's plenty of room for newcomers, especially with a recognizable name like Samsung.
Smartwatches might be mainstream in the future, but smart bands are encroaching on mainstream now.
Smartwatches might be mainstream in the future, but smart bands are encroaching on mainstream now. Most of my friends don't have a smartwatch, but I'd say nearly 75% have a Fitbit or a Nike Fuelband.
The Gear Fit isn't Samsung's first crack at this space. During the Galaxy S4 launch last year, Samsung showed off an S Band) fitness tracker. I don't think the S Band was ever actually released (and if it was, it was in very limited quantities), but the press images and samples we saw looked a lot like the original Fitbit.
And while the S Band was basically a pure fitness tracker, the Gear Fit is much more of a smartwatch/smart band hybrid.
The Gear Fit has all the typical fitness-tracker accoutrements: It can monitor exercise and sleep, it has a built-in pedometer and heart-rate monitor, and it has a stopwatch and a timer.
The real plus, however, is that it can also talk to your phone.The Gear Fit can display calls, e-mails, app alerts and get push notifications. It can also act as a media controller.
With notifications and alerts, the Gear Fit is edging into smartwatch territory.
Right now it's not clear how Samsung will open up the Gear Fit to outside developers. Unlike the Gear 2 and Gear Neo — which use the Samsung-backed Tizen mobile platform — the Gear Fit runs a proprietary Samsung embedded OS. That said, even without broad third-party support, support for app notifications might be enough for some users.
I have long expected the smart band and smartwatch markets to converge. We treat the two as separate categories, but there is no reason that your smartwatch shouldn't be able to track your steps or that your smart band shouldn't be able to let you change the station on Pandora.
We'll have to use the actual product to be sure, the Gear Fit looks like the first real hybrid device — and that's a good thing.
Much of the hesitancy with smartwatches, at least with individuals I talk to, revolves around two issues: use case and looks.
Having the fitness-tracking abilities gives a solid use case to wary users. This is one of the reasons the Pebble/Runkeeper partnership made so much sense, and why Pebble remains focused on working with fitness app developers.
After starting with tracking a run or a step count, a user might just find that she enjoys getting app notifications, seeing call alerts and having the ability to control her headphones.
Don't let the "Fit" moniker fool you, the Gear Fit can also act as a watch.
The second issue, the one of design, is an area where smart bands are far more advanced than the smartwatch. The smartwatch is still trying to decide how it looks and what it does. Trying to compensate for the size of the screen, the shape of the face, the design of the band, all comes with compromises.
I really like the smartwatch space, but if I'm being honest, none of the major players are particularly beautiful. I really like the design of the Pebble Steel, but it's still much more suited for a man.
The Gear Fit isn't perfect, but it's a very good first attempt at this space.
The Gear Fit has a curved Super AMOLED display, which Samsung says is the first for a device like this. The immediate benefits are that it is both bright and vivid — and the touch sensitivity in my tests was spot-on.
Having touch support helps the Gear Fit stand apart from some other fitness trackers that rely on buttons.
Having touch support helps the Gear Fit stand apart from some other fitness trackers that rely on buttons.
The band itself was comfortable — and available in a variety of colors. I might quibble with the radius of the screen's curve — it's still a bit big for my wrist — but for someone who isn't built like a tiny child, it will look great.
Even better, I found the way the interface was designed to make tons of sense. Tech Editor Pete Pachal and I discussed the orientation of the icons on the device. Pete thinks it might serve better to be vertically stacked, rather than horizontal.
I disagree. Orientation is a difficult thing to manage on these types of devices, because you will literally read the text and information from the side, regardless of what wrist you use — but I think the left-to-right motif that matches what Nike does with the Fuelband works quiet well.
I also think that this orientation works well for activities such as controlling media.
The curved Super AMOLED screen really does make a ton of sense. I'll also pass on another suggestion from Pete Pachal — one I agree with this time — Samsung should look at using flexible displays in the band. that way, the curve could be more contoured to a bigger or smaller wrist.
I don't really get the point of a flexible phone. A flexible screen on a smart band or smartwatch, however, is a great idea.
One of the things I admire most about Samsung as a company is that it isn't afraid to try, fail, and try again. In fact, that is pretty much the company's MO in mobile. The company's first Android phones were not good — but then the Galaxy S series came along, and it was a revelation.
The same is true for the company's attempts at tablets. The first Galaxy Tab was not a good device. Fast-forward a few years, and Samsung is making the Nexus 10.
It's too soon to say if Samsung will find success with smartwatches or hybrid wearables like he Gear Fit. The Galaxy Gear was not a good start, but the Gear Fit actually has signs of promise.
The Galaxy S5 might have been the focal point of Samsung's MWC presentation, but for my interest, the product I really can't wait to see evolve is the Gear Fit.