That's a good story, but I wouldn't exactly call it ironic. Tom Preston turned down the Microsoft offer because he "wanted to work on something he truly loved", not because he was opposed to working at the company. And he succeeded, no matter who he sold Github to.
Each of the three could receive about 12.3 million Microsoft shares, assuming they control equal stakes in GitHub. A 0.16 percent holding would give each of them about 10 times more shares than Chief Executive Officer Satya Nadella, and roughly 14 times more than President Brad Smith. Among insiders, only co-founder Bill Gates’s 1.34 percent holding would exceed theirs, according to data compiled by Bloomberg.
Imagine an Apple buys NeXTSTEP styled coup by acquisition.
Apple only bought Jobs and some ideas. NeXTSTEP was worthless. Yeah, it turned into OSX, but they could have started with Linux or BSD just as easily. This analogy only holds if the GitHub founders stick around, and they've already announced a new CEO.
No NextSTEP was very valuable! At least in terms of a GUI and user interface development platform. According to most lore of that era which I’ve read it was as an amazing developer platform [0].
There’s reason both Tim Berners-Lee’s little side project (the “WorldWideWeb") was developed on NextSTEP bought specifically for the project [1]. Or why Doom was written on Next machines as well [2]. The semi-dynamic features of Obj-C made a very power UI development system and the postscript backed graphics system was (likely) the first and only vector based display subsystem. Linux / BSDs and OS GUI frameworks still suck at handling hi-dpi in 2018. Well QT’s ok at it.
Linux and PC BSDs were more primitive at the time Next was aquired, especially the UI subsystem and X11.
So NextSTEP brought a powerful ahead-of-its-time graphics subsystem, solid BSD Unix based OS tools and services, and powerful dynamic development system and language. If that’s not valuable well by your estimation, it’s worked pretty well for the most valuable company in the US.
I think they are saying there was so much work involved in getting it to that stage, they could have built on any OS and not spent any more time doing it.
You mean a huge company could have released 1000 PM's and hundreds of millions of dollars, 99% of which would be spent on political infighting and empire building ... Wait weren't we trying to build a product ? NO ! I NEED MORE HEADCOUNT NOW !
Buying can be far more effective than building, especially for large companies.
Interesting that Microsoft paid with shares. They effectively just issued $7.9B in equity without having to go to the public markets for it. Granted it’s only ~1% of their $780B market cap... but this also suggests they believe their shares are perhaps a little richly valued.
Agreed - definite 'strategic' rationale for the purchase. Can't get there by any conventional valuation method. But to put things another way, do you believe that having Github as a Microsoft property (or the insurance that buys) is worth 1% of the company? Not too hard to get to big numbers when we're talking about a 3/4 trillion dollar company.
This one kind of feels like Skype, in that it felt like they overpaid there as well (I remember thinking that Silverlake had performed a masterful coup with Skype) ... only time will tell whether Github loses their mojo as in the Skype situation. I'm not a skype user, but my general sense is that the service has been completely eclipsed by everything else in that space.
Yes, it's true they have a stock buyback plan, so net-net it will be a wash. But the marginal decision remains the same - should we pay cash or shares for Github? If they really felt their shares were undervalued, why not just pay cash?
Stock buyback plans are heavily pre-meditated programs with relatively rigid rules. It's not like they added an extra ~8B to the last buyback plan in anticipation of this exact event.
Andreessen Horowitz invested $100 million into the software startup in 2012, the single largest check it had ever written.
The firm owned about 13 percent of the company after that deal, according to Pitchbook, and made sure to take its pro rata rights — or right to follow up with more investment at a later date — when Sequoia Capital valued the company at $2 billion in its own deal in 2015. Those were the only two times that the 10-year-old company ever raised money. [0]
What do you mean "what about the employees?" Were they not paid? Or do you assume anyone who profits from the sale of a company is automatically immoral? Lots of founders lose everything when they attempt a startup; the employees of those companies got paid up through the end and much more than the founders in many cases. Let's celebrate the success of those who hit a home run rather than sniping at them for not sharing their wealth with the people who risked less in the venture than they did.
Being a founder in a SV-funded startup is not a hardship. You spend some number of weeks taking coffees with investors. You get funding and start recruiting friends and posting job openings. You go to SV conferences and meetups where, as Founder, you're one of the elite. You're invited to the summer party at August Capital, and year-round founder events by your investors. And yes, you work hard.
And the employees also work hard, and are working on reduced pay, and are doing it because it's fun and they believe in the mission. And they believe they're all "in this together," but learn otherwise only when the big day arrives.
The GitHub founders spent 5 years entirely bootstrapped before taking any outside investment. IIRC, they spent the first 2 without any employees, doing all coding, sales, and evangelism themselves and making barely-pay-the-rent revenue. Their salary had they not started GitHub would've been roughly $300K/year. That's close to a million each in opportunity cost, with no obvious indication they'd be successful at the end. (They were themselves early employees of PowerShell, working for startup salaries until it was acquired by Microsoft. They chose not to continue working at Microsoft after the acquisition.)
Methinks you need to distinguish between startups like Theranos, Clinkle, or Juicero, where a well-connected and charismatic founder meets an investor who takes on all the risk and then they crash and burn spectacularly and nobody gets their money back, and a bootstrapped team of engineers that build a product millions of people want and then get handsomely rewarded 11 years later.
Your story doesn’t speak well of SV. If employees are led to believe — or even let to believe — they are in this with the founders and will share in the rewards but it’s not in their contracts... I’m not sure if it’s on the Founders or the people who believe beyond what their contracts oblige their founders and investors to perform. Which case are you making here? Personally, I assume I don’t get anything not stipulated in the employment contract regardless of enthusiastic assurances to the contrary.
It certainly is that simple. I know a lot of serial contractors who would rather take the guaranteed $150/hour instead of $95/hour+equity because the latter is a crap shoot. Sure, there will be cases where they could say "If I had taken the equity deal on GitHub/Instagram/Fabulous Startup I could retire now".... they can dry their tears with the realization they are still in the top 2% of all income earners even without the equity millions.
let’s face it: the distribution of equity is about leverage and convention.
as a community, we anchor each other by saying things like what you’re saying. if more people felt the way i do, as a community, we would not accept the status quo.
it sounds as though your stance is founded upon a just-world hypothesis.
Many employees do much more than what they're asked to do. Stay longer hours, postpone their families and many times take salary hits, refuse job offers, give away intellectual property... many even put their health and marriage on the line.
And without that sacrifice on the part of employees, many companies would never have made it out of a vast pool of mediocre nondescript companies.
This is not the case for every employee or every company, but I think you need to balance your world view a little bit.
Unless they are being forced to do that without proper compensation in which case they should leave they aren’t and shouldn’t be awarded with extra just because they are workaholics if nothing else is that because it forces other people to invest more than they want or can.
For quite some time in the start of my working career I was staying till 9-10pm at work working on extra projects, perfecting something having fun etc. until at some point my then manager took me a side and told me to stop it not because of what it did to my life and not even because of the potential liability the company had but because of my other team members.
He basically said look you are 25 you can do what ever the hell you want but “Joe” is 42 and “Mark” is 45 don’t put them in a position to have to compete with you when there is nothing on the line.
Since then and since getting much more experience I’ve really taken that to heart and I actually detest people who spend considerable amount of time on top what is expected and appropriate at work and I work actively to prevent anyone on my team or who I engage with doing so.
If you like to code 24/7 do your 9/5 job and then work on some FOSS project on the side, take a 2nd job or volunteer at some charity and build them a new donor engagement platform.
Don’t force me to feel bad or uncomfortable for leaving at 5.
You mean the employees who chose to work there understanding the terms of their deal? The employees who probably just made a ton of money themselves from this deal? What exactly is unfortunate about this? Are you upset that some people made a lot of money?
In fact, many people don't understand the deal in detail (e.g., what may happen during an exit), nor the cap table.
E.g., one person I know, an Employee #1, was shocked to discover that investors only held ~15% of the startup he was at, which he joined just a couple of weeks after incorporation, and the founders held nearly 80%. His equity was IIRC 1%, which he thought was great, and was assuming that the founders had maybe 10% each, with a big option pool and a much-larger investor ownership. Ok, so his numbers didn't change just from learning everyone else's, but he wouldn't have agreed to 1% if he'd known.
It's not the founders' fault. They acted in their own self-interest, and did not volunteer information that would have negatively impacted their position.
But the employee still had a right to be upset, same as any of us would be if we discovered that a teammate for the last several years had been pulling in twice your salary, when you were told "sorry, this is as high as we can go."
This is an unfortunate symptom of a huge problem with equity compensation: Valuing a stock option is difficult, even for finance pros. You need to understand the cap table, understand the company's current (and expected future) finances, the exact legalese in your offer, and how reality is likely to change as you remain employed. It's even more difficult when founders/investors don't tell you all the information. Your typical "Employee #1 Tech Bro" hasn't got a chance vs. the sharks. It's like an amateur sitting down at the poker table with 8 other seasoned pros.
>It's not the founders' fault. They acted in their own self-interest, and did not volunteer information that would have negatively impacted their position.
This is a super capitalist thing to say. Anyone can understand _why_ the founder acted in their own self interest here, but to say it's not their fault is to just remove all agency from them.
Maybe it's in my best interest to have someone murdered so I can take over their business. Would you say it's not my fault if I did so?
The Pie fallacy is false on shorter periods of time. In the real world. The Pie size is fixed. Or atleast the Pie size expands only in cycles.
So in one particular cycle people try to gather as much Pie for them as they can.
There fore ultimately one has to be selfish, even if not out of nature, but out of sheer compulsion. These days you have to do these things just not to get walked over.
I agree with you in the sense that people are accepting those offers rationally. However, those employees just like the instagram and whatsapp employees got extremely lucky. 99% of startup employees will likely not make what they could if they worked for a big tech companies like Microsoft which pay with liquid relatively minimal risk stock.
My point is that startup equity is shit in all but the extremely rare unicorn cases for everyone except the founders and VC's.
I always laugh when I see startups offering microscopic equity while founders horde orders of magnitude more stock acting like what they have done is worth hundreds of times more what your early employees do.
> You mean the employees who chose to work there understanding the terms of their deal?
As if anyone can just choose to be working for a company with the right terms, in a position to make a multi-billion dollar sale, and also somehow not get screwed out of what they thought their terms guaranteed.
you're right, people can't. If you want shot at a significant chunk of a multi billion dollar sale you start your own company. As the github founders did.
If you want up be paid $x a fortnight right from the get go then you get a job.
I don't see how the success of people who chose to do A means people that did B got screwed, just because they both worked on the same project. The decisions they made and context of their choosing to work on it were still different things each with their own pros and cons
Unless there was some more to it. Like share /options shenanigans that might not be legally fraud but fraud in spirit. No one seems to be saying that happened here though.
> If you want shot at a significant chunk of a multi billion dollar sale you start your own company. As the github founders did.
False dichotomy. People join startups (esp. early ones) thinking they have a shot at a significant chunk. But even for the very first employees, the equity numbers are ridiculously small. I don't understand why they sign up for it.
All my friends in startups work damn hard and poured huge chunks of their lives into it, and it has not been fun watching them be offered meager positions post-acquisition, while their founder/CEOs get multi-million paydays.
That is why you get paid for your time, and it is probably a lot. Leave work at work and move on when it is time. It's just a job. Those founders did much more than the people you know. They took a massive risk at complete failure
Does those people being wrong mean anything from a moral /rightness / "getting screwed" perspective? I make mistakes like anyone else, sometimes pretty big ones to the tune of quite a lot of money. Wouldn't say I've been screwed though. I just fucked up.
Only if you're suggesting that the employees chose to work there because they thought they had the right terms and were expecting a multi-billion dollar sale from which to benefit. If you have evidence for that, I expect you've freely chosen to work for such a company yourself and that you're entirely confident in your situation. (Or else the money just doesn't matter that much to you. That's ok too!)
I don't see how it makes any sense to demand a hefty cut from a successful investment while intentionally turning a blind eye to the risk that was assumed by the actual investors. For exampld, I really doubt these we would be discussing how employees were obliged to pay up the company's debt if Github was bankrupt, and how it would be immoral for them to not be responsible for the venture's finantial outcome.
I often see debates around here about whether or not people should accept equity as part of their compensation or prefer all-cash. My perception is that there seems to be a lot of support for the cash-only position. That is fine. Nobody gets to have their cake and eat it too. People who chose to accept the risk, in this case at least, were richly rewarded. Lots of people at other companies choose not to accept the risk and they are protected if their employer happens to go bust.
If it's that unclear then I'll rephrase it: If you make a gamble that requires someone's help to pull off, and the gamble is successful, you should share a reasonable amount of your success with the people whom made your success possible. I don't think these founders are sharing a reasonable amount with their employees, and I also think it's sad that this is not only accepted, it appears to be encouraged.
Also employee owned cooperatives are cool, and I wish there were more of them.
The point I'm making is that my opinion is that the founders here were unfair and that American laborers should expect fairness, not that they paid them some specific amount less than they should have- though I suspect you know this. If you'd like to have a genuine discussion with me then feel free, but whatever you currently appear to be after I have no more interest in pursuing.
GitHub employees agreed to work for pay, both in competitive guaranteed wages (salary, health insurance and other benefits) and also with stock, which is not guaranteed. Sounds fair to me.
You don't think it's fair -- fine, but what would be fair?
The fact is that the multi-billion payday would not be possible, had they not convinced so many talented people to work for equity-peanuts. Kudos to them!
According to Glassdoor, average programmer salary at GitHub is $150k. That's hardly peanuts.
Bay Area overflows with job opportunities.
If those talented people would rather get a risk-free work at Google/Facebook/Microsoft for $250k, why didn't they?
Majority of software startups require just as much work, pay even less in base salary and their equity is worth $0 in the end, because the founders didn't create a valuable company.
You say employees got screwed because they worked hard and didn't make tens of millions.
I say they got supremely lucky.
A 0.1% of 7.5 billion is $7.5 million, which is more than you can hope to make from cushy G/F/M jobs and certainly more than you can hope to make from an average Bay Area startup.
Why? 50% of 7.5 billion is still a lot of money. Github doesn't have that many employees.
In fact, they have 745 employees. That averages out to 4.6 million per employee. Now, there's probably a good bit of VC money in there diluting that, but i'd bet not by more than 50%. I think the employee equity pool did just fine here.
You think that the employee equity pool was 25% of the company? That's pretty high. Not maybe completely unprecedented, but I'd expect considerably lower.
I understand your visceral reaction here, and agree that equity pools need to be increased in general. But isn’t that really a reflection on all the folks who choose to join a startup for the prevailing equity packages offered today? The reality is unless you have founder or very early employee equity, it will take a Facebook size outcome to Be truly life changing.
Having been part of a billion dollar acquisition myself, I can attest that for the vast majority of people (myself included), it was equivalent to a nice bonus. Perhaps more people need to realize that and internalize that before they forego the higher compensation, and easier workload of an established company?
The only thing that will realistically get founders to share more equity is for the market to demand it. Personally I would not sign up for another startup journey unless I felt there was substantially more upside on the table. Otherwise, you’re better off joining BigCo or go further and start your own thing and get founder equity.
FWIW, I wouldn’t begrudge the Github founders... they’ve done an amazing job over a very long time. They rolled the dice and made it happen. Hats off to them!
Just keep in mind that it's not just about the money. For example, in an early-stage, rapidly-growing startup, you're also bound to gain much more experience (managing, sales, operations, etc) much more quickly than in many established companies. So even if you just get a nice salary and a nice bonus, your career could still be leaps ahead of a corporate worker-bee.
GitHub has, what, 600-700 employees? Most of those have probably been hired in the last five years. Ownership distribution was likely relatively slow, given the way GitHub proceeded as a business (slow ramp, only took on a series A four years after the founding).
Gates had 45% of Microsoft after its IPO after a similar length of time (a decade) that GitHub has existed. His position rapidly diluted after that with increased share-based compensation and Microsoft's size ballooning. Allen + Gates + Ballmer probably had 65% of Microsoft after the IPO.
Larry Ellison still holds 27% of Oracle after 40 years.
I don't think the GitHub distribution outcome is particularly historically unusual. One could argue obviously that from a strictly subjective moral basis that it's still not enough distribution.
The only thing historically unusual, is that the venture capitalists got such a small share of the outcome, courtesy of GitHub not drowning themselves in funding across a decade. In most cases these days, the VCs would be taking up a far larger portion of the founder's 50% position.
I'd guess the employees are getting 20%-25% of the $7.5 billion. That's maybe $2.25m to $2.75m average per employee, assuming a 600-700 employee range.
That seems like a pretty big assumption. And as mentioned in other comments, what about the employee stock pool? That must account for some chunk of it also.
interesting that the stock grant was based on monday's close price. is that common? or accurate? because if true they would technically want the stock to TANK on the announcement so they could get more shares? :) just fun to think about.
they deserve it for the risk taking and management. github is a once in a decade, maybe century, company.
Certainly seems like it, but I was spectacularly wrong when I said that about Google's purchase of YouTube and about Facebook's purchase of Instagram, so I've learned to stop saying that.
I was in the same boat until I talked to someone working directly with youtube and that conversation cleared a lot of my questions. Allow me to do the same for you. :)
Not really. Nowadays a user base complete with data usage of the demographic you want to target is super precious.
Think about it: Microsoft will know exactly who, when and from where people accessed your repositories. They will have detailed metrics on your commit/push patterns, the devices you use, etc...
A social network of developers is probably something very precious. And whether MS's motives toward open source are hostile or benevolent, it is a precious thing to have.
Even if they just want to kill it, that's probably the amount you need to spend on it.
It feels like enterprise sales are the product here, not users' data. It seems like a great way to alienate a community that is normally pretty conscientious about privacy though.
> OTOH, anyone else think Microsoft has massively overpaid for Github? Feels like Satya's Nokia moment to me.
I have no idea about whether the valuation is sane, but combining a powerful, intuitive tool (GH Enterprise) w/MS's sales channel is likely to drive a lot of new revenue. Lots of companies stick with IBM's revision control products because companies like Github might not be taken seriously by decision makers.
> OTOH, anyone else think Microsoft has massively overpaid for Github?
They've only massively overpaid if they rapidly confirm the worst fears that have been expressed and thus tank the value of what they've got; leveraged well—which will take a light touch—Github is of enormous value to Microsoft.
Higher valuation means MS have to give out less shares now for this acquisition. Although, it’s a complicated topic.
Trying to address your comment - MS makes money with stock market movement but not right away. Higher stock value means higher valuation. If MS decides to raise money by selling stocks then obviously they will get the higher dollar value at that time. Although, it will be painful for stock buyback program.
If you think - my understanding is wrong then please educate me
> OTOH, anyone else think Microsoft has massively overpaid for Github? Feels like Satya's Nokia moment to me.
I don't think so. Of course it is an high risk investment for microsoft. But github is in a place like no other site nowadays. Just 1.5 million company customers make it quite valuable. And the fact that it is a standard in the open source world also means that more and more companies will use it in the future.
I don't think that being pedantic about the definition of words when the intended meaning is understood is something we should be doing on HN, but since we are:
> hostile toward a rival or one believed to enjoy an advantage : envious
>
> His success made his old friends jealous.
> They were jealous of his success
I’ve never won that argument with a compiler and I’ve tried thousands of times. Programmers — I’m one, I make no assumptions about you — are pedantic by nature. Are you judging me because I was born this way?
Github's founders became billionaires by making powerful developer tools available to everyone at low or zero cost, thus making millions of developers more productive and wealthy.
Bill Gates and Steve Jobs became billionaires by making personal computers and software available to billions of ordinary people, making them more productive and wealthy.
Larry and Sergey became billionaires by making information and smartphones available to billions of people, and in doing so helping some of the world's poorest people lift themselves out of poverty.
What do you prefer: a world in which a handful of people are vastly more wealthy than the rest but where everyone's material wellbeing is improving, or a world in which everyone is equal but we all have little wealth and little technological progress?
I don't like to wade into black vs white ideological debates, but it's worth noting that every economic system has had wealthy elites and a relatively much poorer majority.
I'm all for discussing ways in which society's wealth can be distributed more fairly and how the worst-off can be helped to live more comfortable and optimistic lives.
But the evidence would suggest that when you constrain the wealth-generating capacity of the highest-achievers to reduce the overall wealth being created by a society, the people at the bottom are the first to suffer.
Like I said I'm not interested in ideological arguments on this topic, and the tone of your comments suggests you are.
The evidence I'm referring to is the comparison over the past 100 years or so between open economies where people can keep a substantial share of the rewards for their innovations, vs controlled economies where people can't. In any scenario, elites find a way to be elites. The comparison that matters most is how badly off are the poorest.
To answer your other comment and to avert a needless argument, I agree it's not black and white and I agree no system is perfect and that it's an unresolved question as to what kind of system is optimal in terms of generating wealth and distributing it fairly.
My initial comment was simply to point out to the root commenter that the action they recommended would more likely lead to the opposite outcome to what they hoped.
This is such a tragic outcome for GitHub. Microsoft is a joke. Immediately plan to migrate all my projects off thr platform, no matter how painful that'll likely be
