> How is a legitimate startup supposed to recruit the best people under these conditions?
So, I'm post-exit from a startup I founded. It was >10x on returns, but not a supermassive company. I've also been part of a few other exits now in various capacities. So let me just tell you:
Startup founders get better stock than they give employees. They also often write themselves in super powers or special exit clauses. So for founders, the deal is nearly always better unless things get very bad (and it's usually better to wind down the company rather that push if things look that bad, a tough call).
Most folks have a very distorted view of what startup equity is. People think the equity will be worth a lot. And it could be in very specific cases, like an IPO. In those cases, stock is often great. In acquisitions, it's usually not quite as amazing.
If you do find yourself holding stock in an acquisition as an employee, usually what happens is either your stock is bought from you for a fee, or in rarer cases it's converted into company stock (which is usually the better option if it's a publicly traded company). You can expect some modest five digit sum from even the best outcomes here. But what will probably happen to said engineers or staff is that they'll get "retention bonuses." For engineers, retention bonuses for folks they want to keep on are roughly double-pay wages on a non-incremental payment schedule (e.g., 25% the first year, 25% the second year, 50% the third year) to try and get folks to stay on and embed themselves in the company. This is often a lot more valuable than the stock you're awarded if you can stick it out.
A famous explanation of a big (but not superhuge) acquisition is an old post by then-workaday engineer and founder of a small startup called GitHub named Tom-Preston Werner [0]. In that post he details the nature of his deal with Microsoft and why he didn't take the money.
Considering what he ended up with, it seems like a good deal, but only because he was one of the very few people who managed to pass a company into profitability.
So, I'm post-exit from a startup I founded. It was >10x on returns, but not a supermassive company. I've also been part of a few other exits now in various capacities. So let me just tell you:
Startup founders get better stock than they give employees. They also often write themselves in super powers or special exit clauses. So for founders, the deal is nearly always better unless things get very bad (and it's usually better to wind down the company rather that push if things look that bad, a tough call).
Most folks have a very distorted view of what startup equity is. People think the equity will be worth a lot. And it could be in very specific cases, like an IPO. In those cases, stock is often great. In acquisitions, it's usually not quite as amazing.
If you do find yourself holding stock in an acquisition as an employee, usually what happens is either your stock is bought from you for a fee, or in rarer cases it's converted into company stock (which is usually the better option if it's a publicly traded company). You can expect some modest five digit sum from even the best outcomes here. But what will probably happen to said engineers or staff is that they'll get "retention bonuses." For engineers, retention bonuses for folks they want to keep on are roughly double-pay wages on a non-incremental payment schedule (e.g., 25% the first year, 25% the second year, 50% the third year) to try and get folks to stay on and embed themselves in the company. This is often a lot more valuable than the stock you're awarded if you can stick it out.
A famous explanation of a big (but not superhuge) acquisition is an old post by then-workaday engineer and founder of a small startup called GitHub named Tom-Preston Werner [0]. In that post he details the nature of his deal with Microsoft and why he didn't take the money.
Considering what he ended up with, it seems like a good deal, but only because he was one of the very few people who managed to pass a company into profitability.
[0]: https://tom.preston-werner.com/2008/10/18/how-i-turned-down-...