Upside in joining shortly before IPO

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CanaBogle24
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Upside in joining shortly before IPO

Post by CanaBogle24 »

I've been considering making a career switch from the client services world into an industry role. I'm interested in a range of consumer technology companies and starting to plan my search. Believe it or not, one of the major considerations is financial opportunity :greedy

I have a young family, single-income, and therefore need to ensure relatively stable income (Ie. I'm unlikly to join something very early stage) - ideally, I'd join a company that has already established itself as successful (proven business model, growth of customer/user base, successful funding rounds, etc), but that still has plenty of growth runway. Think Robinhood, Warby Parker, Instacart, etc.

I'm trying to get a sense of how much financial upside there might be in joining a company in a pre-IPO window. Ie. if I were to join 6-18 months before a successful IPO, is there substantial financial benefit or do you have to have been on for years to reap any meaningful financial windfall? For reference, I would likely be coming in at the Senior Manager or Director level based on prior exits from my firm at my tenure.

Obviously this depends on the company, IPO/stock performance, equity proportion of comp package, etc. But just looking for directional input here. Would you anticipate the equity for someone coming in at this level / timing could be worth mid-high six figures? Potentially into the million+ range?

Thanks all!
Globalviewer58
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Re: Upside in joining shortly before IPO

Post by Globalviewer58 »

Here’s one article summarizing results of 1,098 VC funded tech companies. https://www.cbinsights.com/research/ven ... -funnel-2/

As you can expect there is less than 1% chance of the startup becoming a unicorn. More interesting is the percentage of companies that fail to survive successive funding rounds.

In short, the outcomes for significant compensation when joining pre-IPO are not easily quantified. A friend of mine has worked at dozens of start-ups over her career. The idea was always to profit handsomely from stock gains after the company goes public. As the study above shows, it is a very tiny few that succeed.
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BolderBoy
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Re: Upside in joining shortly before IPO

Post by BolderBoy »

CanaBogle24 wrote: Fri May 28, 2021 7:18 am... before a successful IPO...
As Globalviewer 58 pointed out, that is the hard part - predicting the future.

Back in the pre-BH day, I had a financial advisor who loved to put his clients into IPOs so they could reap the great rewards. His success rate over 3 years = 0%. Every one of his clients (including me) lost money. I fired him and moved on to an even worse financial advisor. :(
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oldcomputerguy
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Re: Upside in joining shortly before IPO

Post by oldcomputerguy »

This topic is now in the Personal Finance forum (employment issue).
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RickBoglehead
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Re: Upside in joining shortly before IPO

Post by RickBoglehead »

Globalviewer58 wrote: Fri May 28, 2021 9:26 am Here’s one article summarizing results of 1,098 VC funded tech companies. https://www.cbinsights.com/research/ven ... -funnel-2/

As you can expect there is less than 1% chance of the startup becoming a unicorn. More interesting is the percentage of companies that fail to survive successive funding rounds.

In short, the outcomes for significant compensation when joining pre-IPO are not easily quantified. A friend of mine has worked at dozens of start-ups over her career. The idea was always to profit handsomely from stock gains after the company goes public. As the study above shows, it is a very tiny few that succeed.
Did she profit handsomely?
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Globalviewer58
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Re: Upside in joining shortly before IPO

Post by Globalviewer58 »

She never had a single share of company stock - not one of the dozens made it to the IPO stage although that was the expectation for each venture. She continues to follow the same path in spite of the history of financial failures. One allure seems to be the excitement of creating something new.
milktoast
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Re: Upside in joining shortly before IPO

Post by milktoast »

I've hired into mega-tech, pre-IPO (successful IPO), angel round startup (now pre-IPO unicorn), seed round startup, and a couple in between (post-A and post-B).

From my perspective, management and venture capital wised up after the very early nineties experience at Microsoft with low level workers making a lot from their options.

It seems like everyone tries to hit market value now. Mega-tech pays your market value in salary/bonus/RSU. The earlier a startup is, the less salary you get (never bonus) and options go up. But it seems like the options are essentially trying to hit a formula of market_value = salary + value_of_options_at_successful_ipo * chance_of_successful_ipo.

So joining right before an IPO means the chance of successful IPO is high. So the salary will go up and options will go down compared to earlier rounds. Less potential downside, less potential upside for the employee.

If you are a VC investing in tens of startups it all averages out to paying market rate. If you are the employee, you don't get to play averages. Some win some lose.
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mrspock
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Re: Upside in joining shortly before IPO

Post by mrspock »

The people who joined my company before me were there for about 5-6 years and got a 6x gain of stock worth millions, which I envied, as I joined just before our IPO. Many quit or retired.

I’ve now been there around 10 years. What did the stock do in those years? Way, way over 6x, I ended up actually earning well beyond the rumored amounts people pre-IPO walked with. And I’m still here, still getting refreshers and our stock is still a rocket ship — 10 years and counting.

So you see, depending on the company the best years may still be ahead post IPO. Think Amazon, Microsoft or Google etc.
FireSekr
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Re: Upside in joining shortly before IPO

Post by FireSekr »

milktoast wrote: Fri May 28, 2021 11:19 am I've hired into mega-tech, pre-IPO (successful IPO), angel round startup (now pre-IPO unicorn), seed round startup, and a couple in between (post-A and post-B).

From my perspective, management and venture capital wised up after the very early nineties experience at Microsoft with low level workers making a lot from their options.

It seems like everyone tries to hit market value now. Mega-tech pays your market value in salary/bonus/RSU. The earlier a startup is, the less salary you get (never bonus) and options go up. But it seems like the options are essentially trying to hit a formula of market_value = salary + value_of_options_at_successful_ipo * chance_of_successful_ipo.

So joining right before an IPO means the chance of successful IPO is high. So the salary will go up and options will go down compared to earlier rounds. Less potential downside, less potential upside for the employee.

If you are a VC investing in tens of startups it all averages out to paying market rate. If you are the employee, you don't get to play averages. Some win some lose.
Mostly agree except on the bonus front.

I joined a startup that had just completed series C funding when I joined. About 20% of my OTE is bonus. I started at the beginning of the 4th quarter and the company had such an excellent year that even though I was only there for 3 months, I received the bonus I would have gotten for the full year.

In addition to base and bonus I received options, but it’s hard to say what they’re worth since were pre-ipo

Since I joined almost 2 years ago, the company became a unicorn, and has now greatly exceeded that status. All signs point to a successful IPO in the future but who knows what will happen between now and then.

When I joined the company, I was employee 350 or something like that. It was in the 300s. Based on what some of our recent valuations have come in at and how similar companies performed post IPO, I’m going to venture to say my options will be worth a few hundred thousand dollars if and when an IPO happens.

That’s about as specific as I could get because the future is unknown but I hope this is helpful to you.

Side note, I love working for this company and being in a high growth pre-ipo environment is a lot of fun. Glad I joined and I really don’t care much about the options...I’m having fun, learning and the base plus bonus is very good. Would I have liked to get in earlier and potentially got more options? Sure I guess, but there are so many small startups it’s hard to know which will be successful. I joined at a point where I felt the success of my company was a pretty safe bet, so I feel like I’m in a good place even coming on board “late”
riverside1320
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Re: Upside in joining shortly before IPO

Post by riverside1320 »

CanaBogle24 wrote: Fri May 28, 2021 7:18 am I've been considering making a career switch from the client services world into an industry role. I'm interested in a range of consumer technology companies and starting to plan my search. Believe it or not, one of the major considerations is financial opportunity :greedy

I have a young family, single-income, and therefore need to ensure relatively stable income (Ie. I'm unlikly to join something very early stage) - ideally, I'd join a company that has already established itself as successful (proven business model, growth of customer/user base, successful funding rounds, etc), but that still has plenty of growth runway. Think Robinhood, Warby Parker, Instacart, etc.

I'm trying to get a sense of how much financial upside there might be in joining a company in a pre-IPO window. Ie. if I were to join 6-18 months before a successful IPO, is there substantial financial benefit or do you have to have been on for years to reap any meaningful financial windfall? For reference, I would likely be coming in at the Senior Manager or Director level based on prior exits from my firm at my tenure.

Obviously this depends on the company, IPO/stock performance, equity proportion of comp package, etc. But just looking for directional input here. Would you anticipate the equity for someone coming in at this level / timing could be worth mid-high six figures? Potentially into the million+ range?

Thanks all!
When it comes to valuing your equity, you're past the point where the equity itself will get you rich. If you do end up at a company that's actively pursuing IPO (has hired bankers, "___ is exploring IPO"-type articles being written), your path towards riches is more about the performance of the equity in the open market than the difference between your strike price and the market price on Day 1. Lots of people became millionaires at Airbnb because the stock popped, not because they owned a lot of it or got it at especially low strike prices.

I'd recommend looking on Glassdoor with the companies you listed above to start. Best guess is low hundreds. But anticipate a lower base salary to potentially offset that somewhat - a company like that will include the equity as part of a total comp calculation.
Tingting1013
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Re: Upside in joining shortly before IPO

Post by Tingting1013 »

Your question is so company dependent it's impossible to give you an "average" answer.

My tech company IPO'd 5 years ago. Stock price is now >20x the IPO price. So if you joined right before IPO and were granted $100k/yr in RSUs (a typical Director package), they'd be worth $2M/yr in comp today.
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gwe67
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Re: Upside in joining shortly before IPO

Post by gwe67 »

You're about 23 years too late.
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ClevrChico
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Re: Upside in joining shortly before IPO

Post by ClevrChico »

CanaBogle24 wrote: Fri May 28, 2021 7:18 am But just looking for directional input here. Would you anticipate the equity for someone coming in at this level / timing could be worth mid-high six figures? Potentially into the million+ range?

Thanks all!
There was a reddit post on this topic recently, and it seems several pre-IPO companies are changing how equity is granted. For those companies, as an engineer, my understanding is that the IPO would be worth around a few months pay. Maybe the days of huge windfalls for non-founders are waning?

If you're interested in stability, I'm not sure your plan is the best decision. The long game would be to get a job at a F500 tech company as a director and enjoy the big TC packages.
systemr
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Re: Upside in joining shortly before IPO

Post by systemr »

Tingting1013 wrote: Fri May 28, 2021 1:05 pm Your question is so company dependent it's impossible to give you an "average" answer.

My tech company IPO'd 5 years ago. Stock price is now >20x the IPO price. So if you joined right before IPO and were granted $100k/yr in RSUs (a typical Director package), they'd be worth $2M/yr in comp today.
Twilio?

Regardless I agree, it's totally company dependent. Let's take two companies that IPO'd last year. Airbnb vs Doordash, doordash had a huge runup while ABNB sitll did fantastic but not to the magnitude of DASH. Also think snowflake or Coinbase, outcome totally unexpected based on 1-2 years ago.

Also I would say if you join that late you are for sure getting RSUs and won't get to 83b your options - however less relevant if capgains > 1MM are taxed at ~50%...
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