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A Piece of the Pie Tuesday February 6, 2007
Equity seems to be the thing to offer when you’re a company not yet seeing capital flow coming in. But what should employees being brought in early and board/advisory members be expecting?
The people I find writing about this sort of non-cash transaction seem to be living in a dream. Or a shared hallucination. The percentages seen being offered to board members and advisory members are below 2% and many times aren’t even a full percentage point.
According to at least one VC in Chicago, Ground Floor employees seem to fare about the same. They are generally seeing 1% or below. Now, there are two ways to look at this:
- I am getting a good deal with current marketplace tendencies.
- I am getting a terrible deal with current failure rate of web application companies.
Recently, Carson Systems decided to blog the sale of their DropSend application. They admitted that they were looking for upwards of one million dollars for their application. Now, this application is not your typical run-of-the-mill web application. It has a generally revered team behind it, it is spoken of all over the place, and most importantly, it is a solid revenue generator based on the information released by Carson Systems.
Now, I know that they produced this application themselves with a contract programmer. Now, this is a very healthy web application for sale. If you were on the advisory board or were the developer taking equity to produce this what would you have gotten?
Well, if typical numbers are anywhere near correct…you just got somewhere between $2500 and $20,000. That’s over a year of work-time on this application (maybe 2?) and it might pay for a new roof on your house or a low to mid-range Honda. Also, this doesn’t account for the taxes you’ll end up paying on that suddenly acquired amount.
With the failure rate of web ventures, the likelihood of working on a multi-million dollar web application is about as likely as pigs sprouting wings and flying. It seems to me that web application companies should be dealing higher percentages to people helping make their company a success and lower to the companies who are footing the bill in the hopes of turning a profit on one out of twenty of their investments.
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