Do employees typically know if their company has signed a “dirty” term sheet?

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JASON LEMKIN

It doesn’t matter.  This is a silly debate.  Whether the last round has a few advantageous / risk-mitigating terms or not 9 times of out 10 won’t matter:

  • If the company is wildly successful and hasn’t raised $250m-$500m+, and either IPO’s at a high (>$1.5B+) valuation or is acquired for $1b+ … these terms don’t matter.  They either go away, don’t come into play, or have a trivial impact.
  • If the company isn’t successful, you won’t make any money as an employee.

OK so let’s figure out the other cases.

Rough-and-tough, figure on this rule:  a company has to be sold, or IPO, for a valuation >= 10x the amount of capital invested for everyone to make any real money.  If this happens, everyone wins, and the “lay” employees (who often own a very small % of the company) should be in the money.

So do the best you can with this analysis:  Do I believe the company I am working at can be worth >=10x the amount Crunchbase says they’ve raised?

If so, don’t sweat this.  Just do what you can to help them get to 10x the $$$ raised.

But if you don’t see it — worry.  If they’ve raised $200m, but things don’t seem to be going well — there’s a good chance your equity will be worthless as an employee.

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Published on April 21, 2016
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