[buug] Pre-IPO companies

jwithers grayarea at reddagger.org
Wed May 5 20:19:28 PDT 2004

On Wed, 2004-05-05 at 17:47, Bill Honeycutt wrote:
> I know many BUUG'ers have had experiences with IPO's and pre-IPO's.  I'm 
> looking for your input regarding the good, the bad and the ugly side of 
> working for them (or choosing which ones you might work for).

Been there, done that quite a bit, and unless your title is going to
have two letters in front of Officer, my advice on how to think about
this is pretty simple. Just keep repeating to yourself over and over:
There is no stock, There is no stock. Get this tattooed, backwards, on
your forehead so that you see it in the mirror each morning when you
shave, if necessary.

The vast majority of startups fail. This isn't a bubble thing, it is
just a reality of business. Of the ones that don't, they still have to
get to the point where the difference in your strike price and the stock
valuation is high enough to matter. Then, of those (and we are talking
like 1 in 20 at best here), that difference has to be enough that there
is a significant advantage after all is said and done between sinking
your money into an index fund for the same time period. Which isn't that
minor a consideration, since you are probably talking a minimum of about
four years before you are free to do something with that money. The
company has to get to the point where they can IPO, which is going to
take at least 2-3 years, then you are going to be under lockup rules and
massive tax liabilities for another year or so beyond that. So you have
to ask yourself if you put X dollars in an index fund for that period of
time, would you have made significantly less?

Once you get the stocks out of your head, the actual specific questions
you were asking in your post boil down to the same ones you ask now
about a job. Do I like the working conditions? Are these the kind of
people I actually want to work with? Does my job involve aiding or
abetting evil? Are they selling something right now that makes a profit?
Who are their major clients? What is the competitive field in the area?
Are the major investors major companies with good track records
investing here because they see a technological advantage being inside
here, potentially prior to a buyout down the road? 

One question we, as techs, don't think about enough is: do they have
executives with incredible sales and marketing track records? Yes, the
suit and shmooze clan are our blood enemies, but the very unfortunate
fact is that almost always these are the guys who are going to make or
break the company, because they are the ones who make the rain. If I had
a cup of coffee for every great demo and proof of concept I have seen
that didn't do anything because it didn't have marketing steam behind
it, I would be able to stay awake and code for the next year straight.
And, conversely, these are the same guys who if they are inexperienced
and don't know what they are doing are going to start trying to drive
stupid requirements late in the process and make life maximum unfun.

John P. Withers

> If you are being courted to take a position with a startup company:
>   - What are the good/bad things to look for?
>   - What are the best questions to ask?
>   - What percentage earn payback for everyone -vs- making you broke?
>   - Where's the "IPO Employee Hazards FAQ"?
>   - How long should you make the barge pole when getting close? : )
> I'm sure this could draw out some grusome war stories.  IMHO, we're not 
> so far away from a day when seed money begins to creep out of hiding and 
> techies will again be invited to become grist for the mill.
> TIA!
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