Question about Spotify buying Gimlet

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Feb 2 4 Comments

I have no idea how employee comp works when startups get acquired. They were valued at ~$70M, acquired for ~$210M.

Let’s say an employee joined after their most recent funding round and got $100K in equity.

Since they got acquired at 3X their last round does that mean the equity in this example is worth $300k roughly? ie can you guessimate how much employees make in an acquisition by looking at the multiple of their exit compared to their current valuation?

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  • It spends on investors liquidation preference multiples and participation.

    Their last round B is $20M. Say if VC has 3x preference and also participation.

    B round VC will take $60M out of $210M.

    A round and angels will probably take out $25M ($8.5M x 3)

    And then they will share with everyone else in the remaining $65M.

    So your friend with $100K joining after B is about 0.0014%. He will make 0.0014% * $65M = 91K.

    Yes he actually takes home less than 100K in this scenario.

    You really need a 10X exit to have some meaningful outcome, sadly.

    Alternatively you need to get a very good VC terms to have smaller liquidation preferences.

    If it’s 2X liquidation preference, then he will make about $214K.

    So it varies from case to case.
    Feb 23
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      very helpful answer! thanks.

      i was thinking the same thing - that you need a 10X exit for meaningful outcome. pretty rare/high bar
      Feb 2
    • Facebook / Product
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      are there standard equity packages for employees? eg first 2-3 engineers typically get 1%, later stage marketing employees get .05% etc
      Feb 2
    • Seed 0.25 to 2%
      Post A 0.025 to 0.15%
      Post B 0.0025 to 0.015%
      Varies from company to company though.

      So the earlier you join the bigger multiples you will get.

      For example, 1% at seed round, after ABCD round dilutions it will be around 0.4% (roughly 20% each round). If the valuation after D is $1B, you have 4M on paper.

      Your friend joins after A round will be looking at 10 times less, $500K.

      The dilution I mentioned above is a bit extreme but it happens. But if the company reaches valuation of 2B then the number doubles. If it reaches 20 or 30B, you can do the math :)

      The above does not factor in option refreshes. So 1st guy will be looking at $6M+ and his friend around $750K.
      Feb 2

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