The business typically only makes 25% of what they would have. A restaurant cannot survive on that margin.
And most Grouponers are bottom-feeders. Just looking for a deal. They're also the most likely to be vocal on Yelp (there was a study somewhere showing how Grouponers/Living Social people were more likely to leave bad reviews).
Groupon's salespeople are so high-pressure and portray an overly optimistic view of what a struggling small business should expect.
Speaking from personal interactions from several business owners who have tried daily deals here. Sure, a business needs to calculate it's ROI, but I think Groupon 1) oversells the value of 'getting their name out there' through their deals and 2) doesn't explain how bad their customers are.
This it the epitome of Startup Weekends' short fall.
You simply can't start a company in a weekend. Even moreso, you can't expect to start a company with a bunch of random people you just met.
This gets complicated by the fact that not only do the team members not know each other, they inevitably all have day jobs. They all have different level of skills. Not to mention that companies shouldn't be started by more than 2 or 3 people - teams at startup weekend are typically 6-8 as I recall.
And if a team wins, they think this somehow increases their chance of success at starting an actual company.
I'm a big fan of the concept of startup weekend purely to raise awareness of what it's like to start a company. But stop it there. Nobody be looking to start a company out of a weekend event.
I'm not at all shocked at what happened here. And to the poster, it's your own fault. If you actually thought you would start something with a random "idea guy", well, lesson learned. At least read up on IP agreements first.
Stock is not free. Equity is expensive if you're working for a good company. As a founder I would much rather pay out cash , but that's generally not what people are after (esp director, vp level)
I stopped taking options given away by startups seriously on November 10, 2011 [1]. Maybe stock is not "free", but employees should discount the nominal value a lot more than they seem to. What's a good ratio, as a rule of thumb? 1:10? 1:100?
At any rate, employees should not take them seriously in comp negotiations until they are well into FU money territory, should they ever pay out at a reasonable valuation after accounting for underhanded shit like excessive dilution and claw-backs.
Maybe I don't properly understand equity, but if two founders each take 20%, an employee pool is created with 10%, the convertible notes eat another 20%, and the seed ate 20%, this leaves 10% of shares available. How are you only going to take dilution if it increases your employees existing share value if you need funding to survive and have very little shares to give up leading into a series A?
If I'm a founder and I own 100% then give up half the company to investors, that 50% I give up better improve my overall outcome by at least 2x. Usually that's reflected in the overall valuation.
Looking over PG's post it is about whether you should take equity and improving your outcome/valuation. Outcome seems vaguely defined and is used both as valuation and the chance of success. You as an employee want people to follow this as your own ownership drop isn't a big deal if your company becomes worth hundreds of millions through only favorable PG equation deals.
The chance of failure as a startup is significantly higher than its success. Plus, not everyone can achieve favorable offers that adhere to PG's equation. This is what real life is like, so you have to take into account unfavorable offers having to be accepted to possibly keep the lights on. Additionally, I threw up a quick scenario on http://www.tejusparikh.com/projects/equity_calculator/index....
I used a similar offer as mine, using .1% with rounds that had 1 million @ 1 million pre-money valuation, 5 million @ 15 million, 30 million @ 100 million and finally a sale of 200 million. The difference between 10k salary over 4 years in this scenario comes out to be a net gain of ~13k for an individual at the startup.
In my particular case if I switch this to a .17% offer and take a 10k salary cut, I am actually losing roughly 1k running through a scenario like that without factoring in the interest on 40k.
I'm happy to accept dilution, and will dilute the value I consider the shares accordingly. Since there are plenty of ways to dilute out shareholders, I'll pretty much dilute the value of those shares down to slightly above $0.
The skeptic in me makes me think - because VC's set the rules mostly as they are the one who provide capital; They do wan't to make sure they get the most out of their investment with best possible terms.
There are plenty of people who join startups for the upside, and would gladly give up a certain amount of salary for options. Especially super-experienced people who are well-off, and would rather have more equity.
And most Grouponers are bottom-feeders. Just looking for a deal. They're also the most likely to be vocal on Yelp (there was a study somewhere showing how Grouponers/Living Social people were more likely to leave bad reviews).
Groupon's salespeople are so high-pressure and portray an overly optimistic view of what a struggling small business should expect.
Speaking from personal interactions from several business owners who have tried daily deals here. Sure, a business needs to calculate it's ROI, but I think Groupon 1) oversells the value of 'getting their name out there' through their deals and 2) doesn't explain how bad their customers are.