Note to Founders: READ THIS

Wow - I really hate being the continual bearer of bad news, and in general we pretty much know the info in this article from the WSJ, but seeing the numbers in front of me continues to make me wonder when the VC/Startup equation will begin to turn around.

The scary part below is: "Founding CEOs kept a median of under 3% of their companies’ shares in 2008, down sharply from a high of over 10% in 2002. At the same time, nonfounder CEOs’ ownerships have remained at just more than 1%."

Its a lot of work for only less than 3% of the company...but hopefully this smaller piece is of a bigger pie (that's a whole other story!).


http://blogs.wsj.com/venturecapital/2009/06/03/founding-ceos-keeping-smaller-stakes-as-companies-go-public/
June 3, 2009, 7:11 PM ET
Founding CEOs Keeping Smaller Stakes As Companies Go Public

By Venture Capital Dispatch
Jay Miller of Dow Jones Newswires filed this dispatch:

Founding chief executives are keeping much smaller stakes as they take their companies public than they did seven years ago, according to Presidio Pay Advisors.


The firm’s analysis found that investors are returning to a more rational financial expectation of companies looking to raise public capital. Companies are now taking an additional two to three years to file for an IPO. As a result, founder CEOs’ stakes are suffering greater dilution, likely because of less favorable term sheets or additional rounds of financing needed to get to the IPO.
In 2008, median company revenue, market capitalization and net income at IPO were at the highest levels since Presidio began collecting the data in 2002.

“Today, very few companies go public with limited revenue and nonexistent net income,” says Brandon Cherry, a principal at Presidio. “The prevailing IPO profile has shifted to a company with healthy revenue and positive net income, which is significantly affecting how compensation is delivered.”

That is a marked shift from earlier in the decade, when an Internet and technology start-up’s IPO highlighted the prospect of profits and even revenue in lieu of actual results. That approach worked in the early days of the commercial Internet, when just about any Web site could be semiplausibly touted as the next Wal-Mart Stores Inc. or AT&T Corp.

According to the compensation consultant’s study, founding CEOs kept a median of under 3% of their companies’ shares in 2008, down sharply from a high of over 10% in 2002. At the same time, nonfounder CEOs’ ownerships have remained at just more than 1%.

Presidio also discovered that the mix of options and common stock has shifted toward options, which have no downside risk for executives. That change could create a potential disconnect between the interests of executives and investors, the firm warned.