The myth of startup equity

I don’t know what percent of people join a startup primary for the potential equity payout, but I’d imagine it’s a good percentage. Everyone knows someone’s friend or cousin who become a millionaire when their company went public. Facebook’s graffiti artist made over $100m in startup equity. Most people won’t say it, but a lot of people join with wide eyes and high hopes of that one day becoming them.

Unfortunately, the reality is that very few startups actually get to an exit. Even fewer get to an exit that results in gigantic paydays that you’ve heard. And when they do, they often take many years longer than what people think. For companies that exit at a $1b valuation which is very difficult to do, very few people comparatively will actually make multi-millions of dollars.

Don’t get me wrong, most employees who go through a $1b+ exit will have a great payday and a lot of people will be financially comfortable for their lives. But it’s probably a far cry from the dream of each person making $10m+ each. In order for that to happen, you’ll have to be a fairly early employee at a company that exits at $10b+ like a DoorDash or Uber. Of course, those are very rare.

For everyone else at a company below $1b, the reality is that your equity likely won’t have any buyers at the moment even if the company is promising and growing. Secondary buyers are mostly interested in later stage companies with larger than a $1b valuation. Unfortunately, I don’t think the majority of startup employees understand that. We get inbound messages all the time from people at early stage companies looking to liquidate their equity.

I’m biased at Secfi, but I think everyone could benefit a bit from more equity education. Companies need to be doing more to educate their people and keeping expectations real. Employees will be better off and they can stay focused on keeping their heads down and grinding.