Skip to content

Posts tagged ‘startups’

11
Jan

The First 100 Days of a Startup

Josh Coates, founder of Mozy and current CEO of Instructure, once taught a series of classes at BYU on high-tech startups. I jumped at the chance to audit his class.

One of the things Josh covered was what should happen during the first 100 days (14 weeks) of a high-tech startup.

Week 1 — Research and choose business
Week 2 — Build financial model and development plan
Week 3 — Build pitch with screenshots and practice
Week 4 — Interview law firm, staff and advisers
Week 5 — Incorporate and setup shop with office space and equipment
Week 6 — Initial documents, books, hires and cap table
Week 7 — Create website and logo (do a trademark search)
Week 8 — Identify 10 to 20 potential investors and study who else they invest in
Week 9 — Practice the pitch and setup meeting with the least important investor
Week 10 — Interview, build product, pitch again
Week 11 — Interview, build product, pitch again
Week 12 — Interview, build product, pitch again
Week 13 — Interview, build product, pitch again
Week 14 — Interview, build product, pitch again

He recommended interviewing one potential employee every day. Pitching to the least important investor first lets you have a chance to practice in a situation where making a mistake isn’t as damaging.

I first met Josh just after publication of an article he wrote on how many angel investors in Utah were doing it wrong. The article, entitled “Poison in the Well”, in addition to having a great title, was direct and clear in its criticism. It was one of the reasons I later applied to work at Mozy.

For anyone who knows him, I think “direct and clear criticism” is a good phrase to describe what it’s like to work for Josh. His class was no exception. It was a great chance to learn from someone who’s been there and done it successfully.

8
Sep

How to Value Stock Options

During my career, I’ve worked for five startups, one larger company and one startup that was acquired by a large company. I was offered or promised stock options each time I joined a new company except once. I didn’t know what they were worth, so I usually discounted them when making a decision.

It turns out that the most likely value of stock options in a startup is zero. Things do work out sometimes. And when they do, it can be great. But mostly they don’t. Options at an already-public company are a different matter since you can be sure you’ll be able to sell your stock eventually.

Here is my rule of thumb for estimating the value of stock options at a public company:

Value = Number of Shares * Exercise Price * .4

For example, if the company’s share price is $10 and the grant is for 1,000 shares, the approximate value is 1,000 * $10 * .4 = $4,000. Since options typically vest over four years, I would count this grant as $1,000 per year for four years. This assumes I don’t sell any of my shares until the end of the four years.

The .4 factor comes from estimating how much the company’s stock price will go up over the next four years. From 1871 through July 2009, the S&P 500 Index has gained 8.7% per year which, if compounded annually, gives you about 40% over four years.

Of course, life doesn’t always happen as planned. This rule helps me figure out a reasonable estimate of value so that I can make a decision and move on.

UPDATE: Ironman at Political Calculations, created a nice calculator based on my thoughts and added some insightful comments.