Ask HN: Fair evaluation of equity for buyback? - <AUTHOR> I hold 3% sweat equity in a service-oriented startup, and the founder is offering to buy it back since I am no longer involved with them.  Based on his forecast $600k in revenue and a market-sector average of 6% profit, he estimates $36k profit this year, and thus a valuation of $72k, making my 3% worth $2160.  Is this a fair way to compute the value of my equity?  What questions should I be asking? <comment><USER2> If you don't think $2160 is fair, then say "no". Unless you really want to sell, there's no reason to counter offer. If it isn't worth more than $2160 to the potential buyer then it's worth more to you than them.

If you want to sell, then decide what you think is a fair price and negotiate your way to it.

Next time, consider having a buy-sell agreement, vesting, options rather than shares, etc. irrespective of which side of the transaction you are on.

Good luck.

<comment><USER3> > Next time, consider having a buy-sell agreement, vesting, options rather > than shares, etc. irrespective of which side of the transaction you are on.

Huh? Based on the situation described by the OP, it sounds like he or she owns shares outright, possibly free of any major restrictions. This is the very best scenario a (former) employee will ever be in because the company has far less leverage.

Buy-sell agreements, vesting and options almost _always_ work against the interests of employees and former employees.

<comment><USER2> Perhaps the OP will be on the other side, next time. Perhaps the OP overpaid for their shares this time. Perhaps a buy-sell agreement would have established a higher valuation or simplified the current transaction by injecting obligations and certainty. Energy that goes into buying the shares back is mostly a distraction and makes the company less likely to succeed and thus the shares may be worth less.

Suppose the OP holds out until the offer is quadruple. It's only the difference between a weekend in wine country and a week in Barcelona.

<comment><AUTHOR> sweat equity = no money invested. At the moment I think I'm planning to hold out unless he's willing to pay for a third party evaluation.

<comment><USER2> Appraisals are made for a purpose. The person paying has more influence on that purpose. If the offer does not interest you "no" is best. If you want to move on, sell.

</comment></comment></comment></comment></comment><comment><USER4> The value of an investment is usually calculated based on a recurring income stream over time. If you held on to your equity instead of selling it, you'd be entitled to a 3% share of the profits over the life of the company, not just for one year. And if the company was growing, the income stream would be increasing over time. So valuing the company based on one year's profits seems unfair. (Also, if the company were ever sold, you'd be entitled to 3% of the proceeds.)

Also, since the founder would know what the real profit of the company was, why would he be basing the valuation on market sector averages? It sounds like he's trying to take advantage of you.

<comment><AUTHOR> Last year's profits were zero. He says he doesn't have a forecast for this year's profits. I don't think the company will get bought by Google, but I think they have the potential to make $100k-$200k a year on their current track. If the founder wasn't asking to buy me out I'd probably just sit on my shares.

</comment></comment><comment><USER5> Good points already posted, especially about buy-out being a multiple of earnings not just based on one year. A few other things to think about: why is the founder trying to buy you out? No one just pays for equity buy-back without a reason. It might be as simple as "minimising shareholders" for administrative reasons, but it may also be something else. A $2160 check is a nice thing to have but it isn't a huge amount so it may be better to keep the equity. If you do agree to sell, I would recommend some "protections" for example, if the company gets sold in the next [X] months (or even years), you get paid the difference of value or even, if profits hit [Y] any time in the next [Z] years, you get an earn-out of some kind...

</comment><comment><USER3> Suggestion: find a business valuation professional, ideally one with demonstrable experience valuing businesses in your market, and ask the founder to agree to reimburse you for the cost of a valuation.

The cost of the valuation might exceed the amount the founder has offered you, but if he is sufficiently motivated to acquire your shares and believes he is not significantly underestimating his company's value, he should be comfortable agreeing to such an arrangement.

If he does not agree, it doesn't mean that your shares are worth significantly more than offered, but unless you _need_ a couple grand, it's hard to see why you'd be motivated to sell.

</comment><comment><USER6> It sounds low. Here is a very simple test to find out if it's fair: ask the owner if he'd sell you an extra 3% for $2160. Does your gut tell you that the answer is "no way?" There's your answer.

</comment><comment><USER7> Not that it matters too much, equity is equity, but how much sweat equity are we talking here? How much of your time did you invest for that 3%? I would consider that when thinking about how much the equity is worth to me. Again, this is only a small factor, but a factor none the less. If you put 10 hours in $2160 might be more appealing than if you had 100+ hours of your time invested.

<comment><AUTHOR> From my perspective, the equity is a bonus. I already got paid what I expected for the work I did. I don't have a dollar figure in mind.

<comment><USER8> No matter you perspective, it belongs to you. Value it just as much as other forms of compensation you labored for.

</comment></comment></comment><comment><USER9> That seems absurdly low.

</comment><comment><USER10> Based on what you've said elsewhere in this thread, I am going to take a very different tack than the rest of the folks so far.

> Last year's profits were zero.

OK, so the the shares aren't likely worth very much.

> He says he doesn't have a forecast for this year's profits.

> Based on his forecast $600k in revenue and a market-sector average of 6% > profit, he estimates $36k profit this year, and thus a valuation of $72k, > making my 3% worth $2160.

Well, it kind of seems like he does. That said, his math is voodoo math. He can pretty much make it say whatever number he wants it to say.

> I don't think the company will get bought by Google,...

So your shares will not be like lottery winnings, and anything you make will most likely not be life-changing money.

> but I think they have the potential to make $100k-$200k a year on their > current track

$100k-$200k is a salary, not profits that you will see any part of.

This is the bit of the story that I want to emphasize. You have a minority stake in a small business (not what most would call a "start up"). It is trivially easy for the majority owner(s) to make decisions such that you will never see any distribution of profits. They can bump up their salaries, they can give themselves bonuses, they can go on team-building retreats to Cancun -- the ways that they can legitimately spend any potential profits is mind- numbing. When you're talking about $100k-$200k of "profits", you have to expect that your share of that will round to $0.

> If the founder wasn't asking to buy me out I'd probably just sit on my > shares.

After reading my comment, I would like to ask why (serious question). I think your trying to optimize something that very far out of your sphere of influence. To be honest, the value of the time that you have spent thinking about this is probably worth more than any reasonable market value.

If I were you, I would do something like counteroffer $10k while fluffing they guy's ego, expect to negotiate down to ~$5k (depending on your negotiation skills), but take whatever I can get. You should fully expect that something will happen that will benefit the new owners of your shares -- maybe an acquihire, maybe a big contract, maybe VC funding. Whatever it is, just let it go. You were never going to see any of that money anyway.

If you don't like the guy or you just don't like the situation, figure out what number below which you will gain more psychological value by not selling. Whatever number that is, set that as your base that you will not go below, and expect to get that number and be happy with it. Depending on your motivation, this might just be a dick move, or it might just be how much you're willing to pay in opportunity cost to prove to your peers that you won't be potentially manipulated.

For me personally, I would do what it takes to get this off of my plate. I would want to minimize the brain cycles I spend on it. Because I like negotiating, I would probably do the following:

\- Counteroffer $10k while complimenting him and the company and watch how he reacts.

\- Based on his reaction, I would let him negotiate down to somewhere in the $5k to $8k range (this really depends on the company and how well you know the CEO).

\- I would then do the friendly walk away move as I tell him that my offer is good for a week.

\- He will call back with a lowball offer. I will stick to my guns.

\- He will acquiesce.

\- He will also probably try to do some last minute bullshit when things are signed. I would have a lawyer look over the paperwork before I signed anything.

\- I would celebrate with dinner at State Bird Provisions once the money is in the bank.

Best of luck!</comment>


Bill Gates and Randi Weingarten: Fixing Our Nation's Schools - <AUTHOR> http://www.newsweek.com/2010/12/20/gates-and-weingarten-fixing-our-nation-s-schools.html

<comment><USER2> I don't trust Bill Gates. He believes that "if we do a really good job, with vaccines and healthcare ... we can reduce the worlds human population by 10 or 15 percent." OK, did you really just say you want to kill 15% of the worlds population with vaccines? 2:17 <http://www.youtube.com/watch?v=6WQtRI7A064>

<comment><USER3> No he didn't say that. He said reduce the world's population. You can do that by having fewer births. Over time, this will reduce the population. Or you can just put words in his mouth that's cool too. From one of the youtube comments (rarely will I quote a YT comment): "If you reduce infant mortality people have fewer children. Look it up. People overestimate their own risk of losing a kid, and tend to have more children in order to compensate."</comment></comment>


When CEOs Have Warren Buffett In Their Boardroom - <AUTHOR> http://www.businessweek.com/print/magazine/content/10_10/b4169030631058.htm

<comment><AUTHOR> They don't mention it in the article, but if anyone gets a chance, I would suggest they read about his activities as a board member for The Washington Post.

When Buffett joined the board, Katharine Graham had just taken control. Her husband had recently committed suicide and she had to steer the company at a time when there were virtually no other females running companies of that size in America. He taught her everything from reading balance sheets to guiding the company in good capital allocation practices. Those things helped her get the assurance she needed to run the company.

The lessons are pretty applicable to business today. Your advisors should be people who are smarter than you, at least with respect to filling in with areas you are not too knowledgeable about. Rather than picking yes-men/your friends who will only reassure and agree with you.</comment>


Who Owns the Moon? A Space Lawyer Answers - <AUTHOR> https://www.scientificamerican.com/article/who-owns-the-moon-a-space-lawyer-answers/ <comment><USER2> Whoever can one day defend it militarily. History has shown that is the true source of ownership.

<comment><USER3> China certainly knows this. Right now, their nine dash line is just a line on a chart. In a generation's time, it'll be reality.

</comment></comment><comment><USER4> Personally I think that "minor" objects like asteroids should be up for grabs. Homestead it, process it into resources, whatever.

The moon being very sentimental for mankind, needs to be subject to more regulations of who can do what. There needs to be a lot of thought put into coming up with a solution that the major countries (at least) see as fair.

</comment><comment><USER5> Its really important who is the first person to touch a celestial object is. Imagine if he exclaimed "I claim this rock for the catholic church."

Lucky for USAll - new forming state entitys, tend to lay these first to touch claims aside pretty fast.

Speaking- the moment you have a independent moon-city, all this owning is going to be worth a whole lot of nothing. Humanity can be pragmatic that way.</comment>


Which blogs/podcasts help you broaden your horizon and why? - <AUTHOR> I find Freakonomics, The Knowledge Project Podcast pretty intriguing. I am curious which are interesting and i missing out. <comment><USER2> Lex's AI podcast is pretty great due to breadth of great guests he had: [https://overcast.fm/itunes1434243584/artificial- intelligence...](https://overcast.fm/itunes1434243584/artificial-intelligence- ai-podcast-with-lex-fridman)

This recent episode with Joscha Bach was amazing: [https://overcast.fm/+OcVcduJ_s](https://overcast.fm/+OcVcduJ_s)</comment>


Australia to make Google and Facebook pay for news content - <AUTHOR> https://apnews.com/5edf987c499302471a6694ef19b2d456 <comment><USER2> "make" is an interesting word here. Google is free not to incur the consequences which demand payment. Outcomes, less likely, but none the less plausible, include doing changes to find ways to avoid the payment.

Also, payments incur transactional costs and invite taxes and fees.

This change invites discussion about the extent to which google benefits the news agency by citation and visit. There may be a zero-sum consequence: either we bilat this away, or you now have to pay us for citations and references.</comment>


Oral History of Dave House (2004) [pdf] - <AUTHOR> http://archive.computerhistory.org/resources/access/text/2012/04/102658299-05-01-acc.pdf#page=32 <comment><USER2> It might be worth mentioning who Dave House is, as I certainly didn't know the name. To quote his bio at the Computer History Museum:

Dave House began his career in 1965 as a computer designer at Raytheon Computer and Communications Division. In 1968 he joined Honeywell Computer Control Division and in 1972 became director of computer development at Microdata. In 1974, House joined Intel Corp., and in 1978 became general manager of the company's Microcomputer Components Division. Over the next 13 years he lead the organization that developed the company's leading microprocessor product line, including the 386, 486, Pentium and Pentium II Processors, and grew that business from $40M to $4B per year. He also managed the team that developed the highly successful "Intel Inside" marketing program; the words "Intel Inside" were his.

After Intel, he went into networking, becoming the Chairman/CEO of Bay Networks, President of Nortel Networks, and Chairman/CEO of Allegro Networks. Currently he's Chairman of Brocade.

[http://www.computerhistory.org/trustee/dave- house](http://www.computerhistory.org/trustee/dave-house)

</comment><comment><USER3> Why isn't this marked as a PDF? Does Hacker News not do that anymore?

<comment><USER4> It sure does! Done now.</comment></comment>


126.96.36.199 -- Another google DNS ip - <AUTHOR>

Nobody seems to have noticed the other Google DNS IP that they haven't disclosed yet.  It's 184.108.40.206<p>You heard it here first. :-) <comment><USER2>
        $ whois 188.8.131.52
        Level 3 Communications, Inc. LVLT-ORG-4-8 (NET-4-0-0-0-1)
                                          220.127.116.11 - 220.127.116.11
        Google Incorporated LVLT-GOOGL-1-4-3-2 (NET-4-3-2-0-1)
                                          18.104.22.168 - 188.8.131.52

</comment><comment><USER3> Wow! That is the same combination to my luggage.

<comment><USER4> I use 184.108.40.206 myself.

<comment><USER5> Way too many geeks use that for 4 digit codes.

</comment></comment></comment><comment><USER6> They totally beat 22.214.171.124, which was my previous go-to server.

<comment><USER7> 184.108.40.206 is still easier to type since you dont need to move your fingers at all

problem with 22.214.171.124 is you have to use the right hand to type it

</comment></comment><comment><USER8> Can someone who understands IP addresses explain what Google does to get these IP addresses?

<comment><USER9> They were sub-allocated 126.96.36.199/24 by Level3. The traffic isn't actually handled by level3, the block is being advertised by Google's AS (15169).

</comment></comment><comment><USER10> I have difficulty getting a nice domain name, let alone IP address ;-) How do they do it?

<comment><USER11> $$$?

<comment><USER12> Not necessarily. Remember that these people are generally pretty clever. The story behind GOOG-411 is pretty good (though I don' think I can say it here; if you have a friend on the inside that knows you can keep your mouth shut, see if you can get them to tell you).

That said, it's unlikely that any amount of cleverness can buy an IP address, so yeah, probably $$$$$$$$$$.

<comment><USER13> Blargh. Anyone care to share it anonymously?

<http://pastebay.com/> ?

</comment></comment></comment></comment><comment><USER14> Nice work :)

</comment><comment><USER15> thank you from China!

<comment><USER16> and from Vietnam !

</comment></comment><comment><USER17> Other? What was the first one?

<comment><USER18> 188.8.131.52 and 220.127.116.11

<http://news.ycombinator.com/item?id=974642>

</comment></comment><comment><USER19> Query time is 43 msec while opendns.com is 102 msec, not bad!

<comment><USER20> opendns.com != OpenDNS. Try pinging 22.214.171.124

<comment><USER21> Who said he was pinging? He said "query", not "ttl".</comment></comment></comment>


Show HN: Single Makefile static page generator - <AUTHOR> https://github.com/patrickbr/hagel/

<comment><USER2> I really love this. Would love to chat some more :). Have an email?</comment>


New KAT address - <AUTHOR> https://kat.al/ <comment><AUTHOR> Does anyone believe that torrentling can be contained?

<comment><USER2> I absolutely believe it is possible for the government to stop torrenting, just read what is possible in the Snowden docs and it should be very evident that they can</comment></comment>


Ask HN: What is a cheaper alternative to Intercom? - <AUTHOR> <comment><USER2> Smallchat [https://small.chat/](https://small.chat/) has a lot less features than Intercom, but covers the basics well in a Slack integration</comment>


Show HN: Evaluating Computational Creativity - <AUTHOR> https://github.com/CreaPar/rd-creativity-metric-api <comment><AUTHOR> This repository implements the model proposed in the following paper:

[http://dx.doi.org/10.13140/RG.2.2.31622.78403](http://dx.doi.org/10.13140/RG.2.2.31622.78403)</comment>


Why I Chose Academia - <AUTHOR> http://blog.ketyov.com/2013/04/why-i-chose-academia.html <comment><USER2> the author needs to chime in a few years later when he fully understands how big science actually works:

\- most work is done by untrained and inexperienced graduate students, good luck understanding/reproducing the process

\- most faculty are little more than grant submitting machines trying to land a grant at all costs regardless of what actually interests them

\- most research reviews processes are incredibly biased with countless people doing terrible jobs (the reviled "reviewer number 3") a single negative can sink a grant/paper acceptance

\- most institutions are grossly monolithic and the rules and regulations are such that incompetent individuals can never be removed from any given position.

\- most institutions are run as medieval lordships, with many smaller decision makers like deans, head of departments that have incredible influence on someone's career. It is great when the dictator is benevolent and unbearable if not.

Note how instead of paying a good salary the University choses to give out handouts (lower childcare fees, lower rentals) - because those in turn are paid via taxpayer grants. It hides the fact that they pay so little the people would qualify for foodstamps.

<comment><USER3> ...And all industry jobs are mindless rote work.

I'm not arguing that the things you describe never exist in academia, but they're the worst examples of when things go wrong. They're not the norm.

<comment><USER4> From my vantage point in academia they're definitely the norm. I'd say the only one that's mostly false is #2, but that could be the norm outside of my particular field (computer science).

I've seen fantastic research sunk and forced through resubmission time and again because of reviewers that either don't understand the work (and why would they? they have zero incentive) or have pre-existing biases based on their own work (and are called in as expert reviewers, effectively functioning as gatekeepers in a subfield).

Bad deans/department chairs can make life suck pretty hard. This is usually not the case because they (in my experience) don't have that much power, but over some things like hiring they can definitely be as capricious as they want. The real killer are the people outside the department, on IRBs, grant review boards, etc.. In a good research-focused school they can be great; in worse schools they can be tinpot despots.

Reproducibility in particular is insane. In computer science virtually no systems are released at the time of a paper submission, so papers describe things that may or may not exist. I'd say this is less due to untrained/inexperienced grad students and more due to a combination of constantly rushing to publish, unclear institutional regulations regarding releasing artifacts such as source, and inability to focus on cleaning things up for a release.

Academia has serious problems at its core, and in a lot of places, it's obvious that startups and industry is outpacing it. I think this comes down to an incentive problem -- when there's no incentive to build things that work, you tend to build broken things.

<comment><USER5> >Academia has serious problems at its core, and in a lot of places, it's obvious that startups and industry is outpacing it.

Let's be realistic here. How many startups actually do any sort of _research_ at all? By my estimates, the number is very close to zero.

How many places in industry? You can cite the big labs, but the majority of science is still done by universities. While academia has serious problems, lets not fool ourselves into thinking that industry is any kind of substitute.

<comment><USER6> To some degree it depends what you consider research. I agree startups and "the industry" are 1) not necessarily publishing, and 2) not doing work in a way that matches the procedural standards of traditional research, but a lot of new ideas are being experimented.

Does git count as important research? Does CoffeeScript?

<comment><USER7> Git: Yes; CoffeeScript: No;

</comment></comment></comment></comment></comment></comment><comment><USER8> This blog post is a year old. The writer is now an assistant professor at the University of California, San Diego.

[http://www.cogsci.ucsd.edu/research/faculty/447/](http://www.cogsci.ucsd.edu/research/faculty/447/)

</comment><comment><USER9> Love of science and research does not pay the bills, nor does an academic level salary.

The "choice" that the author made wouldn't really crop up unless he had help paying the bills.

<comment><USER10> What? Academics may not make the same salary as industry... but an engineering professor generally makes >$100k / yr. For example, you can look up the salary of most public university professors (eg. from Georgia Tech/UGA): [http://www.open.georgia.gov/](http://www.open.georgia.gov/)

You might not get rich... but it can definitely be livable with a high quality of life.

<comment><USER11> If you get a tenured position, it can be a $100k/year job. Tenured jobs are harder and harder to get, and adjuncts are compensated badly.

<comment><USER12> I think "associate professor" is the untenured position, regardless they seem to be all 100k +... even in Canadia:

[https://uwaterloo.ca/about/what-we- stand/accountability/sala...](https://uwaterloo.ca/about/what-we- stand/accountability/salary-disclosure-2012)

<comment><USER11> The untenured position is really a sessional instructor, which I'm sure also goes by different names, but involves zero job security and extremely shitty pay. It's not a salaried position, it's a "per course you teach that semester" position.

</comment></comment></comment></comment></comment><comment><USER13> I like Tanya Khovanova's perspective:

"I started my life wanting to be a mathematician. At some point I had to quit academia in order to feed my children. And so I went to work in industry for ten years. Now that my children have grown, I am trying to get back to academia. So I am the right person to compare the experience of working in the two sectors."

[http://blog.tanyakhovanova.com/?p=476](http://blog.tanyakhovanova.com/?p=476)

<comment><USER14> Khovanova's stuck in the adjunct trap, and mostly studies recreational mathematics. Because of this, her experiences don't really generalize well.

</comment></comment><comment><USER15> "How should we make it attractive for them [young people] to spend 5,6,7 years in our field, be satisfied, learn about excitement, but finally be qualified to find other possibilities?" \-- H. Schopper

The numbers make the problem clear. _In 2007_ , the year before CERN first powered up the LHC, _the lab produced 142 master 's and Ph.D. theses_, according to the lab's document server. _Last year it produced 327_. (Fermilab chipped in 54.) That abundance seems unlikely to vanish anytime soon, as _last year ATLAS had 1000 grad students and CMS had 900_.

 _In contrast_ , the INSPIRE Web site, a database for particle physics, _currently lists 124 postdocs worldwide_ in experimental high-energy physics, the sort of work LHC grads have trained for.

Let's not confuse students and fellows with missing staff. [...] Potential missing staff in some areas is a separate issue, and educational programmes are not designed to make up for it. On-the-job learning and training are not separated but dynamically linked together, benefiting to both parties. _In my three years of operation, I have unfortunately witnessed cases where CERN duties and educational training became contradictory and even conflicting._

[http://ombuds.web.cern.ch/blog/2013/06/lets-not-confuse- stud...](http://ombuds.web.cern.ch/blog/2013/06/lets-not-confuse-students-and- fellows-missing-staff)

An unsatisfactory contract policy

This will be difficult for LD staff to cope with. _Indeed, even while giving complete satisfaction, they have no forward vision about the possibility of pursuing a career_

[http://staff- association.web.cern.ch/content/unsatisfactory-...](http://staff- association.web.cern.ch/content/unsatisfactory-contract-policy)

Pensions which will be applicable to new recruits as of 1 January 2012; the Management and CERN Council adopted without any concertation and decided in June 2011 to adopt very unfavourable mesures for new recruits.

[http://www.gac- epa.org/History/Bulletins/42-2012-04/Bulletin...](http://www.gac- epa.org/History/Bulletins/42-2012-04/Bulletin42-en.html)

 _And a warning to non-western members_ :

"The cost [...] has been evaluated, taking into account realistic _labor prices in different countries_. The total cost is X (with a _western equivalent_ value of Y) [where Y>X]

source: LHCb calorimeters : Technical Design Report

ISBN: 9290831693 cdsweb.cern.ch/record/494264

</comment><comment><USER16> "Why I Chose Academia"

I make enough money to pay my bills, I have as much free time as I want, I get to learn new things all the time and teach them to others.

However, it can be a little depressing to be a lousy researcher, I feel useless at times.</comment>