Discover more from Off The Record
When your startup gets acquired
I'll share how much I got paid out as an early employee, what I really got out of working there, and lessons learned from the entire experience
Some big news for me: The startup I joined seven years ago, Logikcull, was acquired this week by Reveal. It marks the close of a big chapter in my professional life because Logikcull was where I first pivoted to after I left the practice of law. Earlier this week, I shared a bit about my journey there on LinkedIn, for those of you who missed it.
In today’s article, I’m going to give more of a behind-the-scenes look on what that acquisition meant for me. Financially. I’ll tell you how much I made from my stock options (and yes, I’m going to make you scroll all the way down if you clicked in just to find out). But the real, underlying message of this post is this: The financial upside of my time at Logikcull was nothing compared to the value of the career growth I experienced there.
I’ll close this article by sharing 3 important lessons I took away from this whole experience. TLDR: (1) Pessimism has a price; (2) Take bets that have limited downside; and (3) Early on in your journey, career growth is FAR more valuable than startup equity. Warning: This week’s article is SUPER long.
Getting paid in equity
In 2016, I received an offer to join a legal tech startup called Logikcull as an entry level salesperson. The base salary was $55,000/year, with the opportunity to earn an additional $30,000/year in commission. The offer also included a tiny number of stock options.
I never really cared about the options. I mean it was such a small amount. “They probably won’t be worth anything either,” my tech friends told me. Plus, there were plenty of reasons to be skeptical about technology designed for legal. To most people, lawyers were dinosaurs who would never buy technology. I found it hard to disagree. To me, getting into legal tech wasn’t the goal. I just wanted to sell things for a living.
So “selling things” is exactly what I focused on during my 3 years at the company. I mean, when you join a startup as a junior sales employee, and as an individual contributor, equity is usually a very small part of your compensation package.I never really thought about how much my options would be worth. Besides, the execs always cautioned us to keep our expectations low.
“Assume the options are worth nothing,” they said. “That way you won’t be disappointed.” That struck me as good advice. I didn’t think much of it, and didn’t ask any questions.Instead, I focused on doing a good job, and generating commissions.
Should I exercise my options?
In 2019, I decided it was time to leave. By then I received additional shares via a “refresh” grant,but the total number of options I had was still pretty tiny. When you leave a startup, you’ve got a limited amount of time to exercise the stock options you have. I wasn’t sure what to do.
On the one hand, I really didn’t expect my options to be worth anything. When I left, the company was experiencing operational challenges and hemorrhaging talent. Meanwhile, our competitors were crushing it. Based on what I’d read and heard, the options weren’t worth very much, and likely wouldn’t be worth very much in the future, if anything.
On the other hand—what if I was wrong? How would I feel if Logikcull took off and the options were worth a fortune? Well, okay not a fortune—I’d done some basic math and calculated that even if Logikcull became a huge company someday, my vested options would never exceed the cost of, say, a down payment on a home. Still, having your down payment covered would be huge!
Besides, because I had so few options, it wouldn’t be super expensive to exercise them all. It would cost around $1,800.It’s not a small amount of money, but it wouldn’t break the bank either. To me, I saw exercising as insurance against regret. Like the guy who knows lottos are a scam but still joins the pool to avoid being the only fool left out of a windfall. I decided to exercise my options.
The value I got out of that first startup job
Before I move on, I want to provide some context for my total comp. I’ve written a lot about how much value I got out of that first sales job at Logikcull. I made decent money as a sales rep there, and more importantly, up-leveled my skillset significantly.
I joined the company in 2016 as an unproven lawyer-turned-BDR, and left the company in 2019, as a sales manager with a strong track record of performance. During my 3 years, I was promoted multiple times and won several awards. And most importantly, acquired a ton of skills and experience, and grew my professional brand. The value I got from working at Logikcull dwarfed the financial return from my stock options. Let me be specific about how.
When I decided to leave Logikcull to join another legal tech startup, I was a completely different candidate than I was just three years before. Before, I was a lawyer with zero experience in sales or tech. I had idea how to run an outbound campaign, conduct discovery, consensus sell, or push a deal to close. I didn’t know how to pitch software to law firms or legal departments. I didn’t know how to analyze activity data, review pipeline, forecast revenue, or manage a team. I also had zero reputation in the legal community.
But by 2019, I had a whole portfolio of skills, experiences, and contacts. I had a growing reputation and a personal brand on LinkedIn. So when I negotiated my compensation package for The Next Startup, I ended up with a significantly higher base salary, commission plan, and equity.They were early stage (similar to Logikcull when I first joined) and would be bringing me on as the head of sales, as a player coach. And they promised to make me a VP of Sales soon after.
What happened in the four years after I left
Although I’d never served as a head of sales before, I embraced the challenge. I kept in touch with my old VP of Sales for guidance, and got to work launching new initiatives, like a new cold calling channel, rigorous pipeline management, and recruiting a team. I was a player coach who also “carried a bag” and handled mid-market & enterprise deals. Everything I learned back at Logikcull was extremely valuable for the new job. The Next Startup ended up crushing it, and in less than a year, grew revenue enough to raise their next round, a $15 million Series A.
I stayed there for two years. I would’ve stayed longer if not for 3 important, unexpected developments. First, The Next Startup became so successful so fast that they had to break their promise to promote me quickly. Instead, they hired an experienced executive from big company as the Chief Revenue Officer. The CRO wanted to bring in his own people to run the organization—which meant I was left out in the cold.
Second, I unexpectedly became small-time famous in the legal community. After being pushed out of management, I became a pure individual contributor, and could focus my energy on figuring out novel, effective ways to sell. When the pandemic hit and my entire sales pipeline dried up, I was forced to come up with ways to generate my own marketing. That’s how I started posting aggressively on LinkedIn and Tik Tok, which led to me going viral repeatedly. With the power of the Internet, I soon became a recognizable face among the lawyers I was trying to sell software to.
Which led to the third, most amazing and unexpected development of my career: The hottest legal tech startup in the space recruited me for a unicorn job that was designed for me specifically, with the opportunity to work under an absolute legend in the space. That’s how I ended up at Ironclad in my current role. Not only was Ironclad generous with comp, the job itself was incredible. I had the freedom & autonomy to push the envelope around social selling. Finally I was at a place where I could leverage everything I’d learned in my 10+ years as a lawyer, salesman, and marketer. I could work on things no one else was working on. I could develop the craft.
My point in recounting my career path, and what happened at The Next Startup in such great detail is this: None of this would’ve been possible without my experience and learnings from my foundational experience at Logikcull. That was the real upside of my time working there—not the stock options.
Ok that’s nice but how much did you make from your options
A few weeks ago, I got an email informing me that Logikcull was about to be acquired. There was a ton of legalese and jargon that even I, as a former lawyer, didn’t fully understand. But it didn’t matter. The takeaway was clear: My options were finally worth something!
I texted the old group chat right away. “Hey guys I think I’m getting a payout. I bet it’s going to be a few thousand bucks!” Truth be told, as long as I was getting something back, I was pretty happy. It wasn’t until a few days later when I learned how much money I’d be receiving for my shares. When I found out, I couldn’t believe it.
My payout came out to around $33,000.
It’s an understatement to say that this amount exceeded my expectations. It blew me away! It was $33k more than I expected to receive. Remember, I exercised my options as an insurance policy against regret. Mentally, I never *expect* to get paid out on my insurance. Plus, if I did get paid out, I figured would be maybe double or triple the amount I paid to exercise. I certainly didn’t expect it to return 18x!
After my euphoria subsided, I began to reflect on the reality of the situation. I would owe a lot of taxes. Not only am I on the hook for federal capital gains taxes, I also owe taxes to California, who apparently taxes capital gains as ordinary income. I’m not complaining—just sharing that my true payout isn’t going to be anything close to what the shares are worth.
Plus, if you look at this payout as being part of my employee compensation, it looks even more unimpressive. Setting aside the taxes, if you take the $33k payout and divide it by the 3 years I worked at Logikcull, it comes out to around $11k/year. As a cash bonus, it’s … not bad. But it wasn’t cash, it was an illiquid asset with questionable value that I was forced to hold for 4 to 7 years after I’d “earned” it.
I have zero complaints about how much I was paid by Logikcull. Especially towards the end, when I actually earned more than I did as a Biglaw associate. But for most of my time at the company, I made far less than I did as a practicing lawyer. Spreading that $33k evenly among those years doesn’t come close to making up the gap.
So from that lens, my payout is considerably less impressive.
Still, I feel like the luckiest guy in legal tech. This acquisition came totally out of the blue and really felt like a windfall. And I was fortunate enough to be in a position to exercise. I know this because many of my former colleagues never exercised their options.
Some were early career folks who didn’t have the ability to spend their hard-earned savings on options that might be worth nothing. Others had such a large number of options that exercising them would be prohibitively expensive.Me, my options grant was small enough to let me exercise without breaking the bank *and* I was old enough to have some savings set aside to pay for the shares.
I was truly, truly lucky.
I don’t want to over extrapolate from this one-off experience. At the same time, going through this process, and watching a company grow—from a very early stage, going through growing pains, competing in a highly crowded marketplace—and most importantly, where I was intimately familiar with its flaws, get a decent exit.It all made me rethink a few of my previous assumptions. For example:
Pessimism has a price. Before this experience, I couldn’t fault anyone for choosing to not exercising their options. I’m not talking about those who couldn’t afford it, by the way—they really had no choice. I’m talking about those who did have the funds, and chose not to. They probably thought they were being cautious and smart. This kind of caution, or pessimism, always sounds smarter than optimism. But there’s hidden cost that reveals itself in the future. Missed opportunities. And I’m not just talking about startup equity or money here. I’m also talking about big career decisions or how we think about our personal & professional relationships. Optimistic decisions can be hard to defend, but can help you win big in the long run.
Take bets that have limited downside. When it comes to startup equity, if your exercise price won’t break the bank—why not do it? I called it “insuring against regret” above but essentially what you’re doing is taking a guaranteed small loss for a potentially significantly larger upside. Sometimes payoffs are bigger than we expect, and sometimes we dramatically underestimate the odds of success. In this specific example, maybe I shouldn’t have defaulted to thinking of startup equity as being worth 0. I should’ve considered the fact that this startup was operating in a space with lots of demand, and was successful enough to generate significant revenue. So it’s not the same as some random consumer startup that could go bust at any moment. In a highly competitive space, it’s also possible that one of the bigger players will try to consolidate and acquire that company.
Early on in your journey, career growth is FAR more valuable than startup equity. Had I tried to negotiate for more equity when I first joined Logikcull, I would’ve missed the forest for the trees. The learning experience, the contacts I made, the skills I developed—all of those were far more valuable than the stock options I received. I was able to convert growth opportunities into more and more comp. Of course, there will come a time in your career when that changes. Eventually, stock options are how you bet on yourself and your ability to select the right company. That’s why so many execs get a huge portion of their compensation in equity or stock options. When you get there, the far more interesting question is how much cash compensation to give up in exchange for equity. Until you reach that point in your career though, I would always recommend optimizing for career growth above all else.
In the end, me joining a startup was never only about the money. I always had a feeling that making that pivot would involve a big financial sacrifice. But now, with the knowledge that the stock options from my first startup ended up being worth something—that sacrifice is a little bit smaller. Moving forward, I’ll continue to focus on growth opportunities, and taking risks. Because in my gut, I feel that the sacrifices you make will be smaller than you expect. And who knows? In the end you might win big.
Thanks for reading! This is a free email for Off The Record subscribers. If you’re interested in learning more about all the sales, marketing, and business development lessons I learned during my time in startups, consider upgrading to a paid subscription, which gives you full access to premium content. That’s where I document all of my learnings from trying to sell technology to law firms and legal departments.
Some background about stock options might be helpful for those outside of the tech startup world. Generally, when you accept stock options as part of your compensation package, you don’t actually get them all at once. There’s usually a 4-year vesting period with a one-year cliff, which means you’ve got to work there for a year before you receive any options. On your one year anniversary, you receive 25% of your options. Then, each month afterwards, you receive a proportional number of options (ie. the remaining 75% divided by the 36 months remaining in your vesting period). So if you leave after 3 years, you really only have 75% of your total options package. Further reading.
Questions like—if these options were worth “nothing”—why make it part of our pay at all? To this day I don’t really understand why nominal amounts of options with questionable value are granted to employees. Maybe it’s just the way things are done, but maybe it’s a way to trick recruits into thinking they’ll be generously rewarded if the company does well.
A refresh grant is “an incremental grant by a company of additional ownership of the company to an employee or other team member who has already received an initial equity grant.” Source. Funny story about my refresh grant: To this day I’m not sure why I received it. The company wasn’t in the habit of freely giving out raises—even if they were admittedly “just” stock options—unless they had a good reason to. For me, I noticed that I received my refresh grant, out of the blue, shortly after I made an off-hand joke to an exec about how few options I had. At the time I was a star salesperson who was at risk of leaving the company, so my guess is that it was a calculated bet that it would help retain me. And you know what? It worked.
I know, this is a super privileged comment for me to make, that $1,800 isn’t a ton of money. I’m assuming that if you’re reading this article though, you’re probably in a similar boat as me. By the time I left Logikcull, I was earning at a rate of approximately $200k/year and was child-less and mortgage-less. I had some disposable income available. Had the cost of exercising been like $18,000, on the other hand, I probably would’ve just walked away.
Notably, the company I went with was not the one that paid the most money. Before I left Logikcull, I was recruited for an enterprise sales position at a very well known tech unicorn with a total comp package that was literally *double* what I was earning at the time. It was incredibly tempting, but in the end I decided against it. Joining that unicorn meant joining another industry, which meant leaving a niche—legal tech—where I had so many unfair advantages. I figured that I was making a long term bet on myself and my growth in the legal tech space. These days, when I look back on it all, I’d like to think my decision has paid off financially. But sometimes I look at how much my equity at that tech unicorn would be worth today and … let’s just say I try to avoid thinking about it.
I want to be clear that while I played (I think) a significant role in driving revenue at this early stage, the startup did well for many reasons unrelated to my contributions. The founders were very clever and found ways to attack the market that created a lot of revenue quickly. My specific contributions pre-Series A were limited to: (1) creating a new channel that promised to create repeatable, scalable pipeline; (2) providing best practices and professionalizing the sales team; and (3) successfully closing smaller deals quickly while the CEO went out elephant hunting.
I also later learned that they used my name, face, and experience in the fundraising deck (and I suspect, overstated my sales experience) as evidence that they had a built-out leadership team. That experience taught me why startups often recruit gray-haired executives from brand-name companies to lead sales and other functions—it’s not that they’re necessarily good at the job—it’s that they make the startup’s leadership look experienced, which makes the company appear less risky to invest in.
There was one particular friend of mine who joined the company a long time before I did, and who received a very large options package with a very low exercise price. However, when he left, he didn’t have the funds to exercise. And because there’s a short deadline to exercise when you leave the company, there’s not enough time to wait and try to save up money or see if the options are worth anything. It’s crazy to me that someone who contributed so much to the early success of the company couldn’t participate in its financial success.
In other words, I was overloaded with negative information about the company. Many of us who work on the front lines at a startup are intimately familiar with everything that’s going wrong. It can blind us to the bigger picture: That the startup, while imperfect, is successfully serving a market need while making money. More information isn’t always better, because it’s possible all of the additional detail paints the wrong picture. Incidentally this is why many lawyers are so smart, great at research, and rightfully skeptical about outlandish claims from businesspeople—yet end up missing the forest for the trees. They weigh negative information too heavily. Just as I did.