The next generation of startups is going to have to address some employee equity problems, I think. This notion that early hires are going to share a small piece of the 10% employee pool needs to stop.
Being employee #1 of a startup can be one of the worst positions a young developer can ask for. Long hours, high stress, low job security, and for what? 0.5% of a company that, if it survives, will most likely dilute its shares?
A startup could really set itself apart by advertising more progressive structure-- One where shares in the company aren't treated like a lottery ticket, but an actual piece of value that is worth growing. Too bad VCs don't see it that way.
Probably not, or that already would have happened. It hasn't.
One problem is that a lot of people look at equity grants as a meritorious service award. But that's not at all what they are; they're compensation for risk.
Developers look at risk compensation and say, "well, I undertook a lot of risk to work long hours for a lower wage". That's true, but the market prices that kind of risk, and the market cares a lot about substitutes, and the typical developer taking basis points for their participation is eminently replaceable by other developers.
On the other hand, the market has no replacement for an entity legally authorized to trade $1MM for X% of the company, so that risk is priced highly. Similarly, the market has fewer substitutes for the people who actually start the company; or rather, those substitutes tend to react to the mispricing by simply starting their own companies, and thus aren't competing with the founders for equity.
Pithier:
* there's a lot of ground to be made up in how founders/operators promote startup jobs to developers!
* there's probably some marginal ground to be made up for developer equity compensation
* it probably won't dramatically alter the way startup cap tables look
* developers who genuinely (in a market sense) are poorly served by how startups allocate equity should start their own companies
* developers who can't start companies probably aren't being as screwed as we think they are by small grants --- or, if they are, they're being screwed by being persuaded to work at startups when they should instead work for larger companies that can pay them better wages.
> That's true, but the market prices that kind of risk, and the market cares a lot about substitutes, and the typical developer taking basis points for their participation is eminently replaceable by other developers.
If all you're hiring with your first employees are replaceable people, you're doing it wrong and will probably fail. Those people not only have to work long hours, they have to work them well. It's like the APM curve at the beginning of a RTS. You never make up those time and behind-ness just piles up.
With equity in the long run an engineering career looks a lot more like prison or slavery, you are taking all the risk and most often if there's a hiccup you have to live with not getting paid
I'd say "cynical" rather than "conservative." Most people here aren't against change, it's that we've all been burned by these things, time and time again.
If you model the entrepreneurial/tech ecosystem as a market, you'll find inefficiencies and mispricing of risk everywhere, not just in hiring at early-stage startups.
I. Every man has a vote in affairs of moment; has equal title to the fresh provisions, or strong liquors, at any time seized, and may use them at pleasure, ...
IX. No man to talk of breaking up their way of living, till each had shared one thousand pounds. If in order to this, any man should lose a limb, or become a cripple in their service, he was to have eight hundred dollars, out of the public stock, and for lesser hurts, proportionately.
X. The Captain and Quartermaster to receive two shares of a prize: the master, boatswain, and gunner, one share and a half, and other officers one and quarter.
I'm a firm believer that every filmmaking project is a cult, and that directors with cult leader traits are much more effective at getting the project made the way they want it.
There can be obvious downsides to that, of course, but the same thing likely applies to startups.
I don't know if you can force it if you don't have it, but it's probably learn-able.
I don't know if a war party or a pirate crew are good options. Startups are attempting to create wealth. War parties and pirate crews aren't engaged in wealth creation, they are involved in wealth destruction. This is an important distinction that often gets lost in comparisons of business and warfare.
I used those terms as flavor more than anything. That said, the core argument of each (we're going to kill X, we're going to make a ton of cash because we're just better and faster) is a typical conceit.
Do you actually have a model for cults, warparties, or pirate crews? The reason the phrase "model a startup as a market" even makes sense is that reasonably well-accepted and well-defined models do exist for markets.
Certainly. Most of these are arguments for why people would make irrational decisions that break market models.
Cult: A singular leader or small group of leaders convince people who are looking for something to believe in/want to change the world of their worldview. The followers are willing to make non-optimal decisions in order to be a part of something greater/be close to the leader(s).
Warparties: A leader/small group of leaders convinces a group of people who are looking for something to believe in that they're on a holy mission: kill X. The followers are willing to make non-optimal decisions in order to be a part of something greater/be close to the leader(s).
Pirate Crew: A leader/small group of leaders convince a small group of people that they're special - and that they're going to work together to make a ton of cash. This is not necessarily true. The followers are willing to make non-optimal decisions in order to be a part of something greater/be close to the leader(s).
Completely agreed. I recently applied to YCombinator and one of the questions asks how you plan on sharing equity.
Here was my response:
Everything I have seen, read, watched and smelled has made it clear that it is much better to be over generous with equity than to be stingy.
With that in mind I plan on following the Sam Altman model as follows:
Founder(s): 10%
First 10 employees: 10%
Next 20 employees: 5%
Next 50 employees: 5%
Vesting would happen after 5 years with a 1 year cliff.(I chose 5 instead of the 4 in Altman’s model because of the growing trend of companies taking longer to reach liquidity)
Not only would this model differentiate a startup from competitors to potential hires, like you mentioned, sharing the growth with those who put in the work is the right thing to do.
Besides, what can the gal who owns 10% of Google do that the guy who owns 1% can't?
> Being employee #1 of a startup can be one of the worst positions a young developer can ask for. Long hours, high stress, low job security, and for what? 0.5% of a company that, if it survives, will most likely dilute its shares?
One thing that's never really brought up in these discussions because it's extremely poorly understood is that startup employees are the only ones given options (in the financial sense) and options are always more valuable than the underlying asset with the degree of premium based on the volatility of the asset.
Think of it this way, as a startup employee, your optimal strategy is to join a company, work for a year and then immediately quit if the company isn't 5x as valuable as when you joined. Over the course of an engineering career, this gives you approximately 20 shots on goal to hit on a hyper growth company. Once you've hit one, you essentially have to do enough work for the next 3 years that you won't get fired and you're vesting stock that's 10x - 1000x more valuable than what you negotiated. Nobody else is allowed to have the option of buying startup stock at 4 year old prices except employees and that's the extreme advantage.
Unfortunately, engineers are not experts at options pricing (nor should they be) so they tend to devalue the equity portion when considering total compensation which leads to the overall dysfunction in the system.
>options are always more valuable than the underlying asset with the degree of premium based on the volatility of the asset.
No, you have this backwards. Options are always LESS valuable than the underlying asset. The degree to which they are less valuable is inversely correlated to their volatility. The more volatile they are, the closer in value they are to their underlying asset.
I.e. a January 2015 call for Apple is currently trading at $4.36 per share. That means despite apple shares being worth $103 each, you can buy options for $4.36 each. If you want a longer term you can pay a bit more. A January 2017 call for Apple is $16.65, still more than 5 times cheaper than the actual share.
What employees get are more like options on the options. This secondary option multiplies the value of the option as you have described, but it also presents really awkward conflicts of interest where employees often end up with their shares reduced or being pushed out of the company altogether (see Skype or Zynga). Even still, it's not clear whether this multiplicative value of the option ever makes it worth more than the underlying stock. It could just make it similar.
I was curious if companies ever did fire employees to claw back vesting so I asked on Quora a couple of years ago: http://www.quora.com/Equity-Compensation/Do-immensely-succes... and apparently the answer is, outside of Skype and Zynga, the practice is rare.
It's not just firing them or taking back their options. The incentives change such that the company doesn't really have to put any effort in retaining them anymore. Bonuses/raises/soft perks/etc that the company might normally provide would be less likely. They don't necessarily have to worry about keeping you happy with what you're working on which is not something you normally think about when considering the value of equity.
It's hard to predict exactly what will happen, but the broken incentives are clear. A better model would have them aligned much better.
> options are always more valuable than the underlying asset
How about this deal: for any publicly traded stock you're holding, I'll give you an option to buy an equivalent number of shares at current market price.
If the price goes down, your option is worthless but I can still sell the underlying. If the price goes up, I can sell for market price, while you net [market-strike] < market.
I enjoy startups. They can be great learning opportunities, but they're typically a losing bet financially. You have to choose wisely.
The difference is in the starting value. You might pay pounds for the underlying and pennies for the option. But no, 1 long option is never more valuable than 1 share.
As a former employee #1 I can attest that even 2-3% of a company at a paltry wage is unsustainable. I know when I start my own business someday it will closer model what was done at WotC - this really resonated with me.
I am employee #1 for a rapidly growing startup, been here nearly two years. It's my first developer position, I'm definitely underpaid (until our A-round apparently), but I have .5%. I feel like pretty soon it'll be apparent whether this is going to ~really~ take off (I honestly feel it will).
Any advice on what steps I should take to prevent getting shafted?
You say you think it will "really take off" - what's that mean, it's going to be a billion dollar company? Ok then, your 0.5% is going to make you 5 million dollars. That's a net win.
But maybe you mean it's a 50 million dollar company - then, best case (no dilution, you stick it out until they IPO, let's say 5 years working there total) you could walk away with $250,000, or the equivalent of having been paid an extra $40k-$50k per year each year you worked there. That sounds like about break-even financially, with some great experience but shitty lifestyle for several years. Up to you if that was a good deal.
Or maybe you mean it's a 10 million dollar company. Would you be at this job if you had no equity and an extra $10k or would you feel screwed?
I suppose it depends on how you define "lucked in to".
Even building my own company, bootstrapping over these 5 years, I feel like I lucked into where I am. Not because I'm undeserving, but really because I feel lucky to live in an era where I even have that possibility.
If my world is entirely comprised of SV type startups, perhaps I'd feel differently. But I try to keep some perspective. (As in, I lucked into not being a field hand in 4th century Italy, and instead I can use my brain to manipulate electrons through small finger movements, that supposedly create value enough for other people to transfer electrons into a virtual account of "mine" that I can exchange for goods and services.)
I'm sorry if that sounds harsh, it's not intended that way. I really just wanted to point out that people define luck very differently.
I'm definitely underpaid at the moment but that's the nature of a bootstrapped startup isn't it. They took a chance on me with no degree or job exp. Also money doesn't equal a better experience. I get to work on something really fucking cool and I love the people I work with. I'd probably kill myself at consultancy.
So regardless of whether or not make tons of money on this startup, I'll have 2+ years of job experience for the next job that I didn't have before.
You're rationalizing your state of being underpaid, which is understandable (you want to feel like you're making good choices in your life) but not very rational.
The tell-tale sign is that you compare your current position with a bad job (consultancy).
The thing is: there are plenty of startups that make cool things and have nice people AND pay well AND offer good equity AND have potential to take off in the future.
So if you really think you're underpaid for your skills (as in: you could find another job that is as good as this one and pays better), you should ask for a raise that would match a market rate for your current skills.
If a raise is not possible, you should start looking for a new job (and if you're in SF/Bay Area, there have never been a better time to do that).
Better to love what you do then make more money.
Money != Happiness
If this guy loves his job and company, and has earned valuable experience, then he is a lucky man! If he happens to make an extra buck or two, so much the better.
I've been in this position. .5% of a rocketship is still pretty great. You'll end up with 1.25MM cash if the company exits at a billion (after 2x dilution and 50% taxes if you're in California). Yeah, it sucks to think about how much richer the founders got, whilst you worked just as hard… but it's still important to remember that you were very lucky to be in the right place at the right time, and be along for the ride.
Also, I bet you learnt a fuckton in this position which'll make it easy for you to accelerate your career. For me, seeing the hyper-growth from inside, taking on responsibility as the company grew, handling the shit as it hit the fan… that's priceless experience. Combine that + the 5MM I'll probably make out of it, and it doesn't matter how much better off the founders are, I still got a great outcome.
Sounds like you'll make out ok, but feel it could've worked out better...
After proving your value as an early engineering hire, what about approaching the Founders to re-up the equity on a regular basis? Awesome first quarter 2012? Company revenue up 100x? Profit through the roof? Ok... how about that equity re-up? :-)
Nothing should restrict irreplaceable engineers or engineers who just create tons of $$$ value from getting increased equity post-hire. I'm sure there are some great techniques for this, and this can definitely become a norm in our industry. (My friends on Wall Street have this down to an art form...) As companies grow out, individual engineer performance is usually under-appreciated so there is less leverage.
I'm surprised you didn't walk away with co-founder (10%+) level equity. You built nearly everything... all the hard/nasty bits like supporting multiple api versions across diff platforms and also building/maintaining new features that drove new customer adoption. From an engineering perspective it was pretty awesome to see the value creation, so it's a bummer to hear that after sticking it out you won't get rewarded for that early value creation.
Definitely think it'd be appropriate to show up one day after acquisition and ask for a rather large boat. Or 2. :-)
This is a great story, and I'm glad it worked out for them, but it's important to keep in mind that it's only one data point. This is exactly the sort of "I'll pay you in equity, and once my great idea makes it big you'll be rich!" approach that HN usually hates, because 99% of the time said payout never comes.
I think its not directly comparable. Wizards of the Coast was never a "my big idea that will change the world!" type of company. It was a a games publishing company. They didn't even have one particular game in mind when they started up. Magic came later. Initially they were doing pretty much any board game and RPG that wanted to cut a license deal with them. In fact, they still operate this way to a certain extent, even with Magic as the flagship product.
Because Wizards was never an idea based company I don't think its fair to put them in the same bucket with the usual suspects who try to exploit naive young developers by not paying them for hard work.
Another possible big difference between WOTC and a typical tech company is that there weren't as many professional financiers involved in WOTC's fundraising. Every round of "institutional" funding taken by a tech company revalues all the previously issued shares, and companies planning to go this route are structured to make that process as frictionless for the company as possible.
I'm not sure that that's really true. Investors don't vest because they put in capital which is immediately available. Similarly, those contributing capital (either in the form of supplies (e.g. a drafting table) or cash) should get their shares right away. Those who are accepting equity for labour should vest because otherwise they may walk away before all of the promised labour materializes. I think that those who were paid in WOTC stock (in addition to or in lieu of cash) received their stock in paycheque-sized increments. Which is fair because the amount of stock they received is a fair trade for the labour that they put into the company.
Which begs the question, why would you deliberately build a cliff into the vesting process? Why not say, 20000$/yr (or whatever arbitrary amount) at then-current valuation?
As for institutional investment, this would create incentives for the founders (or other equity holders) to exaggerate the valuation of the company. On a different note, this kind of vesting would mean more equity for people who worked for the company while it was growing slowly (and who took on more risks - that's why you give them equity and not hard cash) before seeing exponential growth, and no equity growth for people who joined after the company had reached a stable state.
The next point is, what's whith people who want to disinvest from their position? This is both the case for investors after a company has reached a certain size (e.g. Zappos before they were acquired by Amazon), but it will also be the case when people who get partly paid in equity want out of their position.
Vesting cliffs unilaterally benefit the current equity holders, because it creates a skewed incentive structure where you either should leave at the start or stick it out until the vesting cliff. (And, that's what it was with Microsoft in the 90s/2000s: many people stayed on exactly for the time it took for their equity to vest).
True. But it's nice to hear these stories. My brother gave our old man $5K in his startup in appreciation for several months of sleeping on the couch when money got tight. During a downturn my brother lost it all. When the dot com bubble hit, my old man realized he still had the stock, which was now in a parent of a parent, and got out with a 20x return.
I love the idea of small scale stock offerings, but isn't this illegal? My understanding was that selling stock like this is a private equity offering and that private equity offerings are limited to a small number of people unless the investor is sufficiently rich (the government likes to use the term "accredited investor").
The most basic provision on a private sale of private stock places no restrictions on the sale that 'does not involve a public offering'. So in theory it's only when you start "looking" for investors, when you are "publicly" selling the shares, then you want a Reg D 506 exemption, and accredited investors.
However, in practice the Section 4(a)(2) exemption is often not strong enough protection (since we're talking potentially significant civil and criminal charges) so companies go for the Reg D safe harbors even when not technically required. Particularly for unsophisticated / unaccredited investors, the courts have found that 4(a)(2) is not good enough, even when the sale was arguably private. See, for example, SEC v. Ralston Purina Co., 346 U.S. 119 (1953). [1]
Following the path of Reg D 506 is actually quite simple, and carries no downside. But even with Reg D 506 you generally try to avoid unsophisticated investors, since then you get into scenarios where you are supposed to provide 'access to the kind of information that a registration statement would disclose' which is very difficult. The crowdfunding regs in theory are supposed to help alleviate this.
Just going to follow up on this to excerpt part of that Supreme Court decision;
Exemption from the registration requirements of the Securities Act
is the question. The design of the statute is to protect investors
by promoting full disclosure of information thought necessary to
informed investment decisions.[10] The natural way to interpret the
private offering exemption is in light of the statutory
purpose. Since exempt transactions are those as to which "there is
no practical need for [the bill's] application," the applicability
of § 4 (1) should turn on whether the particular class of persons
affected needs the protection of the Act. An offering to those who
are shown to be able to fend for themselves is a transaction "not
involving any public offering."
I truly dislike the logic, why can't we stick with the plain meaning of the text, but they are trying to protect people from swindlers so I can understand their goal.
The end result is selling shares to the night janitor is almost certainly not allowed by 4(a)(2) but glad it turned out alright this time.
There's a whole mess of exceptions to the rule you're referring to, but equally importantly, it's not so much "illegal" as "unlawful". For instance, many of the bad things that happen if you flout this rule only happen if you have disgruntled (or ruthless) shareholders.
It's a very bad idea to ignore the "reg D" type rules, but it's not the kind of thing where random people are likely to be able to report you to the SEC and get you fined.
he did mention they had disgruntled shareholders. e.g. complaining about paying $300k for a $100 item. couldn't they have used that to halt the payment to the small (and illegal) shareholders of the past?
I don't know, but the sense I got is that those stakeholders were larger, more formal investors, in which case RegD doesn't help them --- they're assumed to be sophisticated.
>> the very beginning, I wanted all my friends to be shareholders. If I had a deep, intellectual conversation with someone, I’d give them 10 shares.
Yeah, it probably violates some securities laws... but when everyone makes lots of money on the deal, there's rarely an issue. When investors lose money, they're all too happy to bring up securities law violations and fraud claims. Better to do everything by the book and not give anyone an excuse to sue you later.
I'm not a securities lawyer, but in a nutshell, startup companies should prefer a very small number of professional (and accredited) investors.
I think most of the accredited investor rules deal with solicitation. If someone approaches you and makes an offer and you agree to it it's okay (pitching to friends and family), but I am not a lawyer.
There are a lot of exemptions - for example rule 504 of reg d is pretty liberal regarding how you raise funds as long as you raise less than $1m in a given 12 month period...
I recall that if you raise money from people in only one state you may be able to rely on state level rules and registration requirements
I think the most important takeaway is that he did not try and screw over the early shareholders, integrity is important. The story about the $280,000 drafting table is relevant, they needed the drafting table it contributed to the success, If you were to go down that line of thought I wonder how much each can of Soda bought for early Facebook employees "cost".
There were a lot of drafting tables and tons of other stuff purchased totaling some unknown amount. But it was that drafting, in that place, with those cards which made a company.
It's easy to criticize it for being $280k because we don't know the scenario where they don't have a table. Maybe that scenario is, "fuck it I'm not working on the floor any more" and the whole company is worth zero.
Then there is the economics of it. Hindsight makes it all easy when you only question the costs of the winners.
> I was successful as a CEO not because of my own brilliance, but because I built a team of people far smarter than me who were willing to buffer my shortcomings.
I always feel dumb asking - but doesn't the total number of shares matter? The real thing you're buying is a fraction of the pie when someone buys your company, and it would seem to matter quite a lot whether the pie was cut into 10^3 or 10^6 pieces. Indeed, I wish we could just talk about ownership percentage instead of shares to remove the ambiguity.
Why is there a reluctance for people to talk about this openly?
There's nothing at all dumb about this question! And the answer is most definitely "yes."
As a shareholder you should have an understanding of how many shares are authorized (i.e., how many units of measure the company has been divided in to) and how many of those shares are issued (i.e., how many units of measure have been given out and are no longer up for grabs).
The reason it's done this way and not via simple percentage (which I agree is WAY easier to understand) is a matter of practicality; as new shareholders come on board it would be prohibitively difficult to go back to all existing shareholders and modify their percentage.
The number of shares should be figured into the estimated price. If they figure the company is valued at $100, and a share at $0.50, then they should be issuing 200 shares.
You should be completely mistrustful of anyone who offers you shares and doesn't tell you the # of shares outstanding. Alternately, if they tell you the value of a share, they should tell you the estimated value of the company.
The alternative is presented in Mel Brooks' The Producers.
> You should be completely mistrustful of anyone who offers you shares and doesn't tell you the # of shares outstanding.
this is an amazingly important point that many people I've seen new to the startup world ignore to their peril. it is too easy to get big eyes when you hear you are getting 50,000 options not realizing that it is only 0.000001% of the company since you don't know # of shares outstanding, across all classes of shares.
It's maddening, too, because nobody ever just tells you the actual shares. EVERYONE says, "You'll get 50,000 options!" My answer is always, "Okay, and what percentage of the company is that?" and the answer is always, "Um... I'd have to go look it up."
Just once, I'd like someone to provide that information for me proactively. It would instantly increase my estimate of their integrity by 150%.
I don't understand how one could not know what percentage of the company that is. It seems wholly irresponsible not to; both from the perspective of the potential employee (who may get too little) and from the perspective of the employer (who may give away too much).
Well that and do they mean 50k options as traded on the open market or options enough to purchase 50k shares?
I had an employer promise one and then try to weasel into giving me the other. I threw a fit and made them fix it. Theynwere bankrupt a year later. :whomp whomp: But my point is when they say "option", ask them to define it
One is worth 100 times more shares.
I've had this happen to me, and quitting was one of the best decisions I ever made. If you can't be upfront about equity, it's a symptom of a much larger problem.
depends what the valuation is based on. If the company is generating revenue in theory and to some degree of tax lawfulness the strike price should be related to the actual ultimate market value
even if it's not and depending on the type of grant the strike price matters quite a bit for tax purposes to the grantee.
This is a good example of a spectacularly bad comment: it is both filled with jargon and it totally misses the point. "Strike price", "grant" etc. is unnecessary.
At the point of a sale, your shares worth (v) is a function entirely of the price paid for the company (p), the number of shares you have (n), and the total number of shares (N), like this: v = n/N * p. You can't even begin to speculate on the value of n for a given p without knowing N.
It's funny how everyone seems to have a different view of how equity should work. I'm reading Felix Dennis "How to Get Rich" (highly recommended, much better than the title makes it sound). He made his fortune in magazine publishing which is actually somewhat close to Wizards of the Coast in business model. His view is exactly opposite; fight as if your life depended on every share, and pay people bonuses to incentivize performance.
>If I had a deep, intellectual conversation with someone, I’d give them 10 shares. At $0.50 per share, that was only $20 of fictional value, certainly a fair trade at the time!
Is his multiplication bad, or am I misunderstanding something terribly?
"But most of the value in this company came from two things: Richard Garfield creating Magic: The Gathering, and the employees. Not investors. It’s only appropriate that the distribution from the sale reflects that."
Hear hear. Investors say that founders and employees are what make startups. I wish the cap tables reflected that.
This. Having been on both sides of the table (early employee and later a founder), I still struggle with what the right distribution would and should be. There are just so many factors to consider (pivots, investors, acquirers, risk) that it seems unlikely that a simple formula or blanket rule will guide people right. Probably case-by-case basis and a realization that information asymmetry + control in early stage companies leads to a slight, but correctable, favoring of founders/investors' interests.
Peter says again and again how he did it might not have been the safest way, that perhaps he was lucky it worked out, that there could have been a better approach. He does recognize it’s all water under the bridge, that in the end, he got success. But just keep this in mind — the way they did it is probably not the best way.
• He only ended up with 4% of the company after his divorce
• The board of directors took pity and helped him out financially, but they didn’t have to
Rereading this, I realize that this story might sound like sour grapes, and perhaps some of you are thinking, “What an idiot!” But, no, I’m not bitter in the least. That’s life; these things happen, and it was a valuable learning experience. I share it because, well, it’s a part of the history here. And yeah, I’m an idiot. If you keep reading this blog, you’ll see that proven again and again! But we’re all idiots. We do dumb things: we trust people we shouldn’t, we make decisions based on emotion without regard for logic, or sometimes logic without regard for emotion. It’s the human experience, and the story of Wizards of the Coast is a very human story.
Offering stock instead of money for goods and services to your friends is risky. If the stock becomes worthless (which is very common for startups), your friends may not be your friends anymore. Of course, that doesn't mean much for an investment as small as a $100 drafting table, but losing your life savings is devastating.
thanks. totally get the life savings risk - the risk to the investor. I read it as risk to the company, so didn't know how this would be any riskier than standard round raises.
"We did no mathematical analysis of how the stock should be priced; we didn’t have the skill to do that"
Folks may not realize it while doing so, but developing complex gameplay that is perfectly balanced can be considered a feat of linear algebra. So that quote made me smile :)
They knew that it was unbalanced and that some cards (Moxen, Ancestral Recall, etc) were too powerful, but that was on purpose because they expected scarcity to be a part of the metagame.
If you were playing with your own group of friends who owned a few cards, the small total number of overpowered cards would be a fun diversion. They didn't anticipate the huge success and scale the game achieved. With a worldwide metagame and market for buying/selling cards, scarcity vanished as top players would pay up to get 4 of whatever card gave them an edge, so revisions had to be designed in balance, rather than rely on scarcity to create balance.
Source: I read way too much MtG history a few years ago when I was working on my own card game.
There's more to it than that. They've re-released edition after edition to obsolete the previous. Used to be 1 mana got you a 1/0 or 1/1 creature with nothing else. Now you can get cards with 1 or two features, flying etc. Anybody using the old ones is a sucker. Its easy to think its all about the money, you have to buy new cards to keep competitive.
In fact this is why our game club designed their own card game (Orion Empire, check it out on Kickstarter!) The idea is, new cards will always be different in some way from old ones, so no card is ever completely eclipsed. So you can buy new decks to keep it interesting, but your old one is probably still competitive.
WotC, especially Mark Rosewater, has addressed this issue many many times. I would recommend checking out some of his columns and podcasts.
Short answer: the game has evolved quite a bit (I've been playing for 17 years).
Long answer:
> Anybody using the old ones is a sucker.
There are several different Constructed formats, each with its own restrictions on which cards can be played. The three most popular are Legacy, Modern, and Standard. In Modern and Standard, only newer cards are allowed, so there naturally aren't any from older sets. In Legacy, there are plenty of older cards being played. Take a look at the lists from any Legacy tournament, and you'll see a mix of old and new. Now, the power levels of each type of card have changed (in general, creatures have gotten more powerful and non-creature spells less powerful), so you'll often see earlier non-creature spells and more recent creatures, but this isn't set in stone.
There's also the idea of power creep. The natural progression of a game like Magic is to allow more and more powerful effects, since not doing so will dis-incentivize buying new cards. For at least the past 10 years, then, Wizards has made a conscious decision to vary the power level between blocks (cycles of sets). Different types of cards will be more or less powerful at different times (in the last block, enchantments were the focus, now multicolor cards are being emphasized).
It's true that if you want to stay competitive takes a certain amount of money, but this is true in many hobbies. Magic has been constantly getting more popular over the last few years, and it's still around when 99% of its competitors are gone. Let's check back on your game in 20 years and see where it's at.
That sounds pretty much like what I said: card inflation keeps people buying new cards. I was being a little cynical, but if they cop to it, then great.
I don't see it as a 'natural progression'. Its lazy; you can think of new cards without obsoleting old ones, but it takes effort. I know; we've got an edition and 3 expansions so far (500 cards) and they took a lot of work.
As for being around; I see people come into our local card shop for tournaments, but nobody is 'playing Magic' any more. There has to be a gimmick, like a contest or draft tournament or some such. The kids in my Scout Troop were crazy about it 10 years ago; now its dropped off the radar. So maybe its still around, but its 30 year olds with money that keep it going.
As part of rebalancing they've buffed creatures and nerfed non-creature spells. It's simply not true that all cards have gotten more powerful, it's just that early creatures were garbage and early spells were too good.
Nothing we've gotten in the last few sets compare to the original Dual lands, Channel, the Moxen, Ancestral Recall, Counterspell, or even something as innocuous as Dark Ritual.
Hypnotic Spectre, Hymn to Tourach, Sinkhole. I remember the days when you could empty your hand with Suicide Black (Type I) on the first turn. Not fun being on the receiving end of 2*ritual, spectre + hymn, losing 2 random cards and looking your doom in the face and your only action so far was losing a coin toss.
You said that they release more and more "to obsolete the old." My point is that was not their goal.
Their goal was always to have spells and creatures roughly balanced. Their original thinking was that creatures were a repeatable source of damage and thus should be costed as such.
Turns out they overestimated how much rarity mattered and underestimated the power level of creatures. As a result, we get pretty mediocre creatures and ridiculously powerful rare spells.
If every set were trying to outpower the last, then we wouldn't still get functional reprints of Llanowar Elves or Grizzly Bears, both of which were in Alpha.
Really, the power creep from year 1 to year 10 or so was a desire to see creatures played in competitive magic and a desire to see more actual games of magic (if your opponent wins the coin flip and goes Mountain, Black Lotus, Channel, Fireball then no actual magic was played).
Since then they've actually been doing a sort of power oscillation. Different parts get more powerful over time, then go back to weaker again. They mostly focus on Standard and Limited where the power level of older cards matter less.
In summary (I've already written too much) there's simple proof that the power level isn't endlessly increasing: look at Legacy and Modern. Every set that comes out adds between 0-3 cards that see Modern play and 0-1 cards that see Legacy play. If power level were just flat going up, that number would be much much higher.
Ok, rather than simple inflation they've invented a way to 'pump' the cards, alternating powerful and weak by category. Even better profits! You don't have to be the least bit creative to do that; you just wait for the old cards to get worn out then reprint them in cycles. Great.
Is criticizing Magic the Gathering as being evil, vindictive, manipulative and profit oriented a way you've invented to 'pump' your Kickstarter project?
Don't be silly. Its the dozens of disenfranchised young people in our game club that motivated the game, not the other way around. They were frustrated and disappointed that every time they built a Magic deck, another edition would obsolete it. They felt like fools; they gave up on the game. This was a way to get them interested in gaming again.
Yes, they make profit. No, they aren't somehow evil, vindictive, or manipulative while doing so.
This line of conversation is not at all productive. You're convinced that they're evil incarnate and will switch from one ill-informed claim (endless inflation) to another (just mindlessly reprinting old cards) on a whim. I'm not interested in getting into an endless Internet argument.
Sorry if my tone is harsh; the frustration of the young people in my club has rubbed off on me.
The evil part is all projection. The objection I (we) have is with the apparently manipulative program of cycling cards to make you keep buying new ones. Its not a mistake to think this is happening - its the process you describe. We're not the only ones to think this way - the game designers felt the need to defend themselves against the accusations as you so helpfully pointed out. Thus we can't be the only ones to be frustrated in this way.
You're convinced all the marketing is ok, not an problem. Fine, you have the money to sink into it. But we're not all like that, we're not all apologists for the company.
And some of us have done something about it. Do you blame us? Is it wrong to find another way to deliver a card game that solves some of the admitted problems with existing ones?
You only "need" to upgrade your deck if you want to play competitively. The vast majority of Magic players (according to Wizards' own research) play casually with no format restrictions.
On top of that, Wizards supports Modern, which is non-rotating, and (to a lesser degree, because of the reserve list) support Legacy and Vintage as well.
If you want to draft without dumping money into it, there's Cube.
There's a million different ways to play Magic, and only some of them have the "problem" you describe.
I put quotes around problem because the rotation is actually a solution to a different problem: staleness. In Modern, Melira Pod has been one of the top decks for several years. There are a group of people that do not want to play against the same deck all the time, hence rotation. Wizards does plenty to support those that want to play a non-rotating format.
I'm not an "apologist" I'm just using my knowledge of the facts (ie, Modern exists and is supported) and common sense (what's the alternative to printing more cards? just ... stopping?).
The power creep that you're talking about didn't really start until Magic was about 10 years old. Since then, there have been back and forths but in general you're correct. If you took a Type II deck from 2000 to a tournament today you'd get stomped on.
The Dunning-Kruger effect doesn't actually cause people who are good at a thing to say they suck at it and people who are awful to say they are good. In the paper, most tests found that estimated ability was positively correlated with ability, but had a lower slope.
You must be an expert in the Dunning-Kruger effect, so I defer to your superior knowledge.
I got my misinformation that "highly skilled individuals tend to rate their ability lower than is accurate" and "skilled individuals tend to underestimate their relative competence, erroneously assuming that tasks which are easy for them are also easy for others", from the wikipedia article https://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect . Maybe you should correct that erroneous article with your competent, highly skilled insights.
When used to describe a cognitive bias that causes highly skilled people to underestimate/under report their competence level, it is absolutely valid to refer to that as the Dunning-Kruger effect - which is exactly what DonHopkins did. Not only was he correct in using that term conversationally, the format of your reply is also unnecessarily abrasive.
"So Do You Wear a Cape" is an excellent history of the founding and success of Magic: the Gathering and written in a way that you don't have to understand the game to grasp everything. I highly recommend checking that out.
if the same people were handling WoC, they would have called in the janitor, made her sell her stock for peanuts before the new stock price set in. garanteeing that only the suits made any big return of it.
Being employee #1 of a startup can be one of the worst positions a young developer can ask for. Long hours, high stress, low job security, and for what? 0.5% of a company that, if it survives, will most likely dilute its shares?
A startup could really set itself apart by advertising more progressive structure-- One where shares in the company aren't treated like a lottery ticket, but an actual piece of value that is worth growing. Too bad VCs don't see it that way.