[borski]

$2M isn't really $2M. Spread it out over 4 years as $300k the first year, $400k the second, $500k the third, $800k the fourth. This is what's called 'golden handcuffs.'

If he truly believed RoomScan could be a massive success and the market was showing adoption, his expected value is much higher for sticking with RoomScan, especially as he had sold his last company and didn't /need/ a few extra hundred thousand dollars that year or the next year in order to be happy.

[wuliwong]

I'm not sure how this still isn't two million dollars? I guess if you subtract the salary this person could be making if they paid him $2M up front and let him walk away?

[vidarh]

The expected value of $2m cash now is always going to be higher $2m spread out over 4 years (or however many) as you would expect to be able to get a return on the money, and there is a risk tied to whether or not you will receive the full $2m if it's spread out with attached conditions.

[manifesto]

Time value of money, which in short summarized as "money available at the present time is worth more than the same amount in the future due to its potential earning capacity." [0]

[0] http://www.investopedia.com/terms/t/timevalueofmoney.asp

[wuliwong]

I see what you are saying. But the factor I mentioned I think is more of a loss than the time-value loss. Basically, would you take $2M up front but then no salary for 4 years or $2M spread over four years but you still can earn your salary (which in this case I would assume is at least $150K/year).

[vidarh]

I don't see where you get that scenario for. The $2m would be to get him to give up the company, whether or not they intended to take the product further, on the basis that he presumably expected some return on it. It's a hiring bonus. I know people who gotten hiring bonuses well in excess of that without having a company or product to use to justify it.

But in any case: It comes in addition to a salary if they hire him, whether or not the $2m would be paid up front or in tranches, and if they genuinely wanted the product, not to hire him, he'd expect to be able to still earn a salary. In fact, I'd argue that he'd expect to be able to increase his income potential: He'd have a Google acquisition to put on his resume.

[spott]

That, and the fact that $2 million over 4 years at ~10% in the stock market is approximately an extra $800k.

Taxes change all that and make things more complicated ($2 million lump sum is taxed more heavily than when it is split up over 4 years). I'm not sure how that works out though.