When a Unicorn Startup Stumbles, Its Employees Get Hurt

Joining public or late stage pre-IPO companies, equity provides the possibility of real wealth. There is a great Wealthfront article about this -- that if you live in the bay area and have a normal nuclear family, you need equity if you hope to pay for a house, college, etc.

I've seen this in my own life and in many colleagues, friends, and people I've hired. It's not a guaranteed paycheck, but in the bay area getting a healthy equity grant is part of the standard comp package. Without luck, it can be a nice bonus. With some luck it can really move the needle. And with ISO's especially you can choose when to pay taxes on the income.

I know that outside the bay area comp packages are structured differently -- and often less lucratively.

Very glad the NYTimes ran this piece. The only part they underplayed is they made it sound like the startup "stumbled." No, it sounds like it went exactly as planned. Blackberry got the acquisitions, investors got their money, execs got their bonuses, and the rank-and-file got nothing. That isn't stumbling, that's the playbook.

Tech employees need to wake up about common vs preferred shares, and that the former are worthless. They are NOT worthless because they are "lottery tickets" and most startups fail. They are worthless because they are designed, as a financial instrument, to be fake equity with no real protection from dilution and liquidation preference.

The most insulting aspect of common shares is that engineers get talked into pay cuts on the premise that they get these options, essentially being asked to invest a portion of their potential compensation into the company, but are then told they don't deserve to be given real equity because they aren't "real" investors.

I understand that from a founder's perspective, asking someone to give you millions of dollars is significantly more challenging than asking someone to take a 30% pay cut, so it's easy to give strong preference to the former. But, supposedly and debatably, it's also difficult to recruit talent, and it's going to be significantly more difficult as employees increasingly realize that Common ISO's aren't "lottery tickets" they are "toilet paper". So either startups are going to have to re-invent these equity packages, or the talent will flock away from the VC companies and towards companies that can pay salary. Of course, the VCs have a huge playbook to flood the market with more talent to (taking $100 mil taxpayer money to fund the same bootcamps they invest in to work for the same companies they hire via Obama's tech talent shortage program, for example), so who knows.

Some companies sell part of your stocks (on your tax level) to pay tax in your country as soon as the options vest without your say.

The problem here is that "the possibility of real wealth" is not "real wealth". Not being dead provides "the possibility of real wealth" to approximately the same degree as the equity offered to anyone past double digit employee count. Even before that it's only factor unity above the baseline of "not yet dead"

I have enough overpaid tax at 33 to tide me over until death. Lessons learned.