Do the math on your stock options • Hacker News Board

Re: Do the math on your stock options

#21

Post by jackgavigan » Thu, Dec 31, 2015, 10:03 AM UTC

Gibbon1 wrote: post #19

millstone wrote: post #5

Earlier quoted context omitted.

I got an offer from a late-stage (not sure if that's the right term, but they had a shipping product) non-public startup that included 10,000 stock options. That sounded like a lot, but I had problems evaluating that number without knowing the shares outstanding. I asked for that figure, and was told it was privileged and confidential. I decided to value the options at $0, and instead think of them like a non-monetar…

If they told you that the number of outstanding shares was privileged and confidential they are crooks in nice suits. Also at this point in time there is so much shady stuff going on with options that you should always always value options at zero. Frankly if all you are offering is your labor in return for options you don't have the pull to get a particularly good deal. (Example: Friend worked three years at a start…

> If they told you that the number of outstanding shares was privileged and confidential they are crooks in nice suits.

Never attribute to malice that which is adequately explained by stupidity.

Getting a seed round doesn't magically confer the founders/C*Os with an comprehensive understanding of how company equity works. Or common sense.

Re: Do the math on your stock options

#22

Post by bagels » Thu, Dec 31, 2015, 10:05 AM UTC

millstone wrote: post #5

jvns wrote: post #2

I'm really interested in other people's experiences with understanding how their stock options work. It seems really easy to misunderstand something serious, even if you know quite a lot about equity.

I got an offer from a late-stage (not sure if that's the right term, but they had a shipping product) non-public startup that included 10,000 stock options. That sounded like a lot, but I had problems evaluating that number without knowing the shares outstanding. I asked for that figure, and was told it was privileged and confidential. I decided to value the options at $0, and instead think of them like a non-monetar…

You made the right choice. If they are going to hide this information from you, you have to assume they are dishonest, or the number of total shares is very large.

Re: Do the math on your stock options

#23

Post by jvns » Thu, Dec 31, 2015, 10:12 AM UTC

Anderkent wrote: post #15

You don't have to hold the stock until IPO. If the company is doing good, finding a private buyer through a stock broker shouldn't be that hard. Sure, you won't get the best deal, but it lets you cash out. Also, if a private company grants you options and never gives you any options for liquidity (like buying the stock back when taking new investment etc) you should be really careful about overvaluing the options. Cl…

Have you found a private buyer for stock? What was the experience like?

Re: Do the math on your stock options

#24

Post by slyall » Thu, Dec 31, 2015, 10:14 AM UTC

I've currently got around 60 days to exercise some options with a company. But I have not been told how many shares there are out there or anything about the company finances so I have no way to judge how much they might be worth even in the best case.

In the end though the amount that I can buy is so low that even if they are worth 10x what I'm paying for them it is not worth the paperwork and trouble.

Re: Do the math on your stock options

#25

Post by xiaoma » Thu, Dec 31, 2015, 10:16 AM UTC

Another variable I once saw was options (subject to board approval) in the offer letter and then several months later an approval of the options grant that had to be signed. In this second document, there was a clause saying they could fire the employee and take back the options à la Zynga, Skype, etc.

In that case, immediately discounting the value of my options by a quarter is reasonable since those kinds of terms being used for clawbacks is getting more common.

Re: Do the math on your stock options

#26

Post by UK-AL » Thu, Dec 31, 2015, 10:24 AM UTC

nbevans wrote: post #10

What protects the stock from being diluted since presumably it has no or insufficient voting rights?

Dilution isn't so much a bad thing, as long the company value goes up enough to compensate.

Re: Do the math on your stock options

#27

Post by jakozaur » Thu, Dec 31, 2015, 10:30 AM UTC

It would be so much easier for everyone, if companies would IPO earlier. Evaluation of your option value would be straightforward, there is liquid market, no need to worry about investors preferences, ratchets, etc. Also the whole market gains a lot of efficiency if basic financials are public.

Not so long ago, companies used to IPO way earlier... Microsoft, Apple, Amazon...

Re: Do the math on your stock options

#28

Post by Smaug123 » Thu, Dec 31, 2015, 10:33 AM UTC

I have a single peeve with this otherwise excellent article: "My after-tax salary is less than $100,000 USD/year, so by definition it is impossible for me to exercise my options without borrowing money."

This fact isn't true "by definition". It's true "by arithmetic". We say a fact is true "by definition" if it isn't true for any other reason. [1]

[1]: http://lesswrong.com/lw/nz/arguing_by_definition/

Re: Do the math on your stock options

#29

Post by stats_lly » Thu, Dec 31, 2015, 10:41 AM UTC

This is very useful! I accepted an offer with few options and low salary at a start up after I graduated from my masters, and only realised what I have missed out on a couple of years later. I left with fewer options than people who joined years after me. Wish I knew a bit more about startups and their options earlier.

Re: Do the math on your stock options

#30

Post by KingHodor » Thu, Dec 31, 2015, 10:50 AM UTC

millstone wrote: post #5

jvns wrote: post #2

I'm really interested in other people's experiences with understanding how their stock options work. It seems really easy to misunderstand something serious, even if you know quite a lot about equity.

I got an offer from a late-stage (not sure if that's the right term, but they had a shipping product) non-public startup that included 10,000 stock options. That sounded like a lot, but I had problems evaluating that number without knowing the shares outstanding. I asked for that figure, and was told it was privileged and confidential. I decided to value the options at $0, and instead think of them like a non-monetar…

It helps to understand the company's situation and progress, and to make sure you get the "right" type of options and are aware of any vesting periods or other conditions that might apply. Try to have access to the latest balance (could be feasible, depending on the role you are joining with) and growth figures. Personally, I would not value them at zero but rather as something closer to a performance based bonus with an extra risk.