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Do the math on your stock options

jvns.ca

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Re: Do the math on your stock options

#61

Post by matwood »

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…

Years ago I did this same thing for a startup that wanted me to move to another more expensive city, and take a significant pay cut. They offered a bunch of options, but would not answer any of my questions to help me value them. I told them to me they have zero value and I'll operate from that premise. We never could come to terms on pay so I passed on the offer. Less than a year later they were out of business.

Re: Do the math on your stock options

#62

Post by rday »

jackgavigan wrote: post #21
Gibbon1 wrote: post #19

Earlier quoted context omitted.

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.

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

So what is the lesson here? I hear this saying over and over, always with the implication of "Give them a pass". Who cares if they are being crooked, or are too dumb to do division. Either way, the employee loses.

Re: Do the math on your stock options

#64

Post by rday »

x0x0 wrote: post #39
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…

While the interview was confidential, I don't think the offer was. I'm going to chicken out, but it was a top 5 YC startup, and they did that. Either options or RSUs, I can't remember which, but you have no way to value them beyond the value they tell you. I ended up turning them down which was probably stupid of me.

Why was it stupid to turn down something which you couldn't value, yet had to buy (in way of lower salary or more hours or whatever it was) ?

Re: Do the math on your stock options

#65

Post by sokoloff »

lifeisstillgood wrote: post #45

Is this a sensible approach: You have offered me X ordinary shares which is y % of total outstanding. I want a contract that guarantees me the same % of this class of shares, and the same % of any other more privileged class of shares, and I am given an opportunity to participate in every liquidation event pre public offering Seems to cover many of the horrors people have hit?

Unless you're an irreplaceable employee, you won't get that. In particular, it's unreasonable to take the initial percentage and demand the same percentage of preferred shares (or venture debt convertible into shares at the lender option).

Many of these "horrors" are a reality of the angels and VCs protections that enable and are essential to the company financing. IOW, attempting to tunnel under those protections for employee benefit runs counter to the investor interests, sometimes to a degree that it would preclude investments entirely.

Even the liquidity provision is problematic. Suppose investor A wants to sell their stake to investor N in a private negotiated deal. Maybe fund A is collapsing. Are they obligated to tell you the terms of their negotiations? Obligated to also purchase some of your shares at your sole discretion? How would they even know that you have such a provision?

Re: Do the math on your stock options

#66

Post by ap22213 »

drglitch wrote: post #58

I am considering an offer from an early stage startup. Salary is being dragged down ~40% under market due to stock options. The role is being a 'first key engineer' hire after the three co-founders. What kind of common-stock equity offer is 'average' in this case? 1%? 2%? 5%?

Are they offering options for stock, or stock? Make sure it's real equity.

If it was me, I would start at 5-6% and negotiate from there.

Assuming that this opportunity could turn into something huge, I highly recommend taking some negotiating training, if you have the time. Back when I was an executive, I was given a week-long negotiating training session. It was seriously the best, most useful training that I'd ever had in my career.

Re: Do the math on your stock options

#67

Post by pgwhalen »

retube wrote: post #63

Why do firms offer options as opposed to actual equity? The way these options are structured plus US tax law basically means a lose - lose scenario for the employee.

I have an extraordinarily limited understanding of these things, but I always thought it was because if you were gifted equity you had to pay taxes on it immediately, based on the current valuation, which is a major bummer.

Re: Do the math on your stock options

#68

Post by inthewoods »

JumpCrisscross wrote: post #40

Always ask for: 1. TRANSFERABILITY. If you are given options to buy privately-held common stock in lieu of compensation, you must demand transferability. Rights of first refusal (ROFRs) are fine. "Board approval" is not. "Board approval" means "you may not sell your shares until we go public, except to us, if and when we feel like it, and at a price we get to unilaterally decide". 2. CASHLESS EXERCISABILITY. Always a…

I've never seen the ability to customize these kind of things because they generally are, in my experience, part of the core options agreement for the entire company and would require BoD approval. Thus, you're asking a lot - works if your a key employee but probably not for the average employee. Would love to hear if people have been able to get these terms.

Re: Do the math on your stock options

#69

Post by moron4hire »

mamon wrote: post #54
puppetmaster3 wrote: post #52

Earlier quoted context omitted.

"obligated to act in the best interest of shareholders". Obligated how specifically? Also, all shareholders, or the majority?

Obligated by law: deliberately acting against (some) shareholders interest is a criminal offense.

people holding options are not shareholders until they exercise those options.

Re: Do the math on your stock options

#70

Post by inthewoods »

nbevans wrote: post #10

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

Nothing - and it leads you to an even more difficult place. Imagine a late stage startup that has raised, say, $40m. You leave and execute your shares. Now they do another raise, but the company situation has changed and the next round is a down round, or maybe it's an up round, but the money has a 2 or 3x liquidation preference on it. Ugly.
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