Do the math on your stock options • Hacker News Board

Re: Do the math on your stock options

#91

Post by dman » Thu, Dec 31, 2015, 2:45 PM UTC

DanielShir wrote: post #83

As a founder who's been through a liquidation event, I have to say that stock options are a terrible way to reward employees. The tax issues alone (not to mention all the other stuff mentioned in this thread) are a huge pain for most ordinary people. The only reason companies use this is that there's no better alternative... Anyone ever encounter some other financial instrument that's possible to use in this situatio…

Perhaps issue a interest bearing senior bond to the employee in return for services rendered?

Re: Do the math on your stock options

#92

Post by [deleted] » Thu, Dec 31, 2015, 2:46 PM UTC

[deleted]

Re: Do the math on your stock options

#93

Post by jlas » Thu, Dec 31, 2015, 2:47 PM UTC

ryanSrich wrote: post #82

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%?

In my experience it's never a good idea to take a pay cut in lue of equity. Taking a pay cut because you like the product, the role, etc. are infinity better reasons than equity. In my opinion a 40% pay cut and being one of the first 5 engineers warrants co-founder status.

Can anyone justify the down-voting here?

Re: Do the math on your stock options

#94

Post by Calamitous » Thu, Dec 31, 2015, 2:47 PM 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…

I had pretty much the same situation. I think you handled it exactly right.

Re: Do the math on your stock options

#95

Post by dexterdog » Thu, Dec 31, 2015, 2:47 PM UTC

davidwihl wrote: post #36

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…

Even if you knew the number of shares outstanding at the time of the option grant, it would still be useless. The company can issue new shares at any time leading to dilution. Also at some future liquidity event (acquisition, IPO), a significant number of new shares can be issued leading to more dilution. So yes, options are somewhat of a lottery ticket with ever changing odds. If the company does extraordinarily wel…

They can issue new shares but they would have to notify you. You should have a clause in your agreement that any new grant you have the ability to get more options to stay at leat less dilluted or you can walk.

Re: Do the math on your stock options

#96

Post by icedchai » Thu, Dec 31, 2015, 2:52 PM UTC

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?

Right. A "contract" like that will restrict their ability to raise money. They'll just move on to the next guy who knows nothing about options (most of us) and isn't so demanding.

Re: Do the math on your stock options

#97

Post by mrmcd » Thu, Dec 31, 2015, 2:52 PM UTC

tylercubell wrote: post #73

What's are the pros and cons of setting the strike price as $1? Is it intentional to inhibit employees from exercising their options?

In the US at least, the strike price for options in a private company is set at whatever price the last 409A valuation was. How this is done is a bit technical, and typically something done by a specialized professional accountant type.

At any rate, the younger and riskier a company is, the lower the 409A usually is, and the more legal wiggle room they have to keep it low so common stock option grants are worth more later on.

For public companies it's whatever the stock price is on the date the option grant is made. If it goes up, the options are worth money. In general, for public companies options are vastly more easy to understand and actually cash out.

Re: Do the math on your stock options

#98

Post by jlas » Thu, Dec 31, 2015, 2:54 PM UTC

> which pays me a SF salary despite me living in Montreal

I'm not sure what cost of living in Montreal is, but I'd be surprised that jvns is making less than 100k in SF. If Stripe were smart they'd increase her salary stat. Just based on her excellent blog posts and her insatiable curiosity, this is not an employee you want to lose.

Re: Do the math on your stock options

#99

Post by jvns » Thu, Dec 31, 2015, 2:58 PM UTC

jlas wrote: post #98

> which pays me a SF salary despite me living in Montreal I'm not sure what cost of living in Montreal is, but I'd be surprised that jvns is making less than 100k in SF. If Stripe were smart they'd increase her salary stat. Just based on her excellent blog posts and her insatiable curiosity, this is not an employee you want to lose.

(my after-tax salary -- I pay 40% income taxes or something? basically I'm saying my salary is less than 150k USD)

Re: Do the math on your stock options

#100

Post by corford » Thu, Dec 31, 2015, 2:59 PM UTC

If you're being offered options in an early stage startup you need to ask at a minimum (and any half decent founder should answer):

1. How many shares of the same class are in circulation

2. What is the price per share at current company valuation

3. How many shares of other classes are in circulation and whether these come with liquidation preferences

4. If you will be required to exercise your options in the event of leaving the company and, if yes, how long you have to do it

5. If you have the right to transfer your options (and later shares) to a third party. Unusual to have this right (unless you're transferring to immediate family) but good to know if you do have it.

6. Ask to see a copy of the company's articles and/or shareholder agreement (to check how voting rights work, tag along & drag along rights, entitlement to quarterly management accounts, right to first refusal, what power the board has on deciding sales/transfers etc.)

That's in addition to being very clear on what the vesting terms are (assuming you are not being given all your options in one go).