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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

#151

Post by gkop »

ap22213 wrote: post #71
Teodolfo wrote: post #37

I'm surprised people don't take the time to figure out what the options actually mean and negotiate some of the terms. When I have negotiated with startups I have paid for legal advice to help me figure out what language I needed in the option agreement (for example, a pinterest-style clause that prevents me from having to exercise within 3 months of leaving) and negotiated for the terms I felt were important. Just b…

Just curious, how difficult was it for you to find a qualified attorney, and how much did you spend? (I tried this approach once, but the legal advice was low quality and very basic.)

A friend referred me to an attorney at a well-known SV firm. She gave me a free consultation back and forth over email. By my own judgement as well as that of the founders and attorneys of my new company, the advice was good. It covered both my negotiation with the company as well as my personal tax planning and accounted for various possible outcomes. Following the advice, I learned more of the nitty gritty financial details of the company, got a calculated split of ISOs and NSOs (to early exercise), and also a decent cash bonus.

Re: Do the math on your stock options

#152

Post by eridius »

dripton wrote: post #150
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've had ISOs in a couple of startup employers, non-qualified options in a startup customer, and RSUs in a couple of public employers. The only book I've read on stock options is _Consider Your Options_ by Kaye Thomas, which I thought was good. I do my own taxes, and there was enough detail in that book to let me figure out the tax implications of my options. (Including AMT the one time I had to pay it.) The actual m…

If the company isn't public, presumably you can't exercise risklessly, right?

Re: Do the math on your stock options

#153

Post by nippoo »

dripton wrote: post #150
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've had ISOs in a couple of startup employers, non-qualified options in a startup customer, and RSUs in a couple of public employers. The only book I've read on stock options is _Consider Your Options_ by Kaye Thomas, which I thought was good. I do my own taxes, and there was enough detail in that book to let me figure out the tax implications of my options. (Including AMT the one time I had to pay it.) The actual m…

Did you get the cash and options the wrong way round in your example ($100k + 5000 options / $110k + 3000 options)? That bit confused me for a while. Or maybe I'm missing something about how they work!

Re: Do the math on your stock options

#154

Post by jldugger »

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.

Does that really change anything, if your C-suite is too stupid to understand how companies work?

Re: Do the math on your stock options

#155

Post by sokoloff »

Lawtonfogle wrote: post #125
rahimnathwani wrote: post #9

Earlier quoted context omitted.

You did the right thing. The situation is analogous to someone telling you the numerical amount of your proposed salary, but not telling you the currency and/or frequency. You don't have a right to know the details, but without the details it's hard to evaluate them as worth more than 0.

If you are signing a contract, why don't you have the right to know? If I tried to defend the fact that I never specified paying in US currency in some contract and instead used what ever the new hyper-inflated currency is, a judge would kick me out of the court room. Only if it was explicitly stated would a judge uphold such a contract.

You don't have a right to know, because you weren't born with the right and nothing grants you that right. Your option, if you don't like not being given the information you request, is to not sign the contract.

Re: Do the math on your stock options

#156

Post by encoderer »

Stories of equity working out well are rare in these comments. I think in part this is because contentment is silent, so I'll share a bit. I joined a private company with over $100M in revenue about 3 months before IPO. They couldn't say they were in the process when I took the job, but it was hinted at strongly. I got an options grant with normal 4 year vest that amounted to an actual face value of about $50k. Being successful, I imagined they could be worth $100k, or a $25k/year bonus on top of my salary. All of my actual negotiation was of the salary component, and I was very happy with the outcome.

The company went public, and the following year there were a couple events -- a nice earnings beat, some positive news, etc -- that pushed the stock up. Around that time I hit my 1 year cliff so I had 25% of my grant vested. I sold every vested share and used that as a down payment on a house in the bay area. I had a very large tax bill the following year that I paid by selling a bit more equity. But, I have a house that has appreciated since I purchased it, not to mention a nice place to live.

In year 2 I started receiving add'l RSU grants, and I usually sell them as they vest. Here's the test: If they gave you a cash bonus would you BUY stock? If not, sell it.

In the end, my initial option grant will end up worth $300-400k, adding almost an entire extra salary to our household income.

We've been fortunate, have given back a lot to charity and especially to family. Oh, and I've truly enjoyed working there.

What I've learned is that there is a probability curve. I chose an offer that had a high liklihood of buying me a down payment on a house but zero chance of buying me a whole house. In the end, this is a pattern I would repeat and I think if you can do go work for Uber, Pinterest, Airbnb, etc, where an IPO is very likely, go do it.

Re: Do the math on your stock options

#157

Post by finance-geek »

inthewoods wrote: post #72

Great thread here and the original article has some excellent points. I recently left a company and explored executing my options via a vehicle called ESO Fund (www.esofund.com). In the end I did not use them for different reasons, but their offer was reasonable. Two general comments on stock options: - Remember that bad things happen in companies in raising money. Your company could raise another round after you've…

Seems like almost a total fail for me...50% over 9 years is about 5.5% return a year for a VERY risky asset. Something that risky warrants more. Also curious if that 50% return considers the upfront outlay, taxes upon grant, capital gains taxes, and the works...

Re: Do the math on your stock options

#158

Post by ryanSrich »

Ixiaus wrote: post #134
ryanSrich wrote: post #82

Earlier quoted context omitted.

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.

It does not warrant cofounder status at all. So much more goes into being a cofounder than simply being one of the first x employees.

Well when someone is offered a 'key' engineering role it's basically a fancy way of saying 'you'll be building pretty much everything'. Couple that with the fact that it requires a 40% pay cut and you've got a situation that definitely warrants co-founder status.

Re: Do the math on your stock options

#159

Post by aaronblohowiak »

dripton wrote: post #150
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've had ISOs in a couple of startup employers, non-qualified options in a startup customer, and RSUs in a couple of public employers. The only book I've read on stock options is _Consider Your Options_ by Kaye Thomas, which I thought was good. I do my own taxes, and there was enough detail in that book to let me figure out the tax implications of my options. (Including AMT the one time I had to pay it.) The actual m…

its always fun when the company issues you a boatload of options when raising money to offset the dilution... But they give the last round of investors a huge multiple, which effectively makes all the options worthless.
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