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10-Year Exercise Periods Make Sense

dangelo.quora.com

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Re: 10-Year Exercise Periods Make Sense

#61

Post by guelo »

argonaut wrote: post #32
mesozoic wrote: post #3

Wow I guess since employees should already value most stock options at near zero it's hard to value them any less.

Valuing stock options at zero is one of those HN memes that are repeated endlessly, mostly, I suspect, by people not from Silicon Valley who know few, if any, engineers who got rich from stock options. Just because stock options should be valued at less than a company's private valuation does not mean they are worth 0. Very few engineers actually value them at zero. Adding on to this comment: It's a spectrum, not a b…

Would you estimate the percentage of Web 2.0 Silicon Valley engineers that have been able to cash out anything significant (let's say > 1 year market salary) at greater than .1%?

Re: 10-Year Exercise Periods Make Sense

#62

Post by danielweber »

jdoliner wrote: post #45

> There is no concern for how many shares we granted in the past to other employees or whether or not they are still holding them; the only concern is the current market... it would be irrational not to increase the option pool if that’s what was needed to be able to hire someone. This is the part of this post that I can't believe is true. At the end of the day a company only has so much equity. How can the amount yo…

The employee pool is typically small compared to the entire pot.

Re: 10-Year Exercise Periods Make Sense

#63

Post by danielweber »

argonaut wrote: post #59
danielweber wrote: post #56

Earlier quoted context omitted.

It should be valued at 0 unless the company takes active steps to encourage you not to, which would include answering dozens of questions about vesting and dilution that they won't.

This makes no sense. Any vesting details will be detailed right in your contract. Dilution depends on the company's fundraising in the future, you are essentially asking them to bring out a crystal ball and tell you exactly what their IPO/fundraising plans are. It's up to you to estimate how much you think you will get diluted, based on the type of company and how much they've raised so far.

I've been in the room where the CEO said, in not so many words, "fuck the former employees who exercised their options. They aren't here."

No one gives a shit. Sometimes it works out well.

You also won't be told when they take on a funding round with priority, even though all their prior rounds were funding with no priority. Personally experienced that one.

If the industry wants employees to value their options above zero, give the employees legal protection that would enable them to do so. Otherwise it's VC firms getting butthurt that people aren't accepting their scrip as real money.

Re: 10-Year Exercise Periods Make Sense

#64

Post by jc4p »

argonaut wrote: post #59
danielweber wrote: post #56

Earlier quoted context omitted.

It should be valued at 0 unless the company takes active steps to encourage you not to, which would include answering dozens of questions about vesting and dilution that they won't.

This makes no sense. Any vesting details will be detailed right in your contract. Dilution depends on the company's fundraising in the future, you are essentially asking them to bring out a crystal ball and tell you exactly what their IPO/fundraising plans are. It's up to you to estimate how much you think you will get diluted, based on the type of company and how much they've raised so far.

I think one of the points Adam repeatedly mentions in the article is that a contract in itself isn't really transparent. I get exactly what you are saying, it makes logical sense from the perspective of someone who knows what's going on, but in all of these discussions my thoughts are on the young naive person signing up for a deal they don't fully understand.

I think stock options should be valued at zero. In an a-will employment state you, and with a typical contract, you can get fired at any random day and if you don't have enough money to exercise your vested options within 90 days, they're gone. I don't consider that reliable.

In regards to the parent comment of yours, I think if it was stated as "proactively answer" vs "answer" it'd be less arguable.

Re: 10-Year Exercise Periods Make Sense

#65

Post by beat »

x0x0 wrote: post #55
beat wrote: post #28

Earlier quoted context omitted.

Firings in ways that reduce the options available to the fired employee are actually quite common practice. They just don't reduce it this much , which would have a lot of the obnoxious MBA types who take over middle-aged companies licking their chops. My spouse worked 13 years at what was a startup-with-traction when she started there. Last year, they were bought out (public-to-private by a hedge fund). A week later…

Or that the employees might have changing life circumstances any time in the 10-15 year future. Find a partner that changes your life needs around working life or living location, have a kid, need more or different housing, have medical issues, have family with medical issues, etc and you're sol. ps -- a16z funded a company that, as an A round, refused to disclose outstanding shares to value my option grant and was a…

Most option plans are employee unfriendly. And "This incredibly employee-hostile clause will force us to be more honest with employees, which makes it employee-friendly" leaves a bad taste in my mouth. It might work as long as the original founders are in control. They will be in control ten years later, right? Right?

Re: 10-Year Exercise Periods Make Sense

#66

Post by bigbossman »

mahyarm wrote: post #52
bigbossman wrote: post #37

Have any companies implemented a sliding scale for the duration of the exercise period? 10 years makes sense for a super early stage startup, and 90 days is reasonable for public companies. I would think that some shorter windows can be implemented for companies at different growth stages -- perhaps by financing schedule, revenue size, expected time until exit, etc.

For public companies it doesn't matter because there is immediate liquidity to cover options. Their vesting periods are often even shorter at 6 months and they tend to not even bother with options and just give you stock units directly or have stock purchasing plans at below market rates.

Yes, exactly, this is my point. The exercise period length should be correlated to the expected time until potential liquidity.

Re: 10-Year Exercise Periods Make Sense

#67

Post by andreasklinger »

Wow never disagreed with a16z content so far.

> … at the same time disadvantaging employees who remain loyal to their employers just kicks the can down the road …

The underlying assumption that people only leave companies because they are not "loyal"

People get fired, people get mobbed out of teams, company cultures change, companies fail in management. employees lives change, people need to move to other countries.

The whole notion about "loyalty" almost appears action-movie-like. "ARE YOU WITH ME? HELL YEA!"

It's already hard enough to convince highly skilled people to join companies vs founding their own. No need to further decrease the upside compared to being a founder.

Re: 10-Year Exercise Periods Make Sense

#68

Post by argonaut »

danielweber wrote: post #63
argonaut wrote: post #59

Earlier quoted context omitted.

This makes no sense. Any vesting details will be detailed right in your contract. Dilution depends on the company's fundraising in the future, you are essentially asking them to bring out a crystal ball and tell you exactly what their IPO/fundraising plans are. It's up to you to estimate how much you think you will get diluted, based on the type of company and how much they've raised so far.

I've been in the room where the CEO said, in not so many words, "fuck the former employees who exercised their options. They aren't here." No one gives a shit. Sometimes it works out well. You also won't be told when they take on a funding round with priority, even though all their prior rounds were funding with no priority. Personally experienced that one. If the industry wants employees to value their options above…

You won't be told about funding rounds if your contract doesn't mention it. Like I said, any details you desire should go in the contract.

Re: 10-Year Exercise Periods Make Sense

#69

Post by danielweber »

dasil003 wrote: post #29

Thank you for this Adam, as an early-stage startup guy who still hasn't made his FU money, this really nails all the salient points for me. Scott Kupor tries to decorate his article with references to employees' interests and considerations, but it's clear the guy has spent his career on the on the management/finance side where he doesn't really understand what it means to be a ground-level early-stage contributor to…

> Can you imagine if VCs made the analogous argument that angel investors should not be entitled to their returns unless they matched the later VC investments?

VCs can and do make that argument.

Re: 10-Year Exercise Periods Make Sense

#70

Post by danielweber »

argonaut wrote: post #68
danielweber wrote: post #63

Earlier quoted context omitted.

I've been in the room where the CEO said, in not so many words, "fuck the former employees who exercised their options. They aren't here." No one gives a shit. Sometimes it works out well. You also won't be told when they take on a funding round with priority, even though all their prior rounds were funding with no priority. Personally experienced that one. If the industry wants employees to value their options above…

You won't be told about funding rounds if your contract doesn't mention it. Like I said, any details you desire should go in the contract.

Yes, the standard contract is completely opaque to the employee, and they don't have the specialized knowledge required to understand it. And the company sure isn't going to help you. So value the funny-money at 0.

If the industry wants to change this perception, then there should be a widespread standardization on a contract that is fair to the employees and it should be easy for employees to understand any diffs from that standard.

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