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Who pays when startup employees keep their equity?

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Re: Who pays when startup employees keep their equity?

#111

Post by draw_down »

rezlov wrote: post #70
rdtsc wrote: post #61

Earlier quoted context omitted.

> I have watched many close friends cash out options from companies including Google, Yelp, Apple and Pandora and buy houses (some with cash) I have watched friends get paid a smaller salary, hoping for a great exit only to find their options diluated or the company just simply failing. Now you probably only have lucky and successful friends or that friends who didn't get enough cash to buy a house are probably not i…

That's the name of the game. You take a risk to make big money, and sometimes that risk doesn't pay off.

Different people have different ideas on the value of "sometimes" in that sentence :)

Re: Who pays when startup employees keep their equity?

#112

Post by rhizome »

shon wrote: post #77
rdtsc wrote: post #61

Earlier quoted context omitted.

> I have watched many close friends cash out options from companies including Google, Yelp, Apple and Pandora and buy houses (some with cash) I have watched friends get paid a smaller salary, hoping for a great exit only to find their options diluated or the company just simply failing. Now you probably only have lucky and successful friends or that friends who didn't get enough cash to buy a house are probably not i…

In my mind, startups are less like the lottery and more like blackjack. You are gambling either way (as with any investment) but, with blackjack and startups you can optimize. Unlike the lottery, knowledge and skill play a role here.

Unlike Blackjack, you have to make your entire bet for all hands up front.

Re: Who pays when startup employees keep their equity?

#113

Post by rhizome »

rezlov wrote: post #70
rdtsc wrote: post #61

Earlier quoted context omitted.

> I have watched many close friends cash out options from companies including Google, Yelp, Apple and Pandora and buy houses (some with cash) I have watched friends get paid a smaller salary, hoping for a great exit only to find their options diluated or the company just simply failing. Now you probably only have lucky and successful friends or that friends who didn't get enough cash to buy a house are probably not i…

That's the name of the game. You take a risk to make big money, and sometimes that risk doesn't pay off.

Or you start working for a company thinking their product(s) are cool, strong and survivable as its own thing, and then it turns out the plan was not to build a business but to cash out.

Re: Who pays when startup employees keep their equity?

#114

Post by rhizome »

Retric wrote: post #92
mathgeek wrote: post #84

Earlier quoted context omitted.

That's a great bet if you ignore the possibility of not being single your entire life.

You can still do remote work from a cheap location, or stay and have FU money. Giving up 500k in salary for a chance to make 500k in stock is a terrible bet. Alternatively, only save up 100k in 10 years, go to Vegas and bet it all at slightly negative odds. You can set things up for a 20% chance of getting ~500k which is better odds than many startups while still having more day to day money.

You can still do remote work from a cheap location, or stay and have FU money.

Do they have good schools in $cheap_location?

Re: Who pays when startup employees keep their equity?

#115

Post by YokoZar »

bradleyjg wrote: post #73
landryraccoon wrote: post #48

Earlier quoted context omitted.

I think you mean lower expected value, no? The way you put it cash is strictly better in every way than options - both higher expectation and lower risk. According to you there's no upside to options relative to cash.

You're assuming a utility function of someone that's either risk adverse or risk neutral. What happens when you plug in a risk seeker?

They'd probably be better off with cash and gambling in some other fashion.

Re: Who pays when startup employees keep their equity?

#116

Post by shostack »

bradleyjg wrote: post #83
shostack wrote: post #49

Earlier quoted context omitted.

This. And things are not really comparable to big finance jobs as the bonus is more or less expected to some degree or people leave to places where they will get the bonus. Startups are a lottery to a large degree, and for employees without significant equity, the odds don't seem great.

The finance industry has its own risks. It's a tournament type structure where as long as you stay in the tournament you are doing very well, but if you fall out you can end up doing pretty poorly. Whereas the tech industry, at least for the last several years, has offered a soft landing to many of those that choose to enter the startup lottery and lost. Probably the least risky choice among high paying jobs that exi…

Can you elaborate on the "tournament type structure?" Are you referring to those at a high enough level where the expectation is that they source deals? If so, then yes, because at that point it is sales, and if you don't deliver new business, you bomb out, same as any other sales job.

If you are low enough level though, that isn't necessarily a concern since you aren't expected to source deals.

Re: Who pays when startup employees keep their equity?

#117

Post by dpark »

aioprisan wrote: post #110
Retric wrote: post #81

Earlier quoted context omitted.

Many "single people" in the Bay area make less than 40k/year. They don't starve. If you are single, living in the bay, and making 100+k and not saving like a bandit it's because that's your choice.

I don't know what housing costs you must be talking about then. $40k/year pre-tax is close to $2648/month after state and federal taxes, and you're saying that with Bay area housing prices, you're not starving? I'm guessing that's also with no school loans or trying to work and pay your way through school, which probably applies to a very small fraction of the population.

It's easy. You just live in a small 2-bedroom apartment with 3 other people. $40K goes a long way if you're willing to have no space to yourself.

Re: Who pays when startup employees keep their equity?

#118

Post by dpark »

Retric wrote: post #68
shon wrote: post #31

It's interesting to see the popular response to this thread being one where people think employees are better off with salary over options. This seems crazy to me as I have watched many close friends cash out options from companies including Google, Yelp, Apple and Pandora and buy houses (some with cash), start companies, become investors and/or take long sabbaticals with the proceeds from their options. With salary…

A single person making 100k+ has a ~90% chance of saving enough in 10 years to retire in a cheap location. That is a life changing amount of money.

I'm not sure why you think single is a positive if you're trying to save. It's far more cost effective to be married to another high-income earner.

Living in a cheap location is also not everyone's dream. It would be life changing for me to retire to Costa Rica, but it would not be a positive change. I live in a pretty expensive city (Seattle) because I like it here.

Re: Who pays when startup employees keep their equity?

#119

Post by jsprogrammer »

mikeash wrote: post #78
landryraccoon wrote: post #48

Earlier quoted context omitted.

I think you mean lower expected value, no? The way you put it cash is strictly better in every way than options - both higher expectation and lower risk. According to you there's no upside to options relative to cash.

The upside is a non-zero chance of becoming filthy rich. Some people are willing to put up with a lower expected value in exchange for that chance. It's a fancy version of the lottery, which many people also play.

You shouldn't be able to influence a lottery outcome. Presumably, you can influence share prices if you work for a company that you have an ownership claim on.

Re: Who pays when startup employees keep their equity?

#120

Post by rdtsc »

shon wrote: post #77
rdtsc wrote: post #61

Earlier quoted context omitted.

> I have watched many close friends cash out options from companies including Google, Yelp, Apple and Pandora and buy houses (some with cash) I have watched friends get paid a smaller salary, hoping for a great exit only to find their options diluated or the company just simply failing. Now you probably only have lucky and successful friends or that friends who didn't get enough cash to buy a house are probably not i…

In my mind, startups are less like the lottery and more like blackjack. You are gambling either way (as with any investment) but, with blackjack and startups you can optimize. Unlike the lottery, knowledge and skill play a role here.

> Unlike the lottery, knowledge and skill play a role here.

True, but that's not quite the analogy I was going for, the analogy was how survivorship bias is used in both cases for promoting the idea-- everyone picks the winners and remembers / tells / markets those while disregardign the losers. I do it too, it is just a natural human tendency.

In both cases, if every time someone heard about a successful startup they also heard about many failed ones, they might have a different perspective.

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