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How Startup Options and Ownership Work

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Re: How Startup Options and Ownership Work

#81

Post by iaw »

halifaxbeard wrote: post #14

I remember asking for a cap table at a startup and in not so few words, was told to fuck off. At that point I realized it didn't matter how many options I had, I was going to get screwed should there be an exit, and made my own.

I was granted 10,000 shares at a startup I worked for. I asked them "what does a share represent as a portion of the current company?" "We don't divulge that information."

I am not going to lock up a huge portion of my expendable compensation in an "investment" that's designed to benefit people besides me on the hopes that the company is one of the few successes to come to market. There are too many horror stories going on right now that the VCs are trying to keep quiet for me to trust most startups.

Re: How Startup Options and Ownership Work

#83

Post by st3v3r »

crzwdjk wrote: post #71
patio11 wrote: post #35

Earlier quoted context omitted.

If you don't know (minimally) the fully diluted count of shares in the company, your option grant is as specific is saying that your salary will be denominated in dollars and you'll be given more detail about it sometime after joining the company, pinky-swear. A company which won't provide enough information to value an option grant contemporaneous with the written offer is being either abusive or stupid. There exist…

Sounds like I was right to pass on the company that promised me "4000 options" and insisted that any details beyond that were strictly confidential and could under no circumstances be disclosed to any non-employees. It seemed especially suspicious in conjunction with the rest of their attempts at hard-sell tactics that just left a bad taste in my mouth.

If they don't trust you enough to keep that information confidential, then why are they extending an offer to you at all?

Re: How Startup Options and Ownership Work

#84

Post by st3v3r »

harryh wrote: post #53
hesdeadjim wrote: post #4

Has anyone ever heard of or seen a way that option holders don't get 100% screwed if a company is acquired for less than the sum of the investors' liquidation preferences?

Not earning money on options when the business isn't successful isn't getting screwed. That's just life.

But the business got bought. That's not being not successful.

Re: How Startup Options and Ownership Work

#85

Post by st3v3r »

harryh wrote: post #57
hesdeadjim wrote: post #56

Earlier quoted context omitted.

I have to disagree. Investors risk money, employees with options risk their lost income potential and much of their time.

And the terms of those risks are determined based on the leverage of the various parties at the time they join the venture. You can start a company and raise money by selling common stock instead of preferred, but in return investors are going to want a much greater share of the company than they otherwise would. That's generally a bad deal for employees. You can say that it's unfair that deals generally work out the…

No. None of this is an excuse for getting fucked.

Re: How Startup Options and Ownership Work

#86

Post by harryh »

st3v3r wrote: post #84
harryh wrote: post #53

Earlier quoted context omitted.

Not earning money on options when the business isn't successful isn't getting screwed. That's just life.

But the business got bought. That's not being not successful.

If a business gets bought for less than the capital invested, it's not a success.

Re: How Startup Options and Ownership Work

#87

Post by harryh »

st3v3r wrote: post #85
harryh wrote: post #57

Earlier quoted context omitted.

And the terms of those risks are determined based on the leverage of the various parties at the time they join the venture. You can start a company and raise money by selling common stock instead of preferred, but in return investors are going to want a much greater share of the company than they otherwise would. That's generally a bad deal for employees. You can say that it's unfair that deals generally work out the…

No. None of this is an excuse for getting fucked.

No? What do you mean no? To which part? You don't think what I said is an accurate description of how the world works?

When you fail that doesn't mean you got fucked. It just means you've failed. As I said, that's life.

Re: How Startup Options and Ownership Work

#88

Post by syedkarim »

gortok wrote: post #5

The article goes over stock options; but it doesn't address an alternate form of equity; issuing early employees restricted stock awards (instead of options). From the receiver's point of view, Stock Options are a bad deal 99 times out of 100, let's review the cases in which owners of options get screwed: - Company gets acquired, new terms are put into place. - Company gets acquired, company isn't good fit. - Company…

What if the earliest employees make no sacrifice and take no risk?

Re: How Startup Options and Ownership Work

#89

Post by icedchai »

st3v3r wrote: post #84
harryh wrote: post #53

Earlier quoted context omitted.

Not earning money on options when the business isn't successful isn't getting screwed. That's just life.

But the business got bought. That's not being not successful.

Generally, if that happens, it got "bought" for less than was invested. That's a rather mediocre outcome.

Re: How Startup Options and Ownership Work

#90

Post by ap22213 »

iaw wrote: post #81
halifaxbeard wrote: post #14

I remember asking for a cap table at a startup and in not so few words, was told to fuck off. At that point I realized it didn't matter how many options I had, I was going to get screwed should there be an exit, and made my own.

I was granted 10,000 shares at a startup I worked for. I asked them "what does a share represent as a portion of the current company?" "We don't divulge that information." I am not going to lock up a huge portion of my expendable compensation in an "investment" that's designed to benefit people besides me on the hopes that the company is one of the few successes to come to market. There are too many horror stories go…

I don't get this age of greed that we are in. The board and the VCs are making hundreds of millions (and some of them already have that much), and they are f'n pinching pennies for the first 20-30 employees that worked their ass of to make their company work. Is it really going to hurt that much for like 10-15 people to make a few hundred grand? Geez. It wasn't this way (at least for me) back in the mid-90s. I had been lucky to make some money back then, but I hate that the 20-somethings are getting royally f'd over.

BTW, my CEO just gave me a significant bump in my options a few weeks ago. He acted like it was a huge deal. But, with the 'right of repurchase' and all the other BS clauses in my options contract, they're essentially worthless.

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