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How Startup Options and Ownership Work

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Re: How Startup Options and Ownership Work

#91

Post by rmc »

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 really want it to be confidential, you could tell them that you'd be willing to sign an NDA. And see if they tell you. :P

Re: How Startup Options and Ownership Work

#92

Post by qazwsxedcyco »

cloudjacker wrote: post #30
techterrier wrote: post #16

Earlier quoted context omitted.

Do you have any examples of these products?

I know of a german financial product, I keep forgetting the name of it, it is a hybrid of a stock and a bond, but it isn't what is typically considered a convertible note. But basically it is granted at no cost to the employee, offers coupon payments, and matures at a point in time for the full cash value. In the US, this would be OTC product limiting its utility much like every other kind of financial product that t…

Having been involved in a startup which offered participation certificates, I'll say this: Stay far, far away. Nope, even further than that.

Participation certificates are derivatives of an underlying, either a separate share class, or even worse, options on a separate share class. Startup equity is hard enough to value outright. Derivatives on customized terms in a market which is by definition highly illiquid? No thanks.

(It doesn't help when the terms of both shareholder agreement and participation certificate agreement are slanted in favour of the early employees/founders by so much that the participation certificates are worthless on close inspection, but that's a different rant.)

Re: How Startup Options and Ownership Work

#93

Post by st3v3r »

harryh wrote: post #86
st3v3r wrote: post #84

Earlier quoted context omitted.

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.

It's not a failure. And I'd say those who poured their effort into the company should be entitled to some part of the purchase price, more so than people who's only contribution was money.

Re: How Startup Options and Ownership Work

#94

Post by harryh »

st3v3r wrote: post #93
harryh wrote: post #86

Earlier quoted context omitted.

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

It's not a failure. And I'd say those who poured their effort into the company should be entitled to some part of the purchase price, more so than people who's only contribution was money.

You'd consider turning a $1000 investment into a company worth $500 a success? OK, sure. You can have whatever opinion you want, but you're gonna have a hard time finding other people who see the world the same way you do.

Re: How Startup Options and Ownership Work

#95

Post by iaw »

ap22213 wrote: post #90
iaw wrote: post #81

Earlier quoted context omitted.

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 be…

I've worked for the really rich. In my experience/opinion I don't think they're evil but are focused on having more for the sake of having more. They grew up in such a way that they believe they are more skilled/harder working therefore more deserving of wealth than others. They also resent those that don't do what they do but complain about not having enough wealth (even though society would stop functioning were that to be the case).

There's usually something missing from their combination of empathy and understanding which would allow them to care about the negative ramifications they're having. Look at Bill Gates, I don't think he's a bad person but he hurt a lot of people in industry and consumers to build Microsoft to what it is by destroying the competitive landscape. Steve Jobs is a better example, he proactively colluded to suppress wages and paid money for an organ that would only prolong his life but could have saved someone else's (seriously, I consider that an evil move).

One suggestion for you, it sounds like you're very angry about your current work environment. Maybe it's time to find a new place?

Re: How Startup Options and Ownership Work

#96

Post by leekh »

As an engineer I ask for more cash so I can use options. I usually get it.

What about the non-techinical employee? I generally feel marketing, sales, etc are screwed in startups. How can a someone making < 75k actually use their options?

Re: How Startup Options and Ownership Work

#97

Post by HippoViolation »

iaw wrote: post #95
ap22213 wrote: post #90

Earlier quoted context omitted.

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 be…

I've worked for the really rich. In my experience/opinion I don't think they're evil but are focused on having more for the sake of having more. They grew up in such a way that they believe they are more skilled/harder working therefore more deserving of wealth than others. They also resent those that don't do what they do but complain about not having enough wealth (even though society would stop functioning were th…

I used to be bitter about stuff like this but I've gotten over it.

The chances of getting wealthy by joining a small startup are very small. It happens, but it's probably not going to happen for you.

If you really want to do well, you have to pull together the resources to start a successful company.

On a different note, I used to work for an almost billionaire, they were incredibly cheap. I often reminded myself that you don't make a billion dollars by wasting money!

Re: How Startup Options and Ownership Work

#98

Post by HippoViolation »

HippoViolation wrote: post #97
iaw wrote: post #95

Earlier quoted context omitted.

I've worked for the really rich. In my experience/opinion I don't think they're evil but are focused on having more for the sake of having more. They grew up in such a way that they believe they are more skilled/harder working therefore more deserving of wealth than others. They also resent those that don't do what they do but complain about not having enough wealth (even though society would stop functioning were th…

I used to be bitter about stuff like this but I've gotten over it. The chances of getting wealthy by joining a small startup are very small. It happens, but it's probably not going to happen for you. If you really want to do well, you have to pull together the resources to start a successful company. On a different note, I used to work for an almost billionaire, they were incredibly cheap. I often reminded myself tha…

AND on another note, I've noticed some founders want to put you on a 5 or even 6 year vesting schedule.

I should go back to welding.

Re: How Startup Options and Ownership Work

#99

Post by 20yrs_no_equity »

HippoViolation wrote: post #78
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.

At the last 4 startups I joined, when I asked about number of shares, valuation, etc after getting my options agreement, the owners treated the info like the nuclear launch codes, or that I was asking something deeply personal and I should feel bad about thinking about asking. Note: I am poor.

They are cheating you, they want to keep you poor.

The correct answers are: "We don't give you options, we give you RSUs and they start vesting after 90 days. Here's the cap table"

Anything else is screwing you. Unless, course the RSUs are for preferred shares, that's real what it should be, but common seems a reasonable compromise given that investors think a dollar from them is worth more than a dollar from an employee and should be preferred.

Re: How Startup Options and Ownership Work

#100

Post by calvinbhai »

birken wrote: post #47
calvinbhai wrote: post #13

I am curious to know when is the best time to ask all the questions about the stock options. Before signing the offer letter / getting started or after? Before may be a bad deal for startups, especially the ones that are keeping everything all the equity details under wraps. After is a bad deal for the employee who makes the move, and could be a major bait and switch

Certainly before signing the offer letter. I created a website, Friendly Options [1], to act as a helpful ally is trying to extract this information from employers. It asks for a bunch of required information (# of total shares, strike price, share expiration, etc) and then breaks down your option grant in terms and scenarios that are easy to understand. If an employer isn't forthcoming about something you can just s…

wow thanks! This is exactly what I was actually looking for.
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