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What I Wish I'd Known About Equity Before Joining a Unicorn

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Re: What I Wish I'd Known About Equity Before Joining a Unicorn

#111

Post by Spoom »

rwmj wrote: post #56
TheLarch wrote: post #9

I was so naive when I joined my first startup. When we were purchased, it came to light that the main guy never got around to signing my stock option agreement. He is a fucking mensch and signed it after the fact. Character buys a unique, abiding respect.

At my first startup, the share option terms and conditions had a clause allowing the company to arbitrarily change any condition in the contract. Of course we signed it and didn't think much about it. At the IPO this clause was very predictably used to extend all the employees'[1] vesting schedule to many years after the IPO event. By that time the options were worthless because the company was acquired in a fire sal…

That sounds like it wasn't a contract in the first place. Doesn't it have to in some way bind both parties to be considered a contract?

I would almost think that a lawyer would be able to convince a judge that that "contract" was written so adversely that the "arbitrary change" clause should be struck, since the rest of the contract is essentially illusory if it remained.

Re: What I Wish I'd Known About Equity Before Joining a Unicorn

#112

Post by Osiris »

I left a startup after 2 years. I was offered a contract job that had a gross salary that was twice my startup salary. Even after taking into account the cost of benefits (health, vacation, 401k, etc), I would still make about 60% more net.

I did some math and even if the company sold for a decent amount in the future, my shares wouldn't have been worth the amount in pay I would have lost between then and the liquidity even. So, I started up my own LLC and started doing consulting/contracting and I've never felt happier.

I feel like I'm in control now and I don't have to beg someone for a raise or worry about why I'm getting screwed in the next round of funding.

Re: What I Wish I'd Known About Equity Before Joining a Unicorn

#113

Post by iaw »

intrasight wrote: post #16

If you believe in the company, be like David Choe (painted Facebook murals) and take compensation in stock.

Could you explain why this is practical advice and how it addresses any of the points on the article about long-term equity dilution and liquidation deferral?

Re: What I Wish I'd Known About Equity Before Joining a Unicorn

#114

Post by AJ007 »

BatFastard wrote: post #43
econner wrote: post #24

Earlier quoted context omitted.

This advice is often given but it's easier said than done. Let's say you work at a unicorn for 3 years and in that time it goes up 10x in VC fantasy land valuation. On paper you have a lot of money and the company reasonably might go public a couple years after you leave. Let's say you're granted about a year's salary in shares when you first join so you've vested $100K for a round number. When you leave that equity…

Don't take the risk. Treat is as a lottery ticket. A good friend joined a late startup company in 1999, and in 2000 he was worth 40 million, of which he managed to cash out 10 million before the stock crashed. But that was in the days of IPOs, now the investors prefer to keep the rise in equity to themselves. So you chances of winning the lottery are much less.

I wonder how many commonly utilized tools in startups actually reduce the overall chance of the companies success?

Not sure high stress and wacky work environments are very productive outside of sales. I'll leave it at that.

Re: What I Wish I'd Known About Equity Before Joining a Unicorn

#115

Post by delinka »

econner wrote: post #24
jaymzcampbell wrote: post #5

As always the main rule you need to live by is value the equity at zero and you'll be (maybe) happy. Short of being a founder (and thus not really being offered equity) I have never treated these things as anything beyond a minor on paper "bonus". Given you'd be lucky to get anything more than 1% even as a first employee I find them next to worthless as early stage motivators. Which is how everyone seems to play it -…

This advice is often given but it's easier said than done. Let's say you work at a unicorn for 3 years and in that time it goes up 10x in VC fantasy land valuation. On paper you have a lot of money and the company reasonably might go public a couple years after you leave. Let's say you're granted about a year's salary in shares when you first join so you've vested $100K for a round number. When you leave that equity…

"Let's say you're granted about a year's salary in shares..."

Please use correct terminology. You're given options to purchase shares, or you're given shares outright. The former is what most people are accustomed to: options to purchase shares at a discounted price. The latter, know as a "stock grant," does not require the employee to purchase the shares - they've been granted to the employee.

Both of these things tend to come with a vesting schedule: you don't get to buy all your discounted shares when you start working on day 1, nor are granted shares handed to you because you showed up on the first day.

"Granted a year's salary in shares" would mean there's nothing to buy because those shares are yours.

Re: What I Wish I'd Known About Equity Before Joining a Unicorn

#116

Post by hedora »

Kiro wrote: post #53

I thought I could exercise my options 5 years after sign date, regardless of liquidation. Have I misunderstood or do I have some special deal?

Pre-IPO, you can't sell some of the resulting stock to cover the tax and cost of exercising (unless you have some special deal where the company or investors will buy back the stock)

Many people went bankrupt in 1999 because they exercised without considering tax implications, and then held the stock while it tanked.

Re: What I Wish I'd Known About Equity Before Joining a Unicorn

#117

Post by vslira »

rrhyne wrote: post #78

Really surprised how few people know about this legislation to fix the tax laws that cause one of the biggest issues with options. https://www.gop.gov/better-way-startups/ It made it through the house and was approved by senate finance committee but is now stuck in a bill about retirement savings legislation. Even finding information about the bill on the web or twitter is incredibly difficult. Please tweet, blog, et…

That seems incredibly relevant to the HN crowd. Maybe someone* could post it as it's own thread?

*Not me, I'm not in the U.S. =p

Re: What I Wish I'd Known About Equity Before Joining a Unicorn

#118

Post by maxxxxx »

adhambadr wrote: post #52

It has always baffled me the way founders treat employees and investors so vastly asymmetric. Ive been involved in rounds close enough to see how just the "hint" of a potential investment and all the numbers, financials, cap tables are sent in one big email to their analyst, while some early employees (who controversially have worked just as hard as the founders) have no clue who owns what and whats going on. I get i…

When I joined a startup in 2000 I tried to be prudent and get the relevant financial information. It was virtually impossible. Even after exercising a few shares they wouldn't do it. I probably could have sued them but that would have cost a lot of money. When they raised more money they would also not tell us anything about the terms and the resulting dilution.

You just have to hope for the best and if it doesn't work out you get lectured by some smartasses that it's your own fault.

Re: What I Wish I'd Known About Equity Before Joining a Unicorn

#119

Post by OmarIsmail »

rrhyne wrote: post #78

Really surprised how few people know about this legislation to fix the tax laws that cause one of the biggest issues with options. https://www.gop.gov/better-way-startups/ It made it through the house and was approved by senate finance committee but is now stuck in a bill about retirement savings legislation. Even finding information about the bill on the web or twitter is incredibly difficult. Please tweet, blog, et…

Maybe there are some gotchas I'm not seeing but from the summary this should be supported.

Re: What I Wish I'd Known About Equity Before Joining a Unicorn

#120

Post by luckystartup »

This is all true. I moved to San Francisco to join a startup as an early employee. The biggest surprise was when I had to empty my savings (and borrow a lot of money) to exercise my stock options. I filed an 83b election so that I didn't have to pay any taxes immediately, but $20,000 was (and still is) a huge amount of money.

I had no idea it was so expensive to join a startup. At least, if you want to avoid golden handcuffs for the next 10 years. I'm extremely glad that I made the decision to exercise my options. I left after 2 years because I couldn't stand working there anymore, and I had vested most of the shares that I had exercised.

If golden handcuffs had forced me to stay, I think I might have had a mental breakdown, and I don't think my marriage would have survived.

My former startup is now a very successful unicorn, and I'm starting to hear talk of an IPO in the next few years. I think my shares could be worth somewhere around $5 - $10 million. This is absolutely life-changing money for me, seeing as I could happily retire with $500k.

Sometimes I can make it a whole day without thinking about it, but it feels like I'm just burning time until I can finally cash in these shares and never worry about money again.

Can anyone relate to this?

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