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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

#181

Post by imsofuture »

khazhou wrote: post #153
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 -…

I'm always amused how employees are encouraged to think of their stock as zero-value, which founders and investors keep 85% of this "zero value" for themselves.

In fairness, employees are encouraged to think of it as zero value specifically when considering it in lieu of alternative compensation.

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

#182

Post by logicallee »

pbkhrv wrote: post #136
logicallee wrote: post #133

Earlier quoted context omitted.

You basically just said, totally straight-faced: "Don't do it man, it's not worth it! My friend thought he was worth $40 million but was never able to cash more than $10 million out." That is literally the structure of your comment. You said, don't do it, you mentioned your friend as for why not, and the punchline to his sad story is he only cashed out 25%, or $10 million, of what he thought he had. By positioning th…

You missed the second part: "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 didn't miss the second part.

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

#183

Post by intrasight »

iaw wrote: post #113
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?

Sure. The article is about the problems that one faces if given stock options. If instead you get stock certificates then you don't have those problems.

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

#184

Post by cookiecaper »

novocaine wrote: post #139
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…

I don't find it baffling. You flatly cannot build a company without capital. On the other hand, you might be able to build a company by treating good employees badly, because the employees are either a little naive or they really do value working at your cool startup over money. You might also be able to simply build a reasonably successful company with not very good employees (in fact this is most companies)

Lots of companies start with minimal capital infusions. The VC roulette is not the way that sustainable companies have been built, historically speaking. Atlassian is a recent example of a bootstrapped tech company that IPO'd.

I personally believe that in a fair world, the people actually producing the value would be allowed to collect most of it, and the people who grease the wheels would collect an appropriate gratuity. However, I acknowledge that we instead live in a world where the people with cash set the rules, and their interest is in preserving and growing their power (which means keeping themselves much richer than everyone else).

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

#185

Post by xenihn »

intrasight wrote: post #183
iaw wrote: post #113

Earlier quoted context omitted.

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?

Sure. The article is about the problems that one faces if given stock options. If instead you get stock certificates then you don't have those problems.

Is getting actual stock instead of stock options even a choice?

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

#186

Post by freddyc »

mavelikara wrote: post #29

> The correct amount to value your options at is $0. Agreed, but ... Try to negotiate a deal such that the employer gives you a one-time sign-on bonus which, after taxes, will pay for the early exercise of the offered equity, and get the employer to give you the paperwork for filing 83(b) election. This values the equity at $0, but prevents drastic financial implications (at least for the initial grant) should it act…

I may be wrong, but I think that in order to early exercise the underlying Option Plan has to allow for it which isn't always a given these days for some reason.

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

#187

Post by Swizec »

ronald_raygun wrote: post #146
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…

So I never understood - it seems like it would cost you 200k to buy something worth a million. Arent there people/institutions out there that would cover the 200k cost in exchange for maybe 300k worth of stock?

Most banks will give you that loan if the stock is liquid and actually evaluatable.

But if something happens on your way from the bank to the stock sale, guess who still has to pay back all that money.

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

#188

Post by thefalcon »

psranga wrote: post #150
Someone1234 wrote: post #20

Earlier quoted context omitted.

The US really does have a lot of problems with their tax system to be honest. For a country whose citizens outwardly hate tax, you'd think they would have one of the best, most straightforward, and fair tax systems in the world. But instead you have one of the most convoluted, loopholey, broken systems in the world. Whereas in countries where taxes aren't as "hated" (Europe, Canada, etc) they don't pay a cent to file…

> Why does it still cost money to file taxes anyway? https://www.propublica.org/article/how-the-maker-of-turbotax...

That article brings up ReadyReturns in CA, which it appears has since been rolled into CalFile. Just moved to CA last year: anyone have experience with CalFile vs a paid tax preparation to share?

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

#190

Post by xutopia »

edshiro wrote: post #36
xutopia wrote: post #7

I've been sucked in to paying money to exercise my stock options after I left a company. On paper I could pay off my house today... except I'll most likely never see that money. Nowadays I ignore equity and look at the bona fide package they offer and how enticing the challenge they have can be and decide based on that. Equity promises just don't fall in the balance anymore.

This. I would also optimise on cash compensation. Stock options are a nice to have but the windfall is ultimately very hypothetical since most startups fail. Don't fall for the stock options trap if you are an employee: you are just as fortunate (or not) with a lottery ticket. Obviously if you are a founder it's a different story...

What's even more frustrating is that the startup in question is actually doing pretty well for itself. It just doesn't have a liquidity event in the near future. On paper my stock looks really good right now but is just out of reach.
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