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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

#211

Post by TheLarch »

tarr11 wrote: post #87
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.

If it was not approved by the board at the correct time, that could be pretty illegal...

That is an interesting thought! I wonder if he did undertake some risk. I just emailed him, as I never properly thanked him. Maybe if he emails back I'll ask.

Also he negotiated a year off of our traditional 5-year vesting (at the time anyway) in the salt mine that is Microsoft, though he was never to take a position there himself.

I see no end to liquidity event horror stories. I'm so lucky.

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

#212

Post by deedubaya »

I've recently left a company and am within my 90 day window to exercise my options.

It feels much more like playing roulette than making an investment. I have no idea if there will be a liquidation event at all, nor do I know how much that'll end up being if I can hold on for that long. Oh, and I'll be paying taxes on those shares all along the way (assuming the value goes up, which is another uncertainty).

The odds of coming out on top are not in my favor -- and I've chosen to not exercise my options. I came to this decision based off

a) plainly looking at the odds -- the company isn't going to be a unicorn no matter what bullshit the founder and investors are spouting

b) given a non-unicorn style exit, the cash these stocks would earn me probably wouldn't be significant anyway.

We live in an age where not only are investors letting themselves be taken for a ride, but the employees are as well. I'm now concerned with salary exclusively in my negotiations -- I can take an that extra $XXk per year and put it into the stock market with more reliable results.

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

#213

Post by chx »

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 -…

Exactly. I have participated in two of these, one of them were options, the company got purchased but in the 2008 aftermath they sold it for cheap. The next company issued "growth shares", was worthless. Both sites are gone. They paid a good salary though.

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

#214

Post by [deleted] »

hedora wrote: post #137
rwmj wrote: post #56

Earlier quoted context omitted.

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…

Wow. Did they implode while the employees gave them the finger as they walked, or did it take a while? (This matters a lot to the remaining shareholders, since there is usually a post-IPO lockup to protect new investors). Seriously, I can't figure out why this doesn't immediately escalate into noisy public events that tank the stock before the founders cash out (e.g., strike / unionization).

[deleted]

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

#215

Post by milfandcookies »

"Your options have a strike price and private companies generally have a 409A valuation to determine their fair market value. You owe tax on the difference between those two numbers multiplied by the number of options exercised, even if the illiquidity of the shares means that you never made a cent, and have no conceivable way of doing so for the forseeable future."

This is either incorrect or I'm misunderstanding it. The purpose of the 409a valuation is to set the strike price of the options. The strike price is the fair market value of the common stock.

Also, to parrot everything everyone else is saying, equity should be valued at zero. Out of the 200 or so 409a valuations I've performed, there might be 10 companies where I would consider the equity to be valuable in the long term.

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

#216

Post by seepel »

milfandcookies wrote: post #215

"Your options have a strike price and private companies generally have a 409A valuation to determine their fair market value. You owe tax on the difference between those two numbers multiplied by the number of options exercised, even if the illiquidity of the shares means that you never made a cent, and have no conceivable way of doing so for the forseeable future." This is either incorrect or I'm misunderstanding it…

I think the problem is if you exercise the options after another financing round when the 409a will be higher. You then likely owe AMT on the difference of that value and your strike price.

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

#217

Post by sswaner »

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…

It is also important to evaluate the likelihood of liquidity events and vesting schedules on the decision (if available) to file an 83(b) election. You may be paying tax on something you never get.

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

#218

Post by chrisper »

mywittyname wrote: post #199
bluejekyll wrote: post #41

Earlier quoted context omitted.

> Why does it still cost money to file taxes anyway? It doesn't, but because of the complexity of the tax system most people either use a tool like TurboTax or an accountant, to file for them; that costs money. And the reason it exists, the lobbying of special interest groups for exceptions to taxes. If you can convince people in government that you deserve a break b/c what you're doing benefits society somehow, ther…

> It doesn't, but because of the complexity of the tax system most people either use a tool like TurboTax or an accountant, Very few people actually need an accountant or even TurboTax to do their taxes.

>Very few people actually need

You could use this phrase to describe a lot of advertisements and products. However, these ads work on many people and they are made to feel like if they need it. Considering the argument they make is that with TurboTax you could get more money back than without using it, I am not surprised many people buy this tool and use it.

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

#219

Post by swift »

maverick_iceman wrote: post #123
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 -…

Assuming equity is worthless the base salary has to be north of 200K to match the market rate (for low level software engineers) for public tech companies. In most Unicorns that's definitely not the case. In fact when I interviewed for Uber they explicitly said that their base salary is low compared to Google/FB but they make it up in equity.

Is the market rate really >$200k for "low level software engineers"? I know a lot of them, even some that are working at Google, and my impression is that $200k is quite high for someone in that category.
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