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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

#231

Post by khazhou »

in_cahoots wrote: post #167
khazhou wrote: post #153

Earlier quoted context omitted.

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.

Founders and investors have favorable terms -- they can take money off the table in the former case, and have liquidation preferences in the latter. So their stock has non-zero value, though it may not be as much as the paper valuation suggests.

Great perspective. It's not that equity itself is zero value. Otherwise, how would founders be able to afford MacLarens? It's employee equity that should be thought of as very low (or zero) value.

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

#232

Post by JonFish85 »

iaw wrote: post #104
vonmoltke wrote: post #90

Earlier quoted context omitted.

There's a legal workaround to that, though: reduce the next year's vacation allotment by the amount of unused vacation the previous year. Raytheon uses this trick to implement their use-it-or-lose-it PTO policy.

Do you think it would survive a legal challenge?

Even if it doesn't, do you have the money to pay the lawyer(s) enough to get it that far? And is it something you care enough about that if you were offered $25k to drop it, you would reject it?

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

#233

Post by rhizome »

jlj wrote: post #152

When pre-ipo options are granted, is the company required to tell the number of fully diluted shares outstanding? Without the denominator it is impossible to estimate the value. If they refuse to tell it or are secretive, does the employee have any recourse?

In the US, I believe the answers are "no" and "no."

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

#234

Post by corford »

Not familiar with the US tax system but does the concept of "growth shares" exist over there? They're a fairly standard thing in the UK and negate most of the income tax and social security issues mentioned in the post. You're just left with CGT to pay on an eventual sale (and there are ways to reduce even that). Also, because they're shares there's no 90 day problem on leaving, you're awarded them on a simple vesting schedule and that's that.

Bonus: the IRS recognises them so American employees of UK companies can enjoy the tax benefits too.

https://www.twobirds.com/~/media/pdfs/expertise/employment/e... is a nice primer if anyone is interested.

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

#235

Post by ironchef »

sbierwagen wrote: post #173
delinka wrote: post #115

Earlier quoted context omitted.

"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 t…

Also note that RSUs and options are taxed differently. When you're issued a block of RSUs, you almost always do a section 83(b) election, declaring the RSUs as ordinary income. When you sell them years later, the difference in value is then taxed at the lower capital gains rate, rather than the income tax rate. However, this means you take the tax hit when you receive RSUs, unlike options, where you're taxed when you…

tldr: 83b isn't just for RSUs.

You _may_ be able to perform an early exercise on ISOs and perform an 83(b) election at the same time. I've done that twice now .. the first time worked out very well. The second time I'd anticipate will work out quite well as well.

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

#236

Post by johngalt »

The equity payday funnel looks bleak.

1. Will this company succeed?

2. Once it succeeds will my equity be valuable?

3. If my equity could be valuable, will it be diluted before I can get paid?

4. If not diluted will it ever be liquid?

5. If there is liquidity will I be able to participate? Or only founders/investors.

6. If employees are able to extract real dollars, will I be forced out, laid off, constructively dismissed in advance to reduce what I could take home.

All I see is a succession of methods to keep me on a treadmill chasing a carrot. Until the startup is large enough to take away the carrot.

This perception is hurting startups as a whole. Because you will not be able to convince early stage talent to work for equity. It is not enough to tell engineers 'well you should learn more about equity so you can't get ripped off so easily.'

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

#237

Post by rhizome »

Bahamut wrote: post #38

I found it funny he slagged on using JIRA, as oftentimes I found startups using Rally, which is a lot more painful :( .

Never heard of Rally, but it's not an unheard-of coincidence for startups to use software from sibling companies funded by their investors.

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

#238

Post by justin66 »

rrhyne wrote: post #149
rrhyne wrote: post #148

Earlier quoted context omitted.

Retirement Enhancement and Savings Act of 2016

https://www.congress.gov/bill/114th-congress/senate-bill/347...

Thanks! This URL gets you the same stuff without the highlighting.

https://www.congress.gov/bill/114th-congress/senate-bill/347...

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

#239

Post by luckystartup »

logicallee wrote: post #133
BatFastard wrote: post #43

Earlier quoted context omitted.

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.

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're right, but there's a better way to think about the $10 million, called the "safe withdrawal rate".

If you're 65, a good rate is 4%. This means that if you invest your $10 million in a diversified mix of stocks and bonds, and you withdraw 4% per year, then there's a very good chance that you won't run out of money before you die. See: Trinity Study [1]

If you're younger, you should probably use a more conservative rate of 3.5%. That's still an annual return of $350,000, for the rest of your life.

According to your rate of $110 USD per night, you only need to spend $40,000 per year to live in a four star hotel.

First class flights seem to cost around $3,000. You could fly twice a month for $72,000 per year.

Then you have $238,000 left over for food and entertainment. (And hopefully some charity.)

[1] https://en.wikipedia.org/wiki/Trinity_study

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

#240

Post by erichurkman »

mikemac wrote: post #207
erichurkman wrote: post #192

Earlier quoted context omitted.

Our waterfall / payout / fully diluted ownership / strike price / last round price is part of our offer package. I can't imagine joining a company without that information.

That's awesome, and pretty cool that you all eat your own dogfood. Think it sends a nice statement considering your product and hope more companies offer that to employees in the future. I'm a customer and big fan.

https://blog.esharesinc.com/a-better-offer-letter/ - and it's public. It's a _fantastic_ recruiting tool.
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