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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

#241

Post by kobeya »

djb_hackernews wrote: post #144
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…

The whole premise of a startup in any stage hiring a technical employee and granting them $100k worth of stock options will never happen. Typically you are granted X number of options. You are never told what the outstanding # of shares are and typically the shares themselves are valued in pennies. The idea is you think to yourself "well, it's 10k shares worth about $5k at the current valuation, but if they IPO and i…

Standard procedure in the valley is about ~$100k in options at present valuation. Granted this is typically calculated without adjusting for the lower valuation of common stock, but the presumption is that in an IPO-like liquidity event the common and preferred stock valuations would be basically the same.

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

#242

Post by econner »

delinka wrote: post #115
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…

"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…

Sorry, I meant ISOs. Good clarification.

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

#243

Post by femtopost »

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.

Roughly 62% of Americans are homeowners[0]. Somewhere between 50-75% of Americans have children[1][2]. If you're in either situation, you're likely unable to file a Form 1040 EZ. While the full Form 1040 is only 2 pages long, the instructions for it are 106 pages long[3] - and when you complete your 1040 you declare, under penalty of perjury, that you filled it out accurately.

Those people may not technically need an accountant, but to do their taxes without assistance would be foolish.

[0]https://www.bloomberg.com/news/articles/2016-07-28/homeowner... [1]http://www.huffingtonpost.com/2015/04/09/childless-more-wome... [2]http://www.gallup.com/poll/164618/desire-children-norm.aspx [3]https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

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

#244

Post by mwpmaybe »

swift wrote: post #219
maverick_iceman wrote: post #123

Earlier quoted context omitted.

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.

The point is that an entry-level engineer can make $200K at e.g. Uber (think $120K base + $80K equity), so for a newish company (with near-worthless equity, per the advice in this thread) to match that, they would have to pay $200K base.

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

#245

Post by jly »

mtgx wrote: post #159
dpark wrote: post #99

Earlier quoted context omitted.

More than half the population lives on the coasts. Most of them are "regular people", too. The problem with our tax code is the same as the problem with the rest of our laws: pandering politicians push through complex and expensive trash because it makes either their constituents or their donors happy. For taxes specifically, normal people have complex taxes because of the dozens of deductions and credits that hide t…

All of that, plus tax software companies, such as Intuit lobbying against simplifying the tax code. https://techcrunch.com/2013/03/27/turbotax-maker-funnels-mil... And once again we reach the conclusion that corporate lobbying and donations are the "root of all evil" in American politics, and everything is broken because of it. Larry Lessig has been right all along when he said this needs to be fixed before anything…

Reformers have been begging to "fix the broken system" regarding lobbying for hundreds of years in this country. Lobbying as a legalized form of bribery is a deeply-ingrained part of the political and economic system the US is rooted in, or in other words it's another dimension of capitalism. Academics and journalists have been writing about this for two centuries and not once has substantial change occurred.

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

#246

Post by emodendroket »

swift wrote: post #219
maverick_iceman wrote: post #123

Earlier quoted context omitted.

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.

I guess he means total comp, which makes it a little less out there, but I still wonder.

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

#247

Post by chrdlu »

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…

The good news is that there are a couple new firms that aim to address this exact issue. The firm I work for is called the Employee Stock Option Fund (ESOFund) and we aim to help employees exercise and cover the taxes associated with the exercise (on a non-recourse basis - meaning you don't have to pay us back if the company fails). In exchange, we split the future profits. If you use us, it is a risk-free way to exercise with a chance of significant profit in the future!

https://employeestockoptions.com/

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

#248

Post by mwpmaybe »

imsofuture wrote: post #181
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.

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

Right. It's quite the opposite of GP's sarcastic remark: founders want their employees to value their equity highly so they don't have to pay them as much. The advice in this thread is contrary to this. But yes, I've seen founders be stingy with equity during negotiation using this type of "logic," so the GP's point still stands.

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

#249

Post by calcsam »

The most poignant line is near the end: "It's really tough to ask these [questions] without sounding obsessed with money, which feels unseemly, but you have to do it anyway."

Basic due diligence on a startup offer is asking for # of shares outstanding, last company valuation, strike price. Advanced due diligence is talking about things like extended exercise windows, secondary sales, and liquidation preferences.

Unfortunately, basic due diligence is rare enough that if you do ask a potential employer the latter kind of question, there is a risk of coming off as overly mercenary.

The way of talking to potential employers that I've seen work is to ask questions in increasing complexity, sharing your conclusions along the way, and signalling why you're asking these questions.

After you ask the basic due diligence questions, you can share the math you're doing on stock value various exit scenarios (a good base assumption is to assume an exit at the current valuation).

That typically lays good groundwork for having "advanced" due diligence conversations about an extended exercise window and shows you're serious. In contrast, if the company isn't willing to share valuation or total share numbers, this is a huge red flag as it prevents you from doing the basic math.

This is a tool I built giving engineers the questions they need to ask, in order to do that basic math on what their stock is worth: http://www.optionvalue.io/

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

#250

Post by emodendroket »

Humdeee wrote: post #223
bitwize wrote: post #168

Accepting equity instead of cash is like asking for your paycheck to be denominated in Bison Dollars. If they want to add some options on top of my salary for the full amount I'm worth each year, that's one thing. But options in lieu of part or all of one's salary is tantamount to a cut in pay.

The upside is if you hoard enough of this fake money, you may never have to play a game of Monopoly again where the banker is out of cash.

And if Bison's scheme to take over the world worked the Bison dollars would make you totally rich.
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