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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

#261

Post by ktRolster »

luckystartup wrote: post #239
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'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 conservat…

You should also be sure to save enough for healthcare related expenses FWIW

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

#262

Post by geofft »

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.

Market rate seems to have gone up again in the last little bit. Yes, that salary is within reason for (good) non-senior candidates at big companies.

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

#263

Post by maverick_iceman »

finnh wrote: post #210
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…

There's a growing secondary market for illiquid shares of private companies; I would look into that before letting the options lapse. There a few market-making websites as well as VCs that specialize in this. You need to be pretty savvy to marshal the whole process and understand the contracts, though - it is not turnkey.

Many private companies, e.g. Uber, doesn't allow unapproved secondary selling of their shares.

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

#264

Post by spamizbad »

cookiecaper wrote: post #162
adekok wrote: post #97

Earlier quoted context omitted.

I agree. I worked for one startup which got bought. The founders made money. All of the employees lost money. One of the founders reached out to me a few years later, asking me to join his new startup as employee #2. I said "yes", but only if I made 10% of what he made. The answer was "No". OK... maybe 1% of what he makes? "No". Thanks, but no thanks. If you admit that you're not going to share the benefits, I have n…

Yeah, most of the time, there is an expectation that employees will be employed at a market salary and remain content with that. There are not many ways around this. If you don't want to be a wage slave, it's hard to wage slave your way out of it. Just have to save until you can start something on your own, rinse and repeat until you strike it big. The systems are always going to be biased to the people who have the…

For a startup I think market-rate salary for early employees is more than fair, assuming it's coupled with an appropriate options package.

But if we're talking about "Well you make market rate if you value your options like XYZ..." then yeah, that's BS.

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

#265

Post by imh »

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.

Those are three totally different things. The kinds of stock/options and decision making power for an employee, a founder, and an investor are completely different.

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

#266

Post by econner »

nwellinghoff wrote: post #155
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 -…

It would behoove everyone to learn the basics of the terms you are getting stock. I have been through it and know. It will take you a couple afternoons of casual reading to nail it down. But to save you some time let me give you a template for the type of stock option deal you want and you don't want. Don’t want 1) 409A valuation price is already in the multiple dollar range. a. Why : You can’t afford to exercise do…

This is excellent advice. For what it's worth you really need to know the total number of outstanding shares to appropriately assess the 409A valuation. The stock could split later.

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

#267

Post by stanfordkid »

matthewmcg wrote: post #254
stanfordkid wrote: post #103

Earlier quoted context omitted.

This would be true ... but only because people don't understand how to leverage and negotiate using their power. Engineers have historically been unable to organize large movements and work together. The size of most of these unicorns is still under 2000 people, with less than 4-500 engineers. This means that if you really want to you can "lead a revolt" Think about it -- any engineer at these companies can easily le…

"The company can choose not to buy back your unexercised options at par-value for as long as it wants." That's usually not right for incentive options. Check your option agreement. Most will say that the stock option automatically expires or converts to a non-qualified option if not exercised within 90 days of termination without the company having to decide to do anything. What you are describing is more commonly as…

It is a legal rule that the company decided to impose in it's corporate charter, they can amend it to be whatever they want. It's arbitrary and not a fundamental part of US/State corporate law (like say race discrimination or workers comp). If they wanted to put a law in that you need to spin in circles and tap dance or else your stock automatically gets reclaimed they could create a clause in their charter for that too. This is what people need to understand: Rules change because people wake up and push for them to be changed.

Lawyers have created all sorts of bullshit to protect the employer and that has become engrained as "best practice"

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

#268

Post by ktRolster »

battlebot wrote: post #47
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…

This reads like a Faustian bargain. I've seen this sort of stuff happen over and over to my colleagues, it was worst in the late '90s and early '00s. As much as I wanted to work for a startup once in my life, I learned that the only way to do "startup" is if you are the founder. Practically everyone else is along for the ride. The US used to have a steady IPO market but that has dried up in recent years. I have read…

"The US used to have a steady IPO market but that has dried up in recent years. I have read that 2017 might brighten things a bit, but we'll see."

The biggest problem is SOX: going from a private company to public (something I've done twice, now) is a pain, and can take a year to implement all the regulations (you may even need to change source code, and also commit processes). It's even worse on the accounting/business side. More importantly perhaps, it's expensive: you don't want to take your company public unless you can afford the hit to productivity and cash flow.

According to the WSJ, that's why there aren't more IPOs these days.

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

#269

Post by billmalarky »

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)

>You flatly cannot build a company without capital.

Many successful companies are bootstrapped.

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

#270

Post by compsciphd »

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…

I believe It's only a $3K per year income deduction if you have no other capital gains to offset it with. If you have future capital gains of $200K, it can make that go to 0 and you wouldn't have to pay tax on it.
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