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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

#281

Post by maverick_iceman »

damnfinecoffee wrote: post #142
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.

By "low level software engineers" do you mean low level in the sense of relatively low experience or low level in the sense of working on embedded systems etc?

As in entry level.

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

#282

Post by maverick_iceman »

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.

Yes I mean total comp including base+bonus+equity.

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

#283

Post by Epenthesis »

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.

At Google, assuming what I saw was representative, 220+ k$/yr in total comp (salary + bonus + RSUs) was the standard last year for one promotion up from new grad (SDE IIIs).

(Note that Google RSUs, unlike Uber's, are convertible to cash immediately upon vesting.)

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

#284

Post by bitwize »

emodendroket wrote: post #250
Humdeee wrote: post #223

Earlier quoted context omitted.

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.

Options work the same way. Your equity in Bronygram could be worth millions if Bronygram's world-domination schemes go off without a hitch and if they IPO. But those are big ifs, and when you're employee #7 or even #107, you really can't assign meaningful value to those stocks, because they are simultaneously worth "zero" and "a fuckton", and the wave function hasn't collapsed.

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

#285

Post by Cerium »

billmalarky wrote: post #228
sbierwagen wrote: post #173

Earlier quoted context omitted.

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…

I was of the impression that typically a portion of your RSUs are used to handle the income tax from receiving them immediately, so you simply receive less RSUs as opposed to the full amount plus a big initial tax bill. That seems to me like a good way to offset the risk that the RSUs could be worthless in the future.

Yes, the company issuing the RSU's must pay the taxes for you. They do that by selling a portion of the shares to cover the tax (which at least where I've been works out to a bit above 40%).

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

#286

Post by iaw »

xenihn wrote: post #185
intrasight wrote: post #183

Earlier quoted context omitted.

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?

Not from what I've seen.

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

#287

Post by stanfordkid »

matthewmcg wrote: post #276
stanfordkid wrote: post #267

Earlier quoted context omitted.

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…

No, this is a provision in the agreement that's driven by the tax code and IRS regulations. It is required if you want the option to be an incentive stock option. It's not arbitrary. You're right that you are free to to negotiate a different exercise window prior to accepting your stock grant (and a lot of more progressive companies are offering this). You just can't, under current tax law, get the sometimes benefici…

You are right -- it's not as black and white as I described.

That being said -- It seems like with some "legal engineering" it can certainly be ameliorated (as was demonstrated by Pinterest). My main point is that if people push for their rights then it will incentivize companies to do the legal engineering that is necessary.

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

#288

Post by cobbzilla »

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…

I couldn't agree more. After I first realized this asymmetry back in the dot-com 1.0 days, I stopped wanting to be an employee and started founding companies. I did take a couple senior VP jobs where I fully understood the equity I was getting and was OK with it.

If you want the large exit, you're either a founder or an investor. It's been that way for as long as I can remember.

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

#289

Post by jonathankoren »

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…

You are not going to get a year's salary in ISOs. You're not. At typical ISO strike prices (i.e. prices on the range ones of dollars), that would be an a lot of options. A company is simply not going to do that. It's much more likely you'll get something like half your salary or even less in ISOs (of course vesting over 4 years). This doesn't matter if the company IPOs with a 10x multiple of the strike price, but then again, the company has to have a major liquidity event.

The uncertainty around the current valuation (which everyone has due to the infrequency of material events), the uncertainty around the likelihood of a major liquidity event, its size, and its type make ISOs incredibly hard to accurately price. If anyone says they can do it accurately, they're lying.

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

#290

Post by bcherny »

mikemac wrote: post #140
bcherny wrote: post #125

> Founders (and favored lieutenants) can arrange take money off the table while raising rounds and thus become independently wealthy How does this work?

When the company raises an additional round, the new investors build in provisions that allow the founders to take money off the table. One example of this is IVP leading a round in Snapchat, and the two co-founders splitting $10M in exchange for some amount of personal stock.

What's the benefit of doing it this way, as opposed to selling some of their own shares from a previous round to the funding VC, or on the secondary market? Is it just a cleaner deal this way?
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