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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

#311

Post by damnfinecoffee »

maverick_iceman wrote: post #281
damnfinecoffee wrote: post #142

Earlier quoted context omitted.

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.

Where are you living where entry level software engineer salaries are north of 200k? I'm in the bay area and base salaries for software engineering with a bachelor's degree range from 90-115k from what I've seen (generally with some stock options and bonus potential added on top but I've never met anyone who's come even close to 200k starting out)

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

#312

Post by falloutx »

taternuts wrote: post #147

> The working conditions at Silicon Valley companies are often the best in the world I'd take regular, sane hours and the ability to have a life over worthless perks like ping pong/foozeball tables and customized snacks. I can bring my own snacks, buy my own lunches with as long as I have a decent salary and that really doesn't bother me. The only real perks in a startup are more control over what you are building as…

Ping pong tables are huge time sinks imo. And some other perks like that. A company where I interned just after college had a lot of perks. A great cafeteria where you could get anything for free, a gym and some pool and ping-pong tables.

End Result: People used to spend at least 2-3 hours of the day in gym/playing ping pong/partying in the cafeteria. Also they used to smell(cause they went to gym but were too lazy to wash up) in the meetings. Then if you needed someone's help then you had to wait until they came back from "play area". And no one used to complain about such a huge waste of time, cause no one wanted to be that guy who shut down the "cafeteria". Needless to say, they ran out of millions of dollars in 2 years, and Founders are in court for said "pocketing" the investors money.

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

#313

Post by [deleted] »

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…

[deleted]

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

#314

Post by stale2002 »

BatFastard wrote: post #43
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…

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.

There is an alternative. Vest and buy the shares as soon as possible. This way, your taxes stay low, and you don't actually pay that much for the shares.

You aren't risking hundreds of thousands of dollars, only maybe 10s of thousands.

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

#315

Post by curtis »

jasode wrote: post #226
Osiris wrote: post #198

Earlier quoted context omitted.

It wasn't a misunderstanding. I specifically asked if our options would be diluted in the next fundraising round and the founder said NO, they would be increasing our options to compensate for the additional issued shares.

>I specifically asked if our options would be diluted in the next fundraising round I guess I don't understand what motivated you to ask about dilution and then believing a promise of no dilution since you're supposed to get diluted over time as the startup reaches maturity. Everybody is supposed to get diluted. If a founder promised me "no dilution", I'd have to conclude either... 1) he doesn't understand the mathem…

> ... and then believing a promise of no dilution ...

He expected to get diluted. But he was also expected to be able to offset that dilution by being issued new options. Which would be a perfectly sensible thing for the company to do for a valued employee.

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

#316

Post by acedinlowball »

aaroninsf wrote: post #293
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 -…

The frame reality however is that the mythology of the windfall is part of the sell and a motivator for many. People _want_ to believe. And secretly in their heart of hearts they do believe. Not in the reality, which they are likely smart enough to determine by reading their paperwork, and running the scenarios–even if they are treated properly, which seems increasingly rare... ...in the fantasy. The fantasy is part…

I have many friends who have become very wealthy taking options instead of salary working for Bay Area startups.

It's not as uncommon as you think.

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

#317

Post by stale2002 »

damnfinecoffee wrote: post #311
maverick_iceman wrote: post #281

Earlier quoted context omitted.

As in entry level.

Where are you living where entry level software engineer salaries are north of 200k? I'm in the bay area and base salaries for software engineering with a bachelor's degree range from 90-115k from what I've seen (generally with some stock options and bonus potential added on top but I've never met anyone who's come even close to 200k starting out)

He's talking about Google and Uber. Those definitely pay around that much.

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

#318

Post by mjolk »

billmalarky wrote: post #269
novocaine wrote: post #139

Earlier quoted context omitted.

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.

> Many successful companies are bootstrapped.

I'm bootstrapping now and I'd generally agree with the statement you quoted.

It's expensive and near impossible to find cofounders/enough-"bootstrapped"-help to make building a tech company from scratch feasible, never mind go to open market and get enough customers for the business to be worth running. A "small" 250k check would solve almost all of my issues right now.

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

#319

Post by dlubarov »

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…

> 1) 409A valuation price is already in the multiple dollar range. a. Why: You can’t afford to exercise do to tax burden.

The value of one share isn't meaningful. You should calculate the exercise cost of the whole grant (based on the last 409A) to see whether early exercise + 83(b) would be a good option.

> 2) No acceleration – e.g. in the event of sale or IPO your unvested shares DON’T fully vest. a. Why: You should be rewarded for taking the risk position. Negotiate acceleration or what is known as ratcheting if you are a very early employee.

Acceleration is nice, but why would you insist on it? I'd happily trade it for (substantially) more options. If there's a liquidity event and your options have a substantially positive spread, that's already a positive outcome, so in the interest of minimizing risk, I'd rather improve the scenario where you want to leave before a liquidity event.

> 4) The company is past its 3nd round of funding. In all but rare cases your percentage ownership will be so low at this point it is not worth it.

You should simply calculate your percent ownership (while accounting for liquidation preferences), rather than using the number of funding rounds as a proxy.

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

#320

Post by mikemac »

bcherny wrote: post #290
mikemac wrote: post #140

Earlier quoted context omitted.

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?

I don't think it's actually that common, and typically used with really hot companies.

A few reasons: it makes the new investor more competitive to the founders if there are others vying for the investment, but it also prevents selling too early.

If you have $5M in the bank, you'll be more likely to try to go for the home run rather than sell to facebook for $3B (which was rebuffed by the founders of snapchat).

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