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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

#401

Post by mason55 »

michaelbuckbee wrote: post #161
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 think we need to coin a new term like: "early employee valley of death" [1] Post founding, there's this time period where the early employees are expected to work pretty much like founders (long hours, wildly high expectations), but with a greatly reduced salary and the promise of large option grants. This unfortunately places the employee in a really bad negotiating position with respect to salary increases, etc.…

It's pretty common advice that you want to be the last founder and not the first employee for this exact reason.

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

#402

Post by Spoom »

danielweber wrote: post #392
Spoom wrote: post #111

Earlier quoted context omitted.

That sounds like it wasn't a contract in the first place. Doesn't it have to in some way bind both parties to be considered a contract? I would almost think that a lawyer would be able to convince a judge that that "contract" was written so adversely that the "arbitrary change" clause should be struck, since the rest of the contract is essentially illusory if it remained.

Assume you are correct and it is not a contract. That doesn't mean the employee gets stock options. The contract granted the stock options. With no contract, there's nothing.

Sure, but if it got into a courtroom, the judge would probably be apt to rule in favor of the party that didn't write the contract, so I would guess that rather than invalidating the entire contract, they would strike that provision. Not a lawyer though, so who knows.

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

#404

Post by Eridrus »

rrhyne wrote: post #391
Eridrus wrote: post #374

Earlier quoted context omitted.

[EDIT]: I misread the bill, ignore this comment :) So, the devil here is in the details: https://www.congress.gov/bill/114th-congress/house-bill/5719 The tax bill will come due when the employee leaves the company; so this doesn't really help a lot. Has a few caveats that make it inapplicable to early employees too. Interestingly, it seems like it applies to stock, not just options, which if it didn't come due when y…

> The tax bill will come due when the employee leaves the company; so this doesn't really help a lot. I don't see where this is the case. In fact, it's against the spirit of the original proposal. Can you point to where you read this?

I think I misread the bill, the part that I saw was "The employee may defer the inclusion of income from the stock until the year that includes the earliest of the dates on which... the employee becomes an excluded employee", I'll go update my original comment.

Still, the conditions when the tax bill is due are unclear, e.g. what does "seven years have passed after the rights of the employee in the stock are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier" mean?

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

#405

Post by reality_czech »

Someone1234 wrote: post #20
fermigier wrote: post #10

Should have been titled "... in the USA" as tax rules are very different in other countries. For instance, in France, you only owe money to the taxperson when you sell your shares, for a profit. If you sell for a loss, this is tax-deducible.

The US really does have a lot of problems with their tax system to be honest. For a country whose citizens outwardly hate tax, you'd think they would have one of the best, most straightforward, and fair tax systems in the world. But instead you have one of the most convoluted, loopholey, broken systems in the world. Whereas in countries where taxes aren't as "hated" (Europe, Canada, etc) they don't pay a cent to file…

Basically, politicians want to be seen as "doing something about the problem" for any problem you could think of. And the tax code is their preferred mechanism. So we have a huge mortgage interest deduction which is supposedly to encourage homeownership, deductions for home office expenses, the alternative minimum tax which is supposed to prevent millionaires from not paying taxes, and on and on. Most of these rules don't really do what they're supposed to do. For example, Warren Buffet pays very little tax, despite all the AMT's complexity. Tax breaks for homeownership just get reflected in the price of homes, serving to make them less affordable, not more.

Democrats oppose reducing taxes on principle. And Republicans talk a lot about reducing taxes, but usually find more interesting things to do once they're actually in office. Special interest groups of all kinds lobby heavily for their own distortions of the tax code, and the average voter has little idea what is going on.

The people who get hurt the most by all this are the middle class. The very poor have nothing to take, and generally pay either no or very little tax. The very rich have professionals to handle all this.

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

#406

Post by [deleted] »

spamizbad wrote: post #264
cookiecaper wrote: post #162

Earlier quoted context omitted.

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.

[deleted]

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

#407

Post by deevus »

michaelbuckbee wrote: post #161
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 think we need to coin a new term like: "early employee valley of death" [1] Post founding, there's this time period where the early employees are expected to work pretty much like founders (long hours, wildly high expectations), but with a greatly reduced salary and the promise of large option grants. This unfortunately places the employee in a really bad negotiating position with respect to salary increases, etc.…

So many times this. The startup I was working for was exactly as you described.

In the end they ran out of money and all the employees got laid off, getting nothing.

Here I am though, working for another startup. This one actually makes money, though.

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

#408

Post by dreamfactory2 »

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…

The relationship is always and rightly asymmetrical between founders and employees. What's dishonest is offering shares that can be diluted, can't be transferred, and have no voting rights with the understanding that they are any more than shares in the current company bonus scheme. Employers should just pay a competitive salary and bonus. And employees should wise up - if they want a piece of the action they need to take founding level risks and put a lot of skin in the game.

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

#410

Post by bookbinder »

jes5199 wrote: post #201
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…

I walked away from a unicorn, a few years ago. If I had stayed - and somehow survived the effects it was having on my mental health - I might actually be a millionaire now. Instead, I bought a fee thousand dollars worth of shares - only what I could afford. They IPOed at 10x, and I made a down payment on a house. But that was a rare case: I had some extra savings, the company was clearly succeeding with clear intent…

How was it affecting your mental heath--stress, sleep deprivation?
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