What I Wish I'd Known About Equity Before Joining a Unicorn • Hacker News Board

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

#421

Post by ariwilson » Wed, Jan 18, 2017, 11:41 PM UTC

netik wrote: post #366

kooshball wrote: post #349

Earlier quoted context omitted.

The proper way to do this for a non public company is to settle the stock for RSU based on the vesting schedule AND an exit (IPO/acquisition). This way you don't technically own the stock and have to pay taxes until there's liquidity. I believe this is how a lot of the bigger unicorns are issuing RSUs now. http://avc.com/2010/11/employee-equity-restricted-stock-and-...

The problem is that RSUs are still a joke and can be taken from you easily. ISOs have way, way more power. https://www.retina.net/tech/rsus-vs-options.html

I know nothing about RSUs at pre-IPO companies, but RSUs at public companies are worth real money, a fact this article fails to mention.

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

#422

Post by bankim » Wed, Jan 18, 2017, 11:41 PM UTC

daave wrote: post #414

superqd wrote: post #412

This has caused me some level of sadness in the past. I worked for a startup (started 6mo after founding with only 20 people and stayed for 8 years to 200+ people and 50million in revenue). During a number of phases, I worked for months at a time giving up weekends, late nights, holidays and even vacation time to get product out the door and beat the competition. I racked up 50k options, mostly all for less than a do…

Did you consider using something like ESO Fund to finance the exercise of your options? If so, why did you decide not to use them? Assuming they're willing to do the deal, if your alternative is letting the options expire worthless, it seems like a no-brainer to take a loan with no recourse unless there's a liquidity event. You wouldn't have made the full $300k, but at least a solid portion of it.

ESO Fund's website doesn't mention about their cut in case of liquidity event. Do you happen to know how much is it?

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

#423

Post by ant6n » Wed, Jan 18, 2017, 11:47 PM UTC

beagle3 wrote: post #94

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…

Most countries have sane tax codes that say you only owe taxes when there's a liquidity event for you. The US is exceptionally bad in this respect of taxing illiquid paper profits, and of onerous lockup periods (SEC rule 144). An investment of mine that yielded 5X exit transaction ended up being 1.3X for those reasons, and I was lucky - if it closed a couple of months earlier, I would end up with 40% loss and a usele…

I Canada I can defer paying the (income) taxes on the options exercise until 'deemed disposition', which unfortunately also includes going bankrupt. And the possibility to count the capital loss against the income is severely restricted.

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

#424

Post by pikzen » Wed, Jan 18, 2017, 11:52 PM UTC

superqd wrote: post #412

This has caused me some level of sadness in the past. I worked for a startup (started 6mo after founding with only 20 people and stayed for 8 years to 200+ people and 50million in revenue). During a number of phases, I worked for months at a time giving up weekends, late nights, holidays and even vacation time to get product out the door and beat the competition. I racked up 50k options, mostly all for less than a do…

I'm sorry this has happened to you. I hope it can serve as a warning to other HNers that companies are not your friends, and that it's never worth investing yourself like crazy in it as an employee. Any employer will throw you under the bus as soon as possible, and possibly has already planned that in the contract you signed. That applies to three person startups all the way to gigantic multinationals.

Enjoy your personal time, leave at 6PM, turn off work email/slack/anything and do things that make you feel better as a person.

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

#425

Post by pinewurst » Wed, Jan 18, 2017, 11:53 PM UTC

superqd wrote: post #412

This has caused me some level of sadness in the past. I worked for a startup (started 6mo after founding with only 20 people and stayed for 8 years to 200+ people and 50million in revenue). During a number of phases, I worked for months at a time giving up weekends, late nights, holidays and even vacation time to get product out the door and beat the competition. I racked up 50k options, mostly all for less than a do…

8 years of weekends, late nights, holidays and vacation for a net of $200K after taxes?

That's ~25K/year so if you would've worked a regular 40 hour week, 20 hours of contract work at anything more than $35/hour would have put you ahead. And you would've still had weekends, nights and vacation.

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

#426

Post by Twirrim » Wed, Jan 18, 2017, 11:57 PM UTC

_yosefk wrote: post #170

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 -…

"Treat as zero" is bad advice. "Treat as 10x or 50x cheaper than they say it is" - that's good advice. The difference is that 10x more equity solves a lot of problems with equity, and it's not what you'll be gunning for if you think its value is zero.

Given how few startup companies actually make it, treating it as zero is the only sane and rational thing to do.

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

#427

Post by jarjoura » Wed, Jan 18, 2017, 11:58 PM UTC

I see the current cold climate as the direct result of companies now taking a long time to sell or go public. The frameworks setup for early employees to make good on their loyalty and hard work were designed during a time when companies would only stay in startup mode for 4 to 5 years max.

Now that companies are planning on 10+ years to IPO or sellout, they aren't changing their employee incentives to match expectations. No one wants to work for free, or cheap for an entire decade at one company.

I actually applaud Snap Inc. for pushing ahead with an IPO early on in its lifetime. It's going to make millionaires out of all its early employees and start a 2nd wave to startups in LA that San Francisco hasn't had since Facebook and Twitter.

People in SF are still waiting for AirBNB and Uber, Lyft, Stripe, Github, etc, these companies are turning over employees already that should have minted local millionaires ready to start the next wave.

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

#428

Post by tensafefrogs » Thu, Jan 19, 2017, 12:07 AM UTC

"If the company sells for a more modest $250M, between taxes and the dilution that inevitably will have occurred, your 1% won't net you as much as you'd intuitively think. It will probably be on the same order as what you might have made from RSUs at a large public company, but with far far more risk involved. Don't take my word for it though; it's pretty simple math to run the numbers for a spread of sale prices and dilution factors for yourself before joining, so do so."

This is key when you are thinking about joining a startup. If you can land a job at $BigTechCompany that pays a bonus and RSUs that refresh every year, it's likely a much safer bet and will have much lower risk.

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

#429

Post by jes5199 » Thu, Jan 19, 2017, 12:14 AM UTC

bookbinder wrote: post #410

jes5199 wrote: post #201

Earlier quoted context omitted.

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?

well, I developed a kind of generalized anxiety - I think it came from the long hours in a fairly large and crowded open-floorplan office - it was just way more constant social contact than I'm comfortable with. I guess if it was stress, it was stress from trying to perform while conforming to an environment that I found profoundly uncomfortable. Also there were nebulous culture mismatches that made me feel like I had to put on a fake persona to fit in.

Now I work from home and I'm much happier.

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

#430

Post by brilliantcode » Thu, Jan 19, 2017, 12:28 AM UTC

so what happened in the last 10 years? Low interest rate venture capital (basically rich peeps trying to get richer using even richer peeps monies) have caused a market discrepancy which is now showing signs of major correction.

Now VC funded folks who were told they could be the next Zuckerberg have finally figured it out-your life is being commoditized into hedged call options for the rich with high probability of recouping their speculative bets. Your time is always going to be cheaper than a VC's and they've figured out a way to make it even cheaper at your expense and for their own gain.

People are figuring out their stock options aren't actually worth much and that they've just spent a huge chunk of their life helping the rich get richer with the illusive dreams of becoming the next Larry Page or Zuckerberg.

It's almost identical to the ebb and flow of workers in startups. Following this logic, we can clearly see these zombie unicorns are not going to be able to monetize like they've been able to raise money. We will see the rise of bootstrapped companies fighting each other to gobble up the vacant marketshare.

The worst that can come out of this is loss of economic productivity (VC investments have yielded economic returns for the 0.1% at the expense of the rest).

And of course lot of Venture Capital partners finding out their portfolio of 10 variants of Uber or Tinder is going to need more money to keep their share valuation high as capital is drying up due to global uncertainty.

They might not be able to buy a Lamborghini SV Roadster and a penthouse in downtown Vancouver. The world's smallest violin for the rich is always expensive and at great costs to society. Kevin O'leary worshippers call wining and dining "free market forces". A free market that serves less than 1% of the population with none of the benefits trickling down to the rest.

I had a blast not reading the article.