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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

#481

Post by bbcbasic »

gnicholas wrote: post #465
bbcbasic wrote: post #442

Earlier quoted context omitted.

If you think about it it is quite odd to give free labour to a company because you have shares (or some derivative of shares) in that company AND you are working for them. Because you may also have lots of shares in companies in an aggregate fund (e.g. in a a pension) but you aren't working for free for those companies. However people do get caught up in the emotional 'but I own a bit of it', and I think companies ex…

While employees may irrationally put in too much effort because of their perceived ownership value, the comparison to slivers of ownership of publicly-traded companies. One person can make a difference in the value of a 20-person company, and if that person has a 1% stake in the company it can be rational to work longer hours to make that happen. On the other hand, there is very little that a shareholder of a public…

Yes it all depends on the details. 1% stake !== option to buy 1%, based on the info presented in the link though.

A 1% option seems more like the poker game ante, but you need to keep putting more in (time, effort or even cold hard cash) to stay in the game :-)

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

#482

Post by superqd »

randomflavor wrote: post #479
superqd wrote: post #450

Earlier quoted context omitted.

I realize I could have attempted to exercise sooner, but that isn't quite the point. The part that really bugs me is the fact that time is undervalued (or non-valued). If I have a high value asset, my time, that I contribute towards the success of a company, it's value goes severely underappreciated by management and the board. That's the problem. If person X puts in money, and person Y puts in time, the time is rega…

people make companies and the rules. you are a person and agreed to this and acted as if you agreed. you took a bet and it didnt come out financially the way you want. you probably learned alot about startups and what works and doesnt tho.

Well, yeah, the only person I was angry with was myself. The rest of my emotions at the time were mostly of frustration and sadness with a system that undervalues an asset I had invested (my time above and beyond).

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

#483

Post by pbecotte »

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

That article is terrible, please do not use this to make decisions. Just about every "downside" he lists could also apply to an option grant. All equity grants will come with an agreement and restrictions on whom you can sell them to and under what circumstances, whether options or RSUs. Worse, he goes on for quite some time about how little upside you have with RSU. That has NOTHING to do with the RSU itself- it comes because companies that issue them typically do not have much growth left in them, not because it is a RSU vs an option. The differences between them are...

1. Tax treatment (A RSU counts as income when you receive it, an option counts as income when you exercise it and get stock. Remember, many people recommend early exercising options anyway for preferable tax treatment, though this can lead to taking a loss on taxes if the shares wind up worthless. If you are forced to exercise a large block of options when they are still illiquid, you will have a very large one time tax bill, which may be much harder to deal with than smaller ones each year) 2. Risk (For options, you have to dish out cash from your pocket to actually receive stock, which is more risky than if you don't. Until exercise, the two choices are similar)

In general, I would prefer options with a long exercise period, but I may prefer RSU to options with a short one...

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

#484

Post by BoorishBears »

Vinkekatten wrote: post #49
BoorishBears wrote: post #18

Earlier quoted context omitted.

I hate it because it feels incredibly crusty. Nothing seems to update without hitting F5, there's annoying amount of jargon and poorly named fields everywhere, and in my company it's also tied into everything from client billing to asset management, presumably because it's sold as something that does everything including breakfast, and all that noise seems to permeate into every ticket type (I can't search for a tick…

We have a few tie-ins too, but only for Bitbucket stuff like feature branches and occationally Confluence. What's a better alternative to Jira though?

I'd love to see us move to Phabricator (https://www.phacility.com/phabricator/) but the problem is it's developer oriented and there's already man-years invested in that Jira monstrosity, it'd be a tough sell and probably just end with us spread out accross both...

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

#485

Post by coldnebo »

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…

Or, like one of the companies I worked for, you could exercise your options, wait for a large Fortune 500 to buy them up, but then get told that your bylaws have a special provision that if the sale doesn't clear a certain amount, everyone's common shares are liquidated.

As in we got zero. Nothing. And this software is still in use in a major product.

So no, please don't trust options or exercised shares at any private company to be worth anything.

You want to get paid? Negotiate salary and laugh in their faces when they offer you options.

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

#486

Post by wtbob »

refurb wrote: post #310
luckystartup wrote: post #239

Earlier quoted context omitted.

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…

What about taxes?

I think we're talking about after-tax money; unless you live somewhere that has a wealth tax, once you've paid all your taxes on income (wages or capital) then you're free and clear.

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

#487

Post by abalone »

> The correct amount to value your options at is $0. Think of them more as a lottery ticket.

This is trivially false. Lottery tickets are not worth $0. Take that into account when evaluating this commentary.

Basically, 90 day exercise windows are evil and the source of great pain. However my view is the author is folding in a bunch of anxiety around the general risk of startups. They seem to imply that a primary reason for delaying an IPO is employee retention. This is a poorly supported theory. Golden handcuffs are not a great retention tool as a poorly motivated employee is minimally productive. Rather the primary reasons to stay private are higher valuations afforded by the private market and less regulatory oversight.

Look, if you can get an awesome RSU offer from a super solid public company then go for it. But don't buy into the implication here that startups barely offer better deals. Do look for an extended exercise window since companies are staying private longer these days. But generally speaking you're going to get a significantly bigger chunk of options in a startup than a mature company, with commensurate risk. Do it if you believe in the startup and handle the uncertainty. It is not the same as a lottery ticket; you can improve the odds with your own labor.

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

#488

Post by elastic_church »

luckystartup wrote: post #120

This is all true. I moved to San Francisco to join a startup as an early employee. The biggest surprise was when I had to empty my savings (and borrow a lot of money) to exercise my stock options. I filed an 83b election so that I didn't have to pay any taxes immediately, but $20,000 was (and still is) a huge amount of money. I had no idea it was so expensive to join a startup. At least, if you want to avoid golden h…

> IPO in the next few years.

Been there, done that. A startup I had exercised my options in was bought out by a company that was "talking about an IPO in the next few years".

That was several years ago.

The execs and VCs in the original startup got almost all the money in the liquidity preference. Ironic because I did "rock the boat" when I joined by attempting to ask for a better share class. 23 year old me asking for preferred shares lol. It failed.

The bigger company doesn't seem to be in IPO mode anymore. But I have shares of it, with a notional value 1/8th of what I paid to exercise my options.

> Sometimes I can make it a whole day without thinking about it, but it feels like I'm just burning time until I can finally cash in these shares and never worry about money again.

I can relate to that too, for other opportunities, its always good to look forward to something.

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

#489

Post by elastic_church »

OliverJones wrote: post #448
calcsam wrote: post #249

The most poignant line is near the end: "It's really tough to ask these [questions] without sounding obsessed with money, which feels unseemly, but you have to do it anyway." Basic due diligence on a startup offer is asking for # of shares outstanding, last company valuation, strike price. Advanced due diligence is talking about things like extended exercise windows, secondary sales, and liquidation preferences. Unfo…

This is exactly right. If a company offers you shares or options as pay for your work, they're asking you to be both an employee and an investor. If the company's executives become skittish or sullen when you ask questions any sane investor would ask ("what's my upside?"), that's a red flag. Be careful.

> If the company's executives become skittish or sullen when you ask questions any sane investor would ask

Kind of weird because they all do, and engineers are pretty inept at anything finance.

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