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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

#571

Post by trefn »

luckystartup wrote: post #563
01181008 wrote: post #325

Earlier quoted context omitted.

Sure, I can relate :). Have a few thoughts: $20k to $5-10m is incredible. That implies 250-500x valuation growth (for example you joined at series A with $20m valuation and the company is worth $10b), which means you hit a unicorn within the unicorns! Was the company QSBS-eligible when you exercised? There are huge potential tax savings there. Your shares were NSOs, correct? There are weird potential issues with 83bs…

Yes, I was very lucky. I was actually one of the first few employees, and I joined about a year before they raised their series A. Now they are a unicorn, and hopefully on their way to an IPO. I don't know if I would say I joined a "unicorn within unicorns". Every unicorn has at least 10 early employees with the same story, and according to this list [1], that's at least 1,850 people. I don't think the company was QS…

You should read more about QSBS: http://www.andersentax.com/services/for-private-clients/busi...

Under certain circumstances, QSBS (Qualified Small Business Stock) rules will significantly decrease your tax burden.

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

#572

Post by delinka »

rconti wrote: post #385
delinka wrote: post #115

Earlier quoted context omitted.

"Let's say you're granted about a year's salary in shares..." Please use correct terminology. You're given options to purchase shares, or you're given shares outright. The former is what most people are accustomed to: options to purchase shares at a discounted price. The latter, know as a "stock grant," does not require the employee to purchase the shares - they've been granted to the employee. Both of these things t…

You can exercise your options the day they're granted, even if they're not vested. That said, they're not really worth anything to you until they're vested, of course.

I've never worked anywhere that would let you purchase before vesting. You accept a new position that came with 20,000 options vesting over 4 years with a one year cliff. At the end of one year, 25% of your shares (5,000) are now vested and you may purchase them. The company might have a valuation for them that's higher than your purchase price, but they are still typically worth "nothing" in that you can't sell them (assuming you're at a startup that's not yet publicly traded.)

Now the remaining 75% of those options might vest monthly over the next three years. "Vesting" does not impart value. It's not indication of whether you're going to make any money at all. Vesting is an instrument used to make sure you stay on with the company for an appropriate amount of time before you're allowed to own part of the company at that discounted rate.

Point: no, you cannot exercise options at grant time, you can only exercise once vested.

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

#573

Post by passiveincomelg »

passiveincomelg wrote: post #544
CalChris wrote: post #540

Earlier quoted context omitted.

Interesting work and stock. I was partially vested and I could/should have looked around. Don Knuth said something (about TeX): never spend more than 2 years of your life on something. I've broken that rule several times but I'd counsel following it on startups, especially someone else's startup.

Sounds like a good rule. One that I happen to have followed when it comes to work and broken when it comes to studying (which I know consider mostly a waste of time).

*now

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

#574

Post by cloakandswagger »

zimzam wrote: post #496
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…

This is a sad story: 90-day exercise windows are employee hostile, they should be much longer, especially when the company isn't public. However, and I don't know how to put this more kindly, but I can't help but wonder if you understood how options work while employed at the company? A simple technique to avoid having to quickly come up with a lump sum is to set aside enough money to excercise your options as you ac…

I worked for a "startup" that was going on 10 years old, $190 million in funding and was still not profitable.

I was stunned by just how many of the long-time employees had no understanding of stock options. One was actually flabbergasted to learn that each funding round was creating new shares and diluting the value of existing ones; he thought the founders were selling their own shares to raise the money!

The ignorance was due in part to the company being in a region where startups and stock options are not common. Another big factor was willful deception by the founders, who had been promising to start the IPO process for three years, and frequently estimated that their IPO valuation would be equivalent to Facebook's.

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

#575

Post by nerfhammer »

battlebot wrote: post #553
nerfhammer wrote: post #130

Earlier quoted context omitted.

Bollocks. Less populated states have vastly higher federal legislative representation per capita.

So to you it makes a difference whether some individual is represented at the .01% level vs. the .001% level?

Multiplied by millions of people that obviously matters.

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

#576

Post by drstewart »

dceddia wrote: post #503
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…

Came here to quote this. Personally when I see the phrase "working conditions" I immediately think of hours worked, aka "work/life balance." And from everything I've heard, hours at Silicon Valley companies are far from the best in the world. Either the author ascribes a much different meaning to "working conditions" than I do, or my perception of those working conditions are way off base.

So 4 hours a day in a sweatshop is better working conditions than 8 hours a day in Google?

K.

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

#577

Post by 01181008 »

luckystartup wrote: post #563
01181008 wrote: post #325

Earlier quoted context omitted.

Sure, I can relate :). Have a few thoughts: $20k to $5-10m is incredible. That implies 250-500x valuation growth (for example you joined at series A with $20m valuation and the company is worth $10b), which means you hit a unicorn within the unicorns! Was the company QSBS-eligible when you exercised? There are huge potential tax savings there. Your shares were NSOs, correct? There are weird potential issues with 83bs…

Yes, I was very lucky. I was actually one of the first few employees, and I joined about a year before they raised their series A. Now they are a unicorn, and hopefully on their way to an IPO. I don't know if I would say I joined a "unicorn within unicorns". Every unicorn has at least 10 early employees with the same story, and according to this list [1], that's at least 1,850 people. I don't think the company was QS…

QSBS is a tax thing, not a specific company thing. On the face of it (tech company, exercised very early) it seems like you'd be eligible. The company lawyers should be able to tell you the QSBS eligibility period (something like "options exercised before MM YYYY, when TECH CORP's gross assets exceeded $50 million")

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

#578

Post by ethbro »

wox wrote: post #518
CalChris wrote: post #494

Earlier quoted context omitted.

I worked my ass off at a startup, sleeping under the desk, weekends. The usual. At one point I needed a break and informed them that I was taking a break. Two months cycling through Europe. When I came back, they'd moved and I had the best cubicle reserved for my return. They missed me but only because I forced the issue.

Sorry I don't follow. So you came back, and the company had moved but they reserved a cubicle for you at the new office? What does you forcing the issue have to do with them missing you?

> the best cubicle

No small thing on a place parent presumably spent a lot of time.

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

#579

Post by sedachv »

cookiecaper wrote: post #560
sedachv wrote: post #550

Earlier quoted context omitted.

> Making your employees too prosperous can really hurt your company, because everyone will quit when there is no longer a financial imperative to work together. This is not a problem for law firms, medical practices, consultancies, investment firms, or management in any public company. Your argument is just that employees who are in shitty, exploitative jobs will take the money and run, so try to exploit them harder…

Not every job that requires financial incentive to motivate work is automatically "shitty" and "exploitative". There are a lot of things that we really need to get done, that people wouldn't do if their paycheck didn't depend on it. I would say that probably 85% of the white-collar workforce feels that way about their job, and darn near 100% of the blue collar. We're talking about getting paid something on the scale…

> We're talking about getting paid something on the scale of millions of dollars here. I don't know about you, but most people I've met wouldn't keep working if they came into that kind of money, at least not the way that a regular worker works. They'd update to mimic the work-styles of the elite.

The context is early-stage startup employees, not white-collar accountants and blue-collar janitors who you are presumably outsourcing to other companies because they perform functions that are not essential to your business. The profits shared by people working for these outsourcing firms are not great because the profits of these outsourcing firms are not great. Your argument is that the profits shared by early-stage startup employees should not be great even when the profits of the firm they were instrumental in building turn out great. How is that fair and why should anyone agree to work with you on those terms?

> These high-level professionals decide to leave the office at 2pm, take every Thursday off for golf, and go on long vacations regularly. They just tell the people who are waiting on them that their needs are going to have to come later. They will also take long, self-financed sabbaticals.

You should really make friends with people who are lawyers, doctors, and in finance. I have friends in all these fields and your idea of these peoples' working hours is a deluded fantasy. They usually work around 50-60 hours a week and rarely take vacations.

I don't want to address the rest of your rant except to say that you should think about why you go so far out of your way to rationalize what to most people is obviously unfair behavior.

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

#580

Post by ikeyany »

superqd wrote: post #460
pikzen wrote: post #424

Earlier quoted context omitted.

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 per…

Very much this. There is a bit of a lie we all participate in at many companies of nearly every size, though sometimes much more so at small startups. The lie is that we are all on the same team and all in this together. In reality, the team are those who actually own the company by virtue of the money they've put in (i.e., investors). Time is regarded as a non-asset, regardless of how much you invest into the compan…

So you're saying that Silicon Valley is full of temporarily embarrassed Zuckerbergs?
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