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TLDR Stock Options

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Re: TLDR Stock Options

#61

Post by austenallred »

bumbledraven wrote: post #59
austenallred wrote: post #55

Earlier quoted context omitted.

I completely disagree. It's really not hard to find a company with great product market fit, say series B, get a bunch of equity, a decent salary, and wait a couple years for your equity to be valuable. Assuming the company is successful (of course there's risk there, but by series B a lot has been mitigated), your equity will likely be quite valuable. I actually think, risk adjusted, that's the easiest way to make a…

> my [startup] equity was worth about 50% of my salary each year. The equity of many AmaGooFaceSoft employees is also worth at least 50% of their yearly salary.

Yes but that's if I were to sell it after ~1 year at a company you've likely never heard of. If I wait 3 more and there's a large exit it could easily be worth millions.

Re: TLDR Stock Options

#62

Post by bumbledraven »

austenallred wrote: post #61
bumbledraven wrote: post #59

Earlier quoted context omitted.

> my [startup] equity was worth about 50% of my salary each year. The equity of many AmaGooFaceSoft employees is also worth at least 50% of their yearly salary.

Yes but that's if I were to sell it after ~1 year at a company you've likely never heard of. If I wait 3 more and there's a large exit it could easily be worth millions.

Do you have a convenient way to sell your startup equity after ~1 year? (i.e. before there's an exit)

Re: TLDR Stock Options

#63

Post by austenallred »

bumbledraven wrote: post #62
austenallred wrote: post #61

Earlier quoted context omitted.

Yes but that's if I were to sell it after ~1 year at a company you've likely never heard of. If I wait 3 more and there's a large exit it could easily be worth millions.

Do you have a convenient way to sell your startup equity after ~1 year? (i.e. before there's an exit)

Not convenient, but definitely possible. Equidate is a fairly open market for that kind of thing.

Re: TLDR Stock Options

#64

Post by calcsam »

It's easy to point all the details that matter in valuing your stock options -- liquidity preferences, strike price, options vs RSUs. The genius stroke here is to focus on the two big details that matter (% ownership and exit value) and focused on that.

Caveat: this doesn't work in a "down exit" less than the previous round's value.

As @bethcodes says, this is not a calculator, because while these two numbers will get you within a factor of 2, knowing the details will help you get even closer.

(Disclosure: I built a calculator to help you do that: http://www.optionvalue.io/calculator/)

Re: TLDR Stock Options

#65

Post by eries »

calcsam wrote: post #64

It's easy to point all the details that matter in valuing your stock options -- liquidity preferences, strike price, options vs RSUs. The genius stroke here is to focus on the two big details that matter (% ownership and exit value) and focused on that. Caveat: this doesn't work in a "down exit" less than the previous round's value. As @bethcodes says, this is not a calculator, because while these two numbers will ge…

Totally agree. We hope this will be an on-ramp to more sophisticated tools and analysis for beginners.

Re: TLDR Stock Options

#66

Post by tlrobinson »

Are these numbers accurate for "% of companies will never exit"?

Seed 74%

Series A 65%

Series B 68%

Series C+ 71%

If so I'm a little surprised that seed and series C+ companies have approximately the same chances never exiting.

Re: TLDR Stock Options

#67

Post by siliconc0w »

Maybe add a field for salary difference vs 'expected market rate' and compute the amount of money you'd be looking at over six years investing the difference in something like a vanguard fund.

As an example - say you traded around 60k a year in cash in return for higher equity. In six years you're looking at around half a mil which means with, say .2 in a Series A, you're looking at a pretty big exit (i.e 700M) before you even have a chance of breaking even. This is obviously a terrible choice (i.e care for 20 dollars or a chance at 20 dollars)

To make it 'worth it', from an 'expected value' POV you'd need to make 2-3 million on around a 3.5B exit which are, of course, exceedingly rare.

You also have to be careful about things like options windows on exit, tricky term sheets with liquidation preferences for preferred shares, etc.

I'm going through this process now and it's shocking how most people really have no idea how this stuff works. Even with recruiters/HR/CTOs/etc who deal with this stuff day to day.

Re: TLDR Stock Options

#68

Post by komaromy »

anovikov wrote: post #11

Why probability of exit of series B company lower than series A? That sounds, at least, counterintuitive.

It could be that post-series-B companies are less attractive acquisition targets. I don't have any data on this.

Re: TLDR Stock Options

#69

Post by orthoganol »

austenallred wrote: post #55
orthoganol wrote: post #39

Yep, IMO unless you are a founder, if your company isn't one of the top companies of the decade your 4-6 years of pay-cut toil as an early employee will likely just not be worth it, at all. The expected value of working at an early startup gets overestimated, by a lot. If you're optimizing your career, either make the most you can at an established company, or start a startup. Or... work at an enlightened startup, th…

I completely disagree. It's really not hard to find a company with great product market fit, say series B, get a bunch of equity, a decent salary, and wait a couple years for your equity to be valuable. Assuming the company is successful (of course there's risk there, but by series B a lot has been mitigated), your equity will likely be quite valuable. I actually think, risk adjusted, that's the easiest way to make a…

> Joining a series B startup and waiting a couple years is the easiest, risk adjusted way to make a bunch of money.

Sorry, what?

Re: TLDR Stock Options

#70

Post by edanm »

orthoganol wrote: post #39

Yep, IMO unless you are a founder, if your company isn't one of the top companies of the decade your 4-6 years of pay-cut toil as an early employee will likely just not be worth it, at all. The expected value of working at an early startup gets overestimated, by a lot. If you're optimizing your career, either make the most you can at an established company, or start a startup. Or... work at an enlightened startup, th…

"Yep, IMO unless you are a founder, if your company isn't one of the top companies of the decade your 4-6 years of pay-cut toil as an early employee will likely just not be worth it, at all."

Not worth it financially, considering opportunity cost of not working somewhere that pays more.

Just pointing out that there could be other non-financial benefits from working at a startup, that might make it worth it. Everything from you enjoying your time more, to the work helping you gain skills faster and make you able to get a higher salary down the line.

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