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TLDR Stock Options

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Re: TLDR Stock Options

#131

Post by pmiller2 »

lafay wrote: post #40
bethly wrote: post #27

Earlier quoted context omitted.

Thanks! I really appreciate the feedback. The price of the options eating into returns is reflected in the number we present (we assume a consistent valuation growth by stage and at exit), but taxes aren't and those can 40%+ in the US, which people don't necessarily expect. Limited exercise windows are one of the things we have in the list of ways this can go horribly wrong, but you are right that it is something tha…

Early exercise / 83(b) has another benefit that most people aren't aware of -- if the exit is at least 5 years out, you can exclude 100% of your gain from federal cap gains tax under IRS Section 1202. See here for more: https://blog.wealthfront.com/qualified-small-business-stock-...

Aren't 83(b) elections only really available to founders, though?

Re: TLDR Stock Options

#132

Post by einarvollset »

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…

Yes. However, you are basically making the argument that your options are worth ~50% salary. The problem with that argument (at least in the valley) is that you are making the calculation off the initial starting salary. Salary/RSU growth at companies like Google, FB, etc is surprisingly rapid in the first ~24 months, to the point where I would argue that if you haven't doubled it in that timeframe you need to work on your extrovert/self promotion skills

Re: TLDR Stock Options

#133

Post by pmiller2 »

mahyarm wrote: post #110
wtvanhest wrote: post #46

Earlier quoted context omitted.

I assume you are not being sarcastic. It is true, but in this case its a limiting to early stage companies. I know, I personally will not join one that doesn't disclose liquidation preference, type of shares I had etc. unless they were offering more base comp than big corp to offset my risk of joining a company with a 65%+ chance of failure. By disclosing terms of the shares, great companies could attract better peop…

It might be part of the reason why you tend to see older people in bigco and younger people in startup co.

Or, it could just be that BigCo is... bigger? :)

Re: TLDR Stock Options

#134

Post by mgummelt »

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…

> and wait a couple years for your equity to be valuable

Product-market fit does not imply appreciation. Growth is priced in. Unless you think you know more than the market (the VCs), you shouldn't expect a return.

Re: TLDR Stock Options

#135

Post by ruleabidinguser »

fnbr wrote: post #48
anorwell wrote: post #37

Earlier quoted context omitted.

1% equity in a series C startup sounds wildly optimistic. You would most likely not get that much equity as a senior software engineer. It's interesting that your first calculation still favours the other choice.

Yeah, I agree. There's no way that an engineer is getting integer percentages of equity after seed round. Maybe if they're highly recruited, in which case Google et al. would pay more.

Who would get integer percentages after seed round?

Re: TLDR Stock Options

#136

Post by wtvanhest »

s73ver wrote: post #101
wtvanhest wrote: post #46

Earlier quoted context omitted.

I assume you are not being sarcastic. It is true, but in this case its a limiting to early stage companies. I know, I personally will not join one that doesn't disclose liquidation preference, type of shares I had etc. unless they were offering more base comp than big corp to offset my risk of joining a company with a 65%+ chance of failure. By disclosing terms of the shares, great companies could attract better peop…

Yeah, but does that really matter if, after you've joined, they start raising money and clam up about the terms?

No reason yc shouldnt be encouraging founders to share terms.

Re: TLDR Stock Options

#137

Post by godelski »

sjg007 wrote: post #126
godelski wrote: post #72

I find a more important question is "What percent should I ask for?" The company I work for is about to get major investment and they are transitioning from an LLC. Only the 3 founders have equity currently. As engineers we have no idea how much to ask for. Because we have already been working without equity. How do we account for the years we've worked? Or that our salaries aren't that great right now.

Lol you need leverage, then ask for something reasonable.

Well what is "reasonable". I think most people don't know what that is.

Re: TLDR Stock Options

#138

Post by mgummelt »

godelski wrote: post #72

I find a more important question is "What percent should I ask for?" The company I work for is about to get major investment and they are transitioning from an LLC. Only the 3 founders have equity currently. As engineers we have no idea how much to ask for. Because we have already been working without equity. How do we account for the years we've worked? Or that our salaries aren't that great right now.

Wealthfront used to have a great compensation estimation tool: https://blog.wealthfront.com/startup-employee-equity-compens...

But it was mysteriously deleted without reason.

Re: TLDR Stock Options

#139

Post by wtvanhest »

mahyarm wrote: post #110
wtvanhest wrote: post #46

Earlier quoted context omitted.

I assume you are not being sarcastic. It is true, but in this case its a limiting to early stage companies. I know, I personally will not join one that doesn't disclose liquidation preference, type of shares I had etc. unless they were offering more base comp than big corp to offset my risk of joining a company with a 65%+ chance of failure. By disclosing terms of the shares, great companies could attract better peop…

It might be part of the reason why you tend to see older people in bigco and younger people in startup co.

I actually think the biggest reason is that start ups need an army of really good individual contributors. They dont need managers or leaders until they scale. At that point, the speed is too fast for experienced people to just enter so young people become managers. And young people dont want to manage people older than them. Bias continues.
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