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TLDR Stock Options

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Re: TLDR Stock Options

#151

Post by morgante »

Pyxl101 wrote: post #90
xxSparkleSxx wrote: post #74

Earlier quoted context omitted.

I'm at a startup now. When I was looking for a job last year, I had 3 offers and this startup was the lowest in terms of compensation and while the other two offers were higher they were with large corporations. While I'm a little disappointed in my pay, I get a ridiculously flexible schedule, work from home whenever I feel like it, I put in some extra work last weekend so my boss just told me to take tomorrow off (w…

One thing to be aware of is that titles given by small and medium-sized companies are viewed differently than titles at large and well-respected, well-known companies. For example, someone who is a VP at a startup might equate to a typical Manager at a larger company. Someone who is a CTO or Chief Architect at a startup might be a Senior Engineer at a larger company. Large companies have an approximate scale in mind…

That's true, but even with size-adjusted titles you can get faster promotions in a startup. It's pretty common to go from being an individual contributor to running a small team to running a larger team, all within a year or two at a startup. That sort of career growth is unheard of at more established companies.

Re: TLDR Stock Options

#152

Post by RonanTheGrey »

bethly wrote: post #17
jredburn wrote: post #10

Something feels off with the data here. 65% of Series A companies will never exit, but 71% of Series C+ companies will never exit? Edit: Thought about this a little deeper and it is possible with a lot of companies exiting prior to the Series C, but suspect the data set of Series C+ companies may just be too small?

The data set is definitely small (CB Insights data only had 61 companies that raised four rounds, for example), but it also surprised me how many Series C companies failed to raise. It might be because earlier acquisitions are an easier exit than trying to become a self-sustaining company with predictable growth? I would love to see more exploration of that question, though.

> It might be because earlier acquisitions are an easier exit than trying to become a self-sustaining company with predictable growth?

This is exactly it.

Re: TLDR Stock Options

#153

Post by morgante »

blackflame7000 wrote: post #119
bagels wrote: post #112

Earlier quoted context omitted.

I had a similar offer. $0 pay and maybe 1% equity. Sent them a spreadsheet explaining how inappropriate the offer was.

Were any of you guys able to negotiate a better offer? I am in a similar position where I have been offered comparable salary but only 3% equity as the 4th member. Not sure it's worth giving up the job security without a higher stake.

I've negotiated with multiple founders and gotten several good offers, including $150k+ salary and single digit equity. The important part is not to fall in love with a company before an offer—a significant number of founders think engineers should work for under-market, and it's not worth talking with them.

Re: TLDR Stock Options

#154

Post by limelight »

johnny99 wrote: post #14

This is fantastically useful both as a side-of-the-barn estimator, and a teaching tool. Thanks! Two things a lot of startup employees are unaware of that are worth highlighting: they actually have to buy their options, which eats into returns, and that if they leave the company they have a limited window (30 days, typically) in which to do so. In would behoove them to save/plan for this fact.

> they actually have to buy their options

Yup. It honestly astounds me how many people don't factor this into their decision-making. Your only equity compensation on joining is the delta between your strike price and the current market value of your stock. This is often very little, far less than you give up in salary at many companies.

Re: TLDR Stock Options

#155

Post by godelski »

sjg007 wrote: post #140
godelski wrote: post #137

Earlier quoted context omitted.

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

Your maximum value. This is a function of replacement cost.

"A function" isn't an answer though. Elaborating on weights of said function is. One that would allow the questioner to determine "reasonable". Your answer does not allow for that determination other than by guessing in the dark.

Re: TLDR Stock Options

#156

Post by morgante »

pmiller2 wrote: post #131
lafay wrote: post #40

Earlier quoted context omitted.

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?

Early employees (<25) can often negotiate them as well. I've done 83(b) at every startup I joined.

Re: TLDR Stock Options

#157

Post by tsm »

refurb wrote: post #118
tsm wrote: post #103

I'll​ never forget when a startup tried to poach me to be Employee #2 or 3 and refused to even match my previous salary and suggested that I really wasn't taking their equity (.15%, I think?) seriously enough. I told them that if they had a billion dollar exit in five years it still wouldn't bring me up to what I wanted, and then they said, "Well, all the tech guys we talked to said $YOUR_COMPANY overpays by 20%. We…

We also think that we're spending too much time talking about money here and are worried you have the wrong priorities" That would make my blood boil. I'd probably say something like "if money isn't a big deal I'm sure you'd be fine to just give me some of your salary, right?"

After a few go-rounds the CEO literally offered me $5k/yr of his own money, but this was after I'd already told them I wanted $25k more, so…

Re: TLDR Stock Options

#158

Post by morgante »

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.

You can get integer percentages right after a seed. (No way at Series C though.)

Re: TLDR Stock Options

#159

Post by godelski »

mgummelt wrote: post #138
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.

Thanks, that at least gives some area for me to guess within. Noting ".15 – the percent of shares that employees excluding executives typically own"

So I would take it we should ask north of this number. Being that we're small, don't have great salaries, and have been working for the company "because we believe in it" before getting any real promise of compensation.

Re: TLDR Stock Options

#160

Post by jy1 »

tlrobinson wrote: post #66

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.

Series A and B are easier (cheaper) to acquire.
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