Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Options vs. Cash

danluu.com

Post reply on HN
Print view View original

41–50 of 325 posts

Re: Options vs. Cash

#41

Post by arcanus »

nwenzel wrote: post #30
htormey wrote: post #26

Working at a startup as an employee with the expectation your gonna get rich is a fools game. Negotiate for the best deal on options you can get (I.e quantity, terms like early excercise etc) but treat them as a lottery ticket. A startup is a good way to learn rapidly so focus more on the quality of the people you will be working with, technologies used, what your role will be, vcs backing it etc. In the long run the…

I'm a founder at a high-growth startup in Mountain View. I always tell potential hires, "options are worth nothing until they're worth something. And, they may never be worth anything." I think that's the opposite of the unrealistic optimism job candidates get. But I think it also helps set the stage for a culture of transparency and honesty very early. Even before that person becomes an employee. I'm curios to know…

> Does it make you second guess the company prospects?

Far from it, honest is one of the absolutely critical metrics I use to evaluate any prospective employer. Bravo.

I don't mind someone stating why they believe their start up will have a better chance of success than the average: it is a positive to believe in the product. But don't sell it as a sure thing.

Re: Options vs. Cash

#42

Post by gleb »

analyst74 wrote: post #14
gleb wrote: post #8

Paying with options is equivalent to the start up selling stock to investors, paying employee with cash, and then having employee invest the money back into the company. As the article points out. But there are differences. Avoiding income tax. Deferral of compensation to drive retention. Giving employees a better deal than the investors. Letting employees invest into an asset class the government normally prohibits…

> Paying with options is equivalent to the start up selling stock to investors, paying employee with cash, and then having employee invest the money back into the company. As the article points out No that's not the same, options are basically the right to invest at current valuation. What you described is more like RSU.

Current common valuation - insignificant for early-stage companies. Late stage companies do RSUs.

Re: Options vs. Cash

#43

Post by walshemj »

What strikes me as odd given the USA's reputation as the home of the self made millionaire that the taxation of employee options is so broken.

Treating options on shares as Income when they are not is just stupid options are a high risk instrument that well be worth nothing as opposed to a higher sallery.

Why is there not a PAC made up of tech industry employees lobbying for reform of Federal and state laws and arguable tech employers should be doing this.

And I should point out that politicaly I am on the left here compared to 95% f the average HN reader.

Re: Options vs. Cash

#44

Post by Waterluvian »

I'm treating my options like a free lottery ticket with not decent odds. That's it. They don't exist when I plan my finances.

I doubt this is optimal, as options can be evaluated to some extent and risk can be appropriately brought on and managed. But it works for me when trying to do math about my present and future opportunities.

Re: Options vs. Cash

#45

Post by cynicalbastard »

jasode wrote: post #27
i_dont_know_ wrote: post #6

I started off once thinking "yay, X% means I get X% of the company!" and then I found out the shares can be diluted. Then I learned "non-dillutable". Then I learned about vesting periods, windows for exercising options, and a whole slew of financial terms and devices; each one seemed to come with its own unique "gotcha" that, if you didn't know about, would cost you nearly everything. Everyone I talk to about these a…

>"yay, X% means I get X% of the company!" and then I found out the shares can be diluted. There seems to be a common misunderstanding about dilution. Dilution is not really the issue. In fact, dilution is a positive sign . It means more investors value the company and want to buy into the ownership. How do current owners who collectively own 100% of the shares "sell" more shares to future owners?!? By way of dilution…

> That means everybody gets diluted including the founders, the angels, the VCs, and yes the employees too.

founders, angels, and early round VCs can simply issue themselves more stock from the pool of unissued shares to counteract dilution.

Re: Options vs. Cash

#46

Post by silverlake »

What we need is a way to pool employee stock options across startup companies to diversify risk. Surely there's a financial engineer somewhere who can create such a thing.

Re: Options vs. Cash

#47

Post by cjbprime »

asah wrote: post #19

I know 100+ people from a dozen companies who've made $1mm+ on equity. None of my friends would write a post like this. That said, valuing equity is complicated: - most offers include a healthy mix of cash and equity and benefits. Evaluate the whole package. - unless you can pre-exercise via 83(b), I generally avoid options. RSUs are fine and many companies are offering them. Clever hack: counter the offer with a dem…

> I know 100+ people from a dozen companies who've made $1mm+ on equity. None of my friends would write a post like this.

This is addressed in the post:

> Another common objection is something like “I know lots of people who’ve made $1m from startups”. Me too, but I also know lots of people who’ve made much more than that working at public companies. This post is about the relative value of compensation packages, not the absolute value.

Re: Options vs. Cash

#48

Post by htormey »

nwenzel wrote: post #30
htormey wrote: post #26

Working at a startup as an employee with the expectation your gonna get rich is a fools game. Negotiate for the best deal on options you can get (I.e quantity, terms like early excercise etc) but treat them as a lottery ticket. A startup is a good way to learn rapidly so focus more on the quality of the people you will be working with, technologies used, what your role will be, vcs backing it etc. In the long run the…

I'm a founder at a high-growth startup in Mountain View. I always tell potential hires, "options are worth nothing until they're worth something. And, they may never be worth anything." I think that's the opposite of the unrealistic optimism job candidates get. But I think it also helps set the stage for a culture of transparency and honesty very early. Even before that person becomes an employee. I'm curios to know…

I agree with the other folks commenting on your reply. I'd view it in a positive light. I'm always suspicious of founders that oversell startup equity.

The younger naive folks who walk away because you were too real will probably remember your candor in a positively Later on once they have some more life experience.

Re: Options vs. Cash

#49

Post by nissimk »

nwenzel wrote: post #30
htormey wrote: post #26

Working at a startup as an employee with the expectation your gonna get rich is a fools game. Negotiate for the best deal on options you can get (I.e quantity, terms like early excercise etc) but treat them as a lottery ticket. A startup is a good way to learn rapidly so focus more on the quality of the people you will be working with, technologies used, what your role will be, vcs backing it etc. In the long run the…

I'm a founder at a high-growth startup in Mountain View. I always tell potential hires, "options are worth nothing until they're worth something. And, they may never be worth anything." I think that's the opposite of the unrealistic optimism job candidates get. But I think it also helps set the stage for a culture of transparency and honesty very early. Even before that person becomes an employee. I'm curios to know…

It strikes me as an honest statement and if you were pitching me I would give you honesty points :-)

But the problem you are dealing with is the problem in many questions here: these are complex financial instruments and most people don't understand them. Some people will hold false beliefs about these things. Some people will be afraid of the unknowns.

Also the problem is compounded because the word option has different meanings and if you wrongly believe that these employee stock options on private equity are the same thing as listed equity options you're in for a big surprise.

Generally when analyzing a compensation package if you have to do extensive scenario analysis to evaluate the package I think it is worse for most people than a simple package.

Also, the number of scenarios where the founder or investors can make decisions that render the option package worthless is fairly large. This creates a dynamic where if the employee takes an options heavy package they either were foolish / duped, or they are pledging their utmost trust and loyalty in the management team. It's a lot to ask.

Re: Options vs. Cash

#50

Post by harryh »

jdavis703 wrote: post #22
i_dont_know_ wrote: post #6

I started off once thinking "yay, X% means I get X% of the company!" and then I found out the shares can be diluted. Then I learned "non-dillutable". Then I learned about vesting periods, windows for exercising options, and a whole slew of financial terms and devices; each one seemed to come with its own unique "gotcha" that, if you didn't know about, would cost you nearly everything. Everyone I talk to about these a…

Let's not forget the "asset only" acquisition where the company sells it's IP and employees but doesn't sell any shares. Been through one of these and this is what happened, screwing over former employees who had bought options and investors. I think the only people who profited were the bankers.

What you describe is what happens when a company fails. It's not really screwing people over as just a description of failure.
Post reply on HN