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Options vs. Cash

danluu.com

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Re: Options vs. Cash

#121

Post by phamilton »

susw wrote: post #106
cjbprime wrote: post #47

Earlier quoted context omitted.

> 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…

How different are startup salaries vs public company salaries? Is that $1m at Public Company the total salary over a certain period, or is it extra salary on top of the potential salary at Startup Company? The quote seems to say it is extra (relative). If I am supposed to make $1m more at Public Company over -- say -- a 10 year period, then that means my salary at Public Company would have to be $100k more per year t…

Yes. Assume $300k total comp at Facebook/Google/Netflix for a Senior Engineer. Getting $200k at a non unicorn startup is very rare for a Senior Engineer. $180k is more often the cap and $160k is the norm.

And while $300k assumes fairly high performance at a top public company, it's certainly not the upper bound.

Re: Options vs. Cash

#122

Post by zone411 »

This is a very interesting discussion for me, as I'm about to incorporate a new AI startup and I'm thinking how to spend my own seed money.

The author's argument in the "Incentive alignment" section doesn't seem strong. "However, as far as I can tell, paying people in options almost totally decouples job performance and compensation." Is there any data to support this or just this author's feelings? Just because the masseuse from Google made millions, it doesn't mean that other people who did well, like their chief legal officer, business operations, and product management executives, who made $160 million, were not instrumental in its success. It just means that not all options were optimally allocated.

Re: Options vs. Cash

#123

Post by cjbprime »

susw wrote: post #106
cjbprime wrote: post #47

Earlier quoted context omitted.

> 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…

How different are startup salaries vs public company salaries? Is that $1m at Public Company the total salary over a certain period, or is it extra salary on top of the potential salary at Startup Company? The quote seems to say it is extra (relative). If I am supposed to make $1m more at Public Company over -- say -- a 10 year period, then that means my salary at Public Company would have to be $100k more per year t…

Dan Luu also has a post on this:

https://danluu.com/startup-tradeoffs/

Re: Options vs. Cash

#124

Post by zone411 »

izolate wrote: post #112

Is there any way to nicely state that you're not interested in equity and prefer cash? I haven't found it. It seems to put off employers who think of equity as an incentive. And I've met some fantastic companies who have done this, so it's not about bad employers either.

Would you be interested instead in a well-defined bonus with a bit lower salary? Let's say after each year of work. I am a believer in incentives but I agree that for employees the options are often not the best way to go.

Re: Options vs. Cash

#125

Post by theptip »

rmah wrote: post #73
cynicalbastard wrote: post #45

Earlier quoted context omitted.

> 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.

No they can't. I don't doubt that this has happened before and I'm sure someone can dig up an example or two. However, what you describe is highly questionable and borderline illegal. It's certainly grounds for a lawsuit by other shareholders (including options holders).

Yes, they can. The board has discretion over the allocation of the options pool that will have been set aside as part of each round.

However to issue those to yourself would be like eating your seed stock, since that's the pool that you use for issuing options to new hires, and without that you can't give new employees any equity. For that reason I don't think it's likely.

Re: Options vs. Cash

#126

Post by matchagaucho »

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…

VC liquid prefs are the real equity killer, according to this article.

Re: Options vs. Cash

#127

Post by mercutio2 »

susw wrote: post #106
cjbprime wrote: post #47

Earlier quoted context omitted.

> 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…

How different are startup salaries vs public company salaries? Is that $1m at Public Company the total salary over a certain period, or is it extra salary on top of the potential salary at Startup Company? The quote seems to say it is extra (relative). If I am supposed to make $1m more at Public Company over -- say -- a 10 year period, then that means my salary at Public Company would have to be $100k more per year t…

A senior high performer[0] at a public BigCo can relatively easily make (in total comp) 2x-3x the cash compensation of someone working for a startup.

So if you’re the sort if person who’s likely to work hard at a BigCO long enough for most of your rolling RSU grants to vest, then yes, the comp difference is that big.

[0] note that MANY senior people at BigCos are NOT high performers. So beware of comparing to things like Glassdoor comp figures, which are highly likely to be coming from non-high-performers.

Re: Options vs. Cash

#128

Post by asah »

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…

Taken literally, this implies comparing offers strictly on cash+benefits, which typically skews things in favor of large companies.

Re: Options vs. Cash

#129

Post by jhall1468 »

PeterFBell wrote: post #90
harryh wrote: post #40

Earlier quoted context omitted.

Professional investors generally get pro rata rights which allows them to buy more stock in later rounds. They do this because they want the ability to buy more shares in companies that are succeeding. They don't get magic stock that magically doesn't get diluted.

They used to! Ask anyone who was involved in startups around 200-2002 about the full-ratchet anti-dilution provisions many investors demanded and received. Not fun for anyone else in a down round . . .

Down-rounds were huge back then, regardless weighted average was still the more common way of doing things, even in the early 2000s. Often times, these days, startups are putting pay to play provisions in, so even the weighted average ratchet requires them to keep investing in order to receive their anti-dilution.

Honestly, unless a startup has SERIOUS capital problems, an anti-dilution isn't going to make it's way into a share purchase, so the companies that are still seeing this (and the ones from the early 2000s) weren't in incredible shape to begin with.

Re: Options vs. Cash

#130

Post by asah »

izolate wrote: post #112

Is there any way to nicely state that you're not interested in equity and prefer cash? I haven't found it. It seems to put off employers who think of equity as an incentive. And I've met some fantastic companies who have done this, so it's not about bad employers either.

Yes, just explain that you have bills to pay, and while you wish you could participate more in the equity, you're at a point in life where you need cash.

Typically, startups have a mix of employees who are skewed to more cash or more equity.

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