Start your own company vs. Cash, would be more interesting. Rambling about options is a bunch of distracting noise.
Most of us aren't going to start our own companies.
"Ive got a great idea, its like Twitter, but purple!!!"
Options vs. Cash
191–200 of 325 posts
Re: Options vs. Cash
#192Earlier quoted context omitted.
Do you have a link for the comment from Bezos? It would be good to get some context on what he said.
https://www.amazon.com/p/feature/z6o9g6sysxur57t "It’s not easy to work here (when I interview people I tell them, “You can work long, hard, or smart, but at Amazon.com you can’t choose two out of three”)"
Maybe I'm being thick, but is he saying you have to choose 3 of 3 or 1 of 3?
Re: Options vs. Cash
#193Earlier quoted context omitted.
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.
I think what the grandparent comment is getting at is that you as an employee have little control over the delayed compensation strategy. If you're lucky, you have a honest founder and investors who make sure you're paid for your contribution at deal closing time. If you're not lucky, you have a board/CEO/founder that will take whatever they can get away with (e.g. your value add) and then point to the financial rules/contingencies and say, "Well, we tried to do all we could, but we had to do this to ensure the success of the company. We needed to compensate the administration because it's hard to find such good talent like ourselves. Your still getting something here..." Or some such line. And you end up with some minuscule share at the same time providing critical value to the business.
Re: Options vs. Cash
#194I 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…
If you are "good" and do well in reviews, a company like Microsoft or Apple (from direct experience), or Facebook/Google/Adobe (I'm assuming, with a little data from people who have gone to these places) will do well by you, to the tune of millions. Moving upward a little: Several of my ex cow-orkers at MS are now partners, and will be able to retire early and never have to work again, and they're in their late 30s a…
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Re: Options vs. Cash
#195Earlier quoted context omitted.
It's zero net gain at the point of dilution. Owning 10% of 10 million or 1% of 100 million is the same money you simply have even less control. Unfortunately, rational people may have very different risk tolerances. Founders often see it as I have a company and X money to work with. The next round means I have a company and X + Y money to work with. In that context having a 90% chance of 10 million is often better th…
Right, but the only reason you'd take on any dilution as a founder is if you think the extra money will make your shares more valuable in the future.
Or to prolong inevitable death.
Re: Options vs. Cash
#196I 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…
Only one data point, but my experience at several companies has been that annual follow-on/refresher grants more than make up for dilution from new rounds. A company which only gives you a single grant upon start of employment and then lets it coast for 4 years is doing it wrong.
Re: Options vs. Cash
#197Working 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…
Working at a startup as an employee with the expectation your gonna get rich is the game . Think about the percentage of their investments that VCs expect will pay off. You could work for 15+ years at startups and never be at the successful one.
I disagree. I've been part of multiple startups; Only with the first two did I actually expect to make more money than I would at BigCo. Not because the later startups were worse, but because I was less naive.
The reason that I joined those other startups -- and the reason that I more often work for startups than big companies -- is not about money. It's about pace of career development.
Everything on my resume that is interesting or exciting was done at a startup. Every big jump in skill and in compensation has been a result of that startup mentality. Who's fixing this? Me, I'm the only one here. Who's going to deal with the fallout of my poor architecture? Me, I'm the only one here. Who learned a hard lesson? Me.
I can only speak to the cogs side of the house (I'm devops or whatever they're calling us this week).
Re: Options vs. Cash
#198Cash is nearly always better for the employee. Startups like options because: 1. They can "pay" people with "free" pieces of paper that effectively cost nothing from a cash standpoint 2. It helps keep staff onboard by slapping golden handcuffs on 3. In the event that these paper options turn into something with actual value that only happens if the founders and investors make a ton of money first, so at that point th…
Startups also like options because they believe it creates an "ownership mentality" among its employees. I believe this is mostly true. I think equity compensation is also a selection mechanism. If I'm running an early stage startup, I want everyone to have a stake in the game. Equity compensation attracts employees with that mindset. Conversely, if a potential employee would prefer all cash compensation to equity, t…
I'd prefer plain old stock without restrictions and a larger proportion of it.
I think we ought to target a controlling interest for the employees (i.e. employees own over 51% of the company) and shareholders vote on the weight of their shares, like they normally do.
In sum, I'd rather see a founder worth $100 Million and 999 employees worth $900k than a $800 Millionaire and 999 employees worth $200k. And I actually think this would have an important impact on the economy by balancing out the income inequality. In other words, not only would we see far more ~$1 Millionaires, but also more $100 Millionaires because now the money is moving faster with all the fresh Millionaires buying goods/services.
Re: Options vs. Cash
#199Earlier quoted context omitted.
Except, all things usually aren't equal. Most people explain dilution like this: you're getting a smaller piece of a bigger pie.
It's zero net gain at the point of dilution. Owning 10% of 10 million or 1% of 100 million is the same money you simply have even less control. Unfortunately, rational people may have very different risk tolerances. Founders often see it as I have a company and X money to work with. The next round means I have a company and X + Y money to work with. In that context having a 90% chance of 10 million is often better th…
Yet you just lost 90% of your money. It's shocking that you can now see the trick being performed on employees.
What a typical employee thought:
- I have 1% of a 10M dollar company. We'll do well and in 2 years I will have 1% of a 100M dollar company.
What will happen in the best case:
- I had 1% of a 10M dollar company. They did well and now he has 1% of a 100M company (dilution in your face!).
He just lost 9M. They were actually never on the table, even thought the hiring department didn't hesitate to pretend they were.
Re: Options vs. Cash
#200Earlier quoted context omitted.
If dilution is a non issue then why do professional venture investors demand anti dilution clauses?
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.
Why shouldn't employees also demand, and also be given, the right to buy more shares in subsequent funding rounds?
If I was going to work at a company for X% ownership, I'd sure expect to have the right to invest my own money to preserve my stake in a funding round and avoid dilution. Many employees might not exercise this privilege, since it would require putting (potentially a lot of) cash back into the company, but why aren't they given the choice? I also might expect to receive the same liquidation preference on any shares purchased in cash this way.
I'm not sure I could be comfortable working for a startup without pro rata rights and relatively full knowledge of the cap table and preferences. That's probably why I'm not working at a startup.