Earlier quoted context omitted.
Most of us aren't going to start our own companies.
"Ive got a great idea, its like Twitter, but purple !!!"
"Snapchat, but for dogs!"
Options vs. Cash
221–230 of 325 posts
Re: Options vs. Cash
#222Earlier quoted context omitted.
The VC-backed company model isn't set up for employees. The model is so that (a) founders can take risks (b) using money from VCs (c) where if the company does well, the founders and VCs both become richer. Everything else follows from that. The fact that employees get any shares at all is just a way to get better employees so that the company does well. Only employees of unicorns have any chance of getting wealthy f…
> it's pretty unnerving knowing that you can jump into a situation where your +$100k somehow turns into -$50k. But even your example wasn't that. Your examples was -100k and +300k (or more), but offset by time slightly. That's still a very large net positive, just gated by a period of net negative. I suspect there are some details that you are missing as to the situation of your friend. I know little about investment…
It depends heavily on if there's any prospect of your shares becoming liquid any time in the near future.
Re: Options vs. Cash
#223Cash 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…
While the math of options value may not always work out, the mindset - that I'm a real part of this thing - is why I got attracted to startups to begin with. Feeling like I own a non-negligible part of it is part of that feeling.
When companies act like that's not the case, whether in terms of compensation or in other ways... it really turns me off. For instance, at one ~10 person startup I worked at, it was common for "Senior Staff" to have closed-door meetings and try to keep us totally in the dark on what was going on, BigCo style.
I need to care about my company, and to feel like my company cares about me. Them letting me have a small slice of it is part of that equation. Acting like they can totally shaft me on cash compensation as a result... well that doesn't work, of course!
Re: Options vs. Cash
#224Everyone should look at http://equidateinc.com
I think it is the direction of the future.
Re: Options vs. Cash
#225Earlier quoted context omitted.
The VC-backed company model isn't set up for employees. The model is so that (a) founders can take risks (b) using money from VCs (c) where if the company does well, the founders and VCs both become richer. Everything else follows from that. The fact that employees get any shares at all is just a way to get better employees so that the company does well. Only employees of unicorns have any chance of getting wealthy f…
> he could have exercised his shares and gotten several hundred thousand, but he would've needed to pay about $100k in taxes beforehand. Since he didn't have that money, he couldn't exercise the options. I feel like at least a phone call to a bank would be in order at that point. If it's that simple, surely some sort of mutually agreeable loan could be worked out.
Couldn't you bootstrap it, get £5k on a credit card for the taxes to exercise some of the options, use the profit to pay the taxes on the rest (or a further bootstrap)?
Re: Options vs. Cash
#226I 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…
Just looking through the replies to your comment makes me throw up my hands in confusion and frustration. You say one thing, the next person argues against one point, then someone counter-argues, and so on. It's all a confusing mess. It's like you need a financial rep to be with you at job interviews to understand all this stuff.
Just say no to options, and demand market level salary. I interviewed at an early stage start up in the mid west. The CEO lamented "People here just don't understand stock options" and as the first technical employee I'd be "by far the highest paid person in the company". I said "People do understand stock options, they're a gamble" and declined the offer. I don't want to be the highest paid person at any company.
Re: Options vs. Cash
#227Options are a complex topic, this article gets a lot wrong. 1. The base offer. Many startups pay competitive or close to competitive salaries + equity. 2. The value of the options depends on your ability to pick the right startup and you believe that you can make a difference to the company. I have a friend who picked the right startup 4 times in a row. 3. Stock options are typically priced at 25% of the last round.…
I don't think I have ever seen a startup offer a competitive salary/equity package here in the Bay Area for a software engineer. I have found that the best I could do is trade compensation for a good work-life balance since salary is not competitive and stock is so volatile for a startup, whereas at big companies salary often is much more in line with the market and stock has actual liquid value.
Interesting, I typically don't see that here in Boulder.
Re: Options vs. Cash
#228Earlier quoted context omitted.
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…
The problem with plain old stock is the tax implications. Suppose you join my company when our last round valuation was $10M. Let's also say you negotiated 1% equity. If we granted you 1% equity, you would have a $100,000 tax liability. We just gave you something worth $100,000 so you have to pay taxes on it. You'd be crazy to be willing to pay taxes on risky equity that's theoretically worth $100,000. The company won't pay your taxes for you either. That's a huge waste of money. That's why stock options exist, to give employees the upside and minimize the tax liability.
Re: Options vs. Cash
#229[deleted]
Re: Options vs. Cash
#230Can't they just tell you the current share price and your strike price? The share price minus the strike price times the number of options is the value of the package when vested, no?
At offer stage, strike price = share price, which is estimated by an independent third party at least once per year.
It used to be the case that strike price is significantly lower than share price, making options much more valuable than they are today. But that was deemed a tax loophole by IRA and became disallowed some while ago.