251–260 of 325 posts
This shows why I've long said, "Put not your faith in stock options." Like it or not, options are basically Monopoly money. You can't get your landlord to accept them, or the grocery store, or the credit card companies.
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.
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, bu…
2) The majority of startup employees are unlikely to have the cash on hand to make that kind of investment.
Because of #1 and #2 this isn't something that most employees would care about so it's not part of any standard compensation package. It's possible that an employee could negotiate for such a provision though.
The fact that you would want a pro rata right to work at a startup does make you fairly unusual and I agree goes to explain why you have chosen other career options.
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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.
I've seen this happen multiple times. It is by far the most common "acquisition" in my experience.
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> 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…
"If you look at companies that have made a lot of people rich, like Microsoft, Google, and Facebook, almost none of the employees who became rich had an instrumental role in the company’s success. " 100% false.
I interpret the point as being: the monetary outcome of a startup for the employee is a function of their individual contribution (which is what I think the author means by being "instrumental"), plus the contribution of the founders and other employees, plus luck. The magnitude of the individual contribution is small relative to the other factors, so it's difficult to say that a successful startup employee "deserves" a windfall and an unsuccessful one doesn't. The lower the correlation between individual contribution and monetary outcome, the less options should matter for motivating early employees.
Nobody would ever advise you to take a large percentage of your income and buy options or even stock in a single company in the hopes that that company succeeds enough to make you rich. That's gambling. Being an employee of the company in question doesn't suddenly make that a good idea. It's an even worse idea since your entire financial future is tied to the company's outcome. They should pay you more to take that k…
Cash 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…
One other downside is that an LLC can't go public, so if the company decides to go that route they'll have to reorganize to a C-corp. Of course the lawyers love this because the paperwork required is significant.
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…
> 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. Sure, you can ask for a 100% non-dilutable share, but you're not going to get it. In order to negotiate meaningfully, you need to have a valuation of the things you're negotiating on, so you can decide what tradeoffs are good and which are bad.
If someone helps you invent something, and they are willing to put their own skin in the game in exchange for an ownership stake, then shouldn't they become wealthy along with you if it is successful?
This whole notion that developers are expendable and disposable and that it is acceptable to give them dilutable stock options is fundamentally immoral and needs to go away.
It's nothing more than greed and exploitation.
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I hear this argument a lot. Mostly from people trying to sell the idea of a highly dilutive funding round. Sure, further rounds are a sign the company is doing well. The important word being "sign," they don't actually make the company more valuable (what the company does with the money they raise does). If you own a lot of stock, you probably already know if the company is doing well or not. In that respect, the rou…
>All things being equal, owning more % of a company == more money. The point is all things are not equal . To restate a sibling comment, dilution means you own a smaller % of a more valuable company. If it helps, think of "dilution == sell_equity". Dilution is the perspective of the sellers' side (x% - y%). Equity purchased is perspective of the buyer's side (investor's ownership goes from 0% to y%). >To try to spin…
If you look purely at the accounting, and ignoring voting rights and other complications, you are right. Dilution doesn't change anything.
IMHO this argument is a case of technically accurate, and completely useless.
It doesn't matter what the value of the company is at the moment of the dilutive event. It matters how that event affects the value of the company when the employee liquidates their stock.
The new round could be very good, but not necessarily. There is no guarantee a more well capitalized version of the company will end up growing faster or larger than the current cap table.
When the employee evaluated their original option grant they should have done an analysis of the business, its market, and future growth potential. Lets say the predicted value of the company is $100M in 10 years.
Lets look at two options: Option 1 - The company is continuing on its original trajectory. It is running low on runway and needs a cash injection to continue gaining market share for its quest for profitability. The company still looks like a $100M company, if successful.
The new round may not be good for the employee. When you look forward to the eventual liquidity event, the employee now has a smaller piece of the same sized pie. Maybe the company could still reach its goal by tightening its belt a bit.
Option 2 - The company has identified a new market opportunity. They are raising capital to spin up a new project and capitalize the opportunity. If successful, the company now looks like a $10B company in 10 years.
The new round is potentially good for the employee. On liquidation, they will have a little bit smaller piece of a much bigger pie.