Startup Equity For Employees
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Startup Equity For Employees
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Re: Startup Equity For Employees
#2"My Advice: politely ask for the shares outstanding, or for what percentage your share offer represents (then confirm the approximate shares outstanding). If the company won't provide you with this necessary information, it's unlikely they're going to be straight with you on other issues; go work somewhere else."
The number of jobs just shrunk by 90%.
Re: Startup Equity For Employees
#3Very good article, but it's incorrect in some areas.
"Companies raise money by selling new stock after the board of directors authorizes the sale to investors. Those new shares are created out of thin air by the company, and will dilute all of the current stockholders."
These shares are not created out of "thin air" as the article states. When a corporation is formed, it requests and is granted a certain number of shares by the state in which it is created. These are the authorized shares. At this point, the company may sell shares from their authorized pool of shares. The shares that are sold to raise money are called the issued shares.
This is the point of error. The shares are not created out of thin air, but are rather moved from the authorized shares to the issued shares pool.
Additionally, the company may decide to buyback some of their shares from the people who they sold the shares to. Shares that are repurchased are called treasury stock. The shares that are not repurchased are considered outstanding. Only the issued and outstanding shares have any voice in the company. Authorized and treasury shares can not vote.
To recap, here is a quick diagram:
Authorized
|-Issued
|--Outstanding
|--Treasury
Outstanding is highlighted because that is the only category that has an influence on voting and percentage of ownership. For most young companies, you won't have to worry about the other classes of stock, but for medium+ companies, it's a good thing to understand going into a negotiation for equity compensation.
Re: Startup Equity For Employees
#4Liquidation preferences are always important, regardless of size; if your prospective employer has taken 5 and is only doing 1-2 in revenue, prefs will still keep you from making more than a token amount. They also often have multipliers attached.
Re: Startup Equity For Employees
#5This article advises employees to exercise their shares as soon as they are vested as long as they're bullish on the company. I know several people who've been fucked over doing this. The thing you need to remember is, your private-company common shares grant basically no enforceable rights.
Re: Startup Equity For Employees
#6This article advises employees to exercise their shares as soon as they are vested as long as they're bullish on the company. I know several people who've been fucked over doing this. The thing you need to remember is, your private-company common shares grant basically no enforceable rights.
Care to elaborate?
You can't say you know someone who was "fucked" by doing something, and then not tell us what fucked them-- that's teasing!
Re: Startup Equity For Employees
#7This article advises employees to exercise their shares as soon as they are vested as long as they're bullish on the company. I know several people who've been fucked over doing this. The thing you need to remember is, your private-company common shares grant basically no enforceable rights.
Care to elaborate? You can't say you know someone who was "fucked" by doing something, and then not tell us what fucked them-- that's teasing!
simple scenario: when you join your company gives you 1000 options valued at $1 per share (at the time of issuing), vesting in 4 years.
Assuming after 2 years, you decide you want to exercise the options that are vested, so you pay your company $500 to get your 500 shares.
Company start going down the tube, and folds out, or is selled at fire price. You end up with basically worthless paper on your hands. So, instead of earning money, you lost. Imagine, that instead of $500 that was 5000, 50000. It is a lot of money.
There are also tax implication, depending what kind of taxing schedule you choose. You can find yourself actually paying taxes, for those shares at the time of excercising, yet when you want to sell, they are worthless.
Double ouch. Also, one thing to consider is that when you exercise options, you have buy those shares. If your company is iliquid (not gone ipo), it might take a long time when (if) you are able to sale them (either it goes IPO, or the company is sold). So, you are tying a chunk of your money, in these shares.
So, as always, buyer beware. Do your own math when it comes in cases like this.
Re: Startup Equity For Employees
#8By my experience (I've gotten job offers from a few startups), most startups (especially after their series A) offer employees (at least engineers) a miniscule amount of equity (a small fraction of a percent). Even if these companies would have great exits (tens of millions), their engineers would hardly get enough for a down payment on a house in the Bay Area.
Summary: don't expect the equity you get from working at a startup (unless you're a VP or an executive) to be worth much. Google-like events where many employees got rich are few and far between. If you do work for an existing company, I suggest looking at salary more than equity as a means of making money. The difference between making 120k vs 80k over 4 years is 160k -- more than you're likely to get from options, and less risky.
Re: Startup Equity For Employees
#9"My Advice: politely ask for the shares outstanding, or for what percentage your share offer represents (then confirm the approximate shares outstanding). If the company won't provide you with this necessary information, it's unlikely they're going to be straight with you on other issues; go work somewhere else." The number of jobs just shrunk by 90%.
Not really, offering you a number of shares but refusing to tell you the number of shares outstanding is like offering to pay you 100,000 a year but not being willing to tell in which currency the 100,000 are. Might be in GBP (about 200k USD) might be in Yens (about 1000 USD)
Re: Startup Equity For Employees
#10Earlier quoted context omitted.
Care to elaborate? You can't say you know someone who was "fucked" by doing something, and then not tell us what fucked them-- that's teasing!
simple scenario: when you join your company gives you 1000 options valued at $1 per share (at the time of issuing), vesting in 4 years. Assuming after 2 years, you decide you want to exercise the options that are vested, so you pay your company $500 to get your 500 shares. Company start going down the tube, and folds out, or is selled at fire price. You end up with basically worthless paper on your hands. So, instead…
I figured this was obvious-- if the company fails, you lose the money invested. That's the nature of equity and stocks in general.
I wouldn't consider losing 5k after exercising options (and knowing the obvious risks) as being "fucked," though. Just a bad outcome. And exercising 50k worth of options on a company that has a chance of failing is just stupid.