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Startup Stock Options – Why a Good Deal Has Gone Bad

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Re: Startup Stock Options – Why a Good Deal Has Gone Bad

#11

Post by ohaideredevs »

seibelj wrote: post #3

Valid reasons to work for a startup: - You are a cofounder. - You have little experience and you are using this to break into the industry, and get experience on many different technologies ("wear many hats"). - They are working on a very specific problem or using a specific technology that you strongly desire to work on and it's difficult to do it anywhere else. - You want to work a certain way (remote, on the beach…

Not exactly a unique experience, but my .05 - I started of at a startup with a "lol just do it" attitude to whatever the problem was. Worked 12 hours a day a lot, was stressed out all the time, didn't have a life, got calls at odd hours to deploy...but, if I didn't have that experience, I wouldn't have grown nearly as fast. Got to see all aspects of the products and the consequences of the decisions we made early on. Learned more in a year than in the last 3 at corp/consulting jobs. Then again, maybe it was noob gainz and I made at least a third less than I would have at a corp job.

Not sure if going back to a startup would be nearly as beneficial in terms of "levelling up." Seems like the game now is to grind whiteboard before I get too old for Google.

A friend grew from junior developer to director of IT at that startup, so there's that aspect as well, though I have also seen a number of startups hire leadership outside.

Re: Startup Stock Options – Why a Good Deal Has Gone Bad

#12

Post by chadash »

aliston wrote: post #8
l2c1928 wrote: post #2

It's bad for most people, but when it's good it's really good. I was lucky to join a now unicorn as one of the first few dozen employees a few years ago. I forward exercised with a few thousand out of pocket (section 83b) an equity grant now worth around $1.5m. Because I forward exercised my options at a low valuation I didn't have to worry about paying taxes if I exercised at a later time when the company's valuatio…

If you go into a casino, put 1000 on green at the roulette table and win, did you get a good deal? The fact that some people win at startup roulette doesn't mean that it's a good financial decision to join a startup, especially considering that you can make the same sort of money without the risk elsewhere.

Parent started with "It's bad for most people, but when it's good it's really good.". So yes, roulette is similarly bad for those who don't win and good for the few who do.

Re: Startup Stock Options – Why a Good Deal Has Gone Bad

#13

Post by dleslie »

seibelj wrote: post #3

Valid reasons to work for a startup: - You are a cofounder. - You have little experience and you are using this to break into the industry, and get experience on many different technologies ("wear many hats"). - They are working on a very specific problem or using a specific technology that you strongly desire to work on and it's difficult to do it anywhere else. - You want to work a certain way (remote, on the beach…

> You want to work a certain way (remote, on the beach, whatever) and they are willing to go this route.

This is me. I quit my well paid job and took a massive pay hit so that I could work from home and so be able to spend more time with my daughters.

Absolutely worth it.

Re: Startup Stock Options – Why a Good Deal Has Gone Bad

#14

Post by aisengard »

seibelj wrote: post #3

Valid reasons to work for a startup: - You are a cofounder. - You have little experience and you are using this to break into the industry, and get experience on many different technologies ("wear many hats"). - They are working on a very specific problem or using a specific technology that you strongly desire to work on and it's difficult to do it anywhere else. - You want to work a certain way (remote, on the beach…

I'd personally add one - if you're an early enough employee, you can have a hand in personally shaping the culture of the company around you. I suppose this can fit into "work a certain way".

Re: Startup Stock Options – Why a Good Deal Has Gone Bad

#15

Post by bgentry »

creaghpatr wrote: post #6
l2c1928 wrote: post #2

It's bad for most people, but when it's good it's really good. I was lucky to join a now unicorn as one of the first few dozen employees a few years ago. I forward exercised with a few thousand out of pocket (section 83b) an equity grant now worth around $1.5m. Because I forward exercised my options at a low valuation I didn't have to worry about paying taxes if I exercised at a later time when the company's valuatio…

Good point, although do long term cap gains apply to private company stock being held over years until the liquidity event?

You get switched to long term capital gains 1 year after exercise or two years after the grant start date, whichever is later.

Re: Startup Stock Options – Why a Good Deal Has Gone Bad

#16

Post by l2c1928 »

seibelj wrote: post #4
l2c1928 wrote: post #2

It's bad for most people, but when it's good it's really good. I was lucky to join a now unicorn as one of the first few dozen employees a few years ago. I forward exercised with a few thousand out of pocket (section 83b) an equity grant now worth around $1.5m. Because I forward exercised my options at a low valuation I didn't have to worry about paying taxes if I exercised at a later time when the company's valuatio…

I too would like to win the lottery.

My point is that there are ways to manage risk as an employee, such as early exercising assuming you are joining an early stage startup where the cost is low enough.

I would've been screwed if I didn't early exercise.

Re: Startup Stock Options – Why a Good Deal Has Gone Bad

#17

Post by [deleted] »

chadash wrote: post #12
aliston wrote: post #8

Earlier quoted context omitted.

If you go into a casino, put 1000 on green at the roulette table and win, did you get a good deal? The fact that some people win at startup roulette doesn't mean that it's a good financial decision to join a startup, especially considering that you can make the same sort of money without the risk elsewhere.

Parent started with "It's bad for most people, but when it's good it's really good.". So yes, roulette is similarly bad for those who don't win and good for the few who do.

[deleted]

Re: Startup Stock Options – Why a Good Deal Has Gone Bad

#18

Post by aliston »

chadash wrote: post #12
aliston wrote: post #8

Earlier quoted context omitted.

If you go into a casino, put 1000 on green at the roulette table and win, did you get a good deal? The fact that some people win at startup roulette doesn't mean that it's a good financial decision to join a startup, especially considering that you can make the same sort of money without the risk elsewhere.

Parent started with "It's bad for most people, but when it's good it's really good.". So yes, roulette is similarly bad for those who don't win and good for the few who do.

Article is titled "why a good deal has gone bad." My point is that winning does not make it a good deal.

To expand on it further, even if you are lucky to have joined a unicorn, you still didn't get a good deal in comparison to virtually everyone else involved in the company. The founders are likely billionaires and you made off with a low 7 figure outcome while taking on only marginally less risk. That's not a good deal by any reasonable definition.

Re: Startup Stock Options – Why a Good Deal Has Gone Bad

#19

Post by btilly »

To his suggestions, I have another.

Offer internal Dutch auctions on a regular basis to provide an opportunity for investors/the company/etc to buy stock from employees at a reasonable price. This makes the value of the company, from the point of view of the employee, not "funny money" but something very tangible. With an opportunity to cash out long before it is public.

Re: Startup Stock Options – Why a Good Deal Has Gone Bad

#20

Post by l2c1928 »

save_ferris wrote: post #10

Why don't startups offer actual equity grants instead of options? It seemed strange to me when I was starting out in my career that I needed to take a lower salary and options to exercise upon my exit, which wound up costing me thousands of dollars from that lower salary. Two years later, one founder forced out his two other cofounders, started a new company in the exact same space, and poached his best employees, es…

Late stage private startups almost always grant RSUs. If they didn't it would be way too risky for most people to join because the cost to exercise would be very high.
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