Startup Stock Options – Why a Good Deal Has Gone Bad • Hacker News Board

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

#71

Post by matthewowen » Wed, Apr 10, 2019, 3:44 PM UTC

dxbydt wrote: post #38

throwaway5752 wrote: post #31

Earlier quoted context omitted.

"Making a lot of money in salary." I think a bit of perspective is in order. When the bar for comparison is technical principles at FAANG, yes. If you want to own a house, have paid-for cars, put your kid through school, put away savings, and otherwise be completely comfortable then you can do just fine. That is "wealthy" for a lot of people in this country. I know someone that delivered food to restaurants. He woke…

> “If you want to own a house, have paid-for cars, put your kid through school, put away savings, and otherwise be completely comfortable then you can do just fine.” lol wut ? if you work in a typical SF startup, you can do precisely none of these things. Like, literally zero.

SF startup cash comp for engineers is comfortably in the 150k-200k range, and often higher. This is series A, series B stage companies. If you have a few years of experience and are making less than this then I'm please to be able to inform you that you are underpaid.

If you have one of those incomes at the higher end, you can do these things in the bay area. If you have more than one then that stuff is not hard at all.

Berkeley has pleasant single family homes in a great school district around the $1MM mark. You can absolutely do that on $200k/year. IMO you should for sure be able to reach the mark where this is comfortable financially by the time you're around 30.

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

#72

Post by kurthr » Wed, Apr 10, 2019, 3:44 PM UTC

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…

Maybe this used to happen earlier, but I only really saw this after the DotCom bust. In my case it was founders/execs issuing themselves new/preferred stock and diluting all their coworkers into oblivion on an exit.

Granted, these were small shops ~30 people and the exits were small ~$100M, but the effects were devastating. Everyone who could quit, did. People for whom an extra few $100k would have been a big deal would throw drinks at founders in a bar. The code became an unmaintainable worthless mess and they basically failed to live up to the value they existed at.

Why would someone give the founders such a deal? If they don't care about their employees to share 10%, they probably don't care about even medium term success.

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

#73

Post by zrail » Wed, Apr 10, 2019, 3:45 PM UTC

mlthoughts2018 wrote: post #28

andrew311 wrote: post #25

Earlier quoted context omitted.

Share grants would be seen as income by the IRS and most states and taxed at their Fair Market Value. Options on the other hand usually qualify as Incentive Stock Options that aren’t taxed at grant time and “when exercised, it isn't necessary to pay ordinary income tax. Instead, the options are taxed at a capital gains rate.” [1] Options are better up front because there is no outlay for the employee. They are a hass…

Companies should either: - award RSUs that have a liquidity event as the final vesting requirement and don’t expire (so you are not taxed until you can sell, and don’t risk losing what you already earned), or - pay annual cash bonuses that are “grossed up” so that the after-tax amount of the bonus is enough to cover the taxes levied against the employee’s value of actual stock or vested RSUs, etc., and ensure the com…

The IRS considers RSUs that don’t have an expiration date as being close enough to actual shares to be taxable income. There has to be a “substantial risk of forfeiture” to qualify for deferred taxation.

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

#74

Post by brootstrap » Wed, Apr 10, 2019, 3:45 PM UTC

toomuchtodo wrote: post #33

ohaideredevs wrote: post #11

Earlier quoted context omitted.

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.…

> 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. Congrats on using the opportunity to grow in an abusive role. It should not be normalized is the point.

On the opposite side of this argument. I was there. I was shit in college but managed a degree and self taught programming. I was hustling hard to graduate and convince someone to hire me as a programmer even though I had no degree. I was 23 at the time.

If you are in this scenario, just you, no wife kids etc. What is wrong with working really hard on a problem? I loved the startup and it fit my perfect niche. I would grind 12 hours days, but also had lots of freedom. Remote work, unlimited days off etc. Sure at sometimes you get burnt out but you are a sponge soaking up everything you can.

now i'm 28 with wife and kids, no overtime for me. I still work extremely hard and lazer focused, but i show up at 7:30-8am and leave at 4 everyday :p

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

#75

Post by led76 » Wed, Apr 10, 2019, 3:45 PM UTC

aisengard wrote: post #14

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".

It's fulfilling to do that, but all successful startups go through a phase where they become more professional and hire a lot of experienced leaders. The culture the 'old' team worked to create very quickly gets diluted and replaced. Not necessarily for worse, or for bad reasons, but it's a reality that a lot of early employees find challenging.

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

#76

Post by nostrademons » Wed, Apr 10, 2019, 3:46 PM UTC

aliston wrote: post #18

chadash wrote: post #12

Earlier quoted context omitted.

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…

The rational comparison is whether you got a good deal relative to the other options open to you, not whether you got a good deal relative to the other people involved in the startup. By the time a startup has raised VC and hired employees, they've usually already passed several risky filters: they've found a market, they've built an initial proof-of-concept themselves, they've convinced investors to give them money, and they convinced you to work for them.

You have the option to swap places with the founders and become a founder yourself. But if you do that, you have to clear the same hurdles the founders did - validate a market, build an initial product, convince people to give you money. And you bear the financial risk that any one of these steps won't work out yourself.

One (productive, IME) way to look at the founder/investor/early-employee/late-employee divide is to think of it as risk apportionment. The founder risks their time & effort for a potentially large payoff if those risks succeed. The investor risks their money on the assumption that the founder can turn it into more money. The employee trades away the financial risk that the venture as a whole might not succeed for reasons outside his control in exchange for ceding most of the rewards if it does. Depending on your risk tolerance and belief in whether the company will succeed, you might choose to occupy different roles in that ecosystem. But understand that what you're being compensated for, when you have an outlandish success that nets a big payoff, is all the ways that payoff could have gone wrong and you might've ended up with nothing.

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

#77

Post by toomuchtodo » Wed, Apr 10, 2019, 3:47 PM UTC

brootstrap wrote: post #74

toomuchtodo wrote: post #33

Earlier quoted context omitted.

> 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. Congrats on using the opportunity to grow in an abusive role. It should not be normalized is the point.

On the opposite side of this argument. I was there. I was shit in college but managed a degree and self taught programming. I was hustling hard to graduate and convince someone to hire me as a programmer even though I had no degree. I was 23 at the time. If you are in this scenario, just you, no wife kids etc. What is wrong with working really hard on a problem? I loved the startup and it fit my perfect niche. I woul…

> What is wrong with working really hard on a problem?

Because you're normalizing abusive workplace practices. Need I explain further? It's not right, it's not okay, and if you tolerate it, you do a disservice to your colleagues. Maybe you don't care, that's fine. But when you say "What's wrong?" I will point out that it is not to be commended or supported.

If your employer encourages, supports, or allows this sort of behavior to exist, I hope you find yourself on the business end of a lawsuit.

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

#78

Post by neilv » Wed, Apr 10, 2019, 3:47 PM UTC

deanmoriarty wrote: post #39

rooam-dev wrote: post #27

Earlier quoted context omitted.

At a start-up? How do you manage live/work balance? Are there any on-call duties? Thanks in advance.

In my very personal experience, many times startups are not full of the brightest engineers, especially if they are based in a major tech hub such as the Bay Area: most talented engineers these days, if location is not an issue, first try a shot at FAANG or similarly big companies where they can experience problems at massive scale and very high compensation. Hence, many folks who end up accepting to work at a startu…

I hear conflicting ideas about who's getting the most capable people, and I don't know what's true.

Maybe a decade ago, a knowledgeable colleague, speaking of one of the better-regarded FAANGs, told me, "First they hired the A students, then they hired the B students, now they're hiring the C students."

More recently, the sentiment I heard among CS-ish PhD students at one big university was that FAANGs (or, at least, particular ones) aren't seen as the cool places to go anymore, and people would rather do their own startups, or get professorships.

Personally, I'd consider most of the FAANGs (but not one-sided hire-hazing rituals). But technical cofounder, or working on a startup that's already funded, or a rare research lab position, is seeming more likely to be a good match.

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

#79

Post by CalChris » Wed, Apr 10, 2019, 3:49 PM UTC

commandlinefan wrote: post #24

mlthoughts2018 wrote: post #5

It’s not just that the structure of option grants has worsened (also, expiration practices still are pretty bad for employees), but also that the valuation of the option grants is often way too low. If, as in the article, a start-up is effectively offering a low salary + a lottery ticket and expecting candidates to see it as at least equally as valuable as a high total comp figure from a competitor, then the lottery…

I was awarded RSU's at my last company (a perpetual startup) - not millions, but maybe tens of thousands of dollars. I had a signed contract that guaranteed them. But then the company merged/consolidated/de-consolidated/re-merged and shuffled around so that when they finally got rid of all of us, they said that those stock options were worth nothing, too bad, so sad. And what am I going to do, spend $100K on a lawyer…

I don't know but you may have been the victim of 'liquidation preference' (and participation). Your perpetual startup never went public. Each of the investors, seed, A, ... has a preference in case of a liquidity event (exit) over earlier investors and a participation (multiple) as well. Your RSU was just at the bottom of the heap and there was nothing left.

The founders would have had something equivalent to your RSUs but ... they were doing the negotiation. For example, IIRC, Anthony Levandowski cut his employees out when he sold 510 to Google. (So it shouldn't have surprised anyone at Google when he later screwed them as well.)

https://www.invigorlaw.com/key-term-sheet-provisions-liquida...

Edit: the article even says it:

  Today, if you’re an employee you’re now are at the bottom of the stock preference pile.

In this case, I'd only work for a startup if my preference seniority was equal to that of the founders. And the article says that too:

  If you’re one of the early senior hires, there’s no downside of asking for the same Restricted Stock Agreements (RSAs) as the founders.

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

#80

Post by dleslie » Wed, Apr 10, 2019, 3:50 PM UTC

rooam-dev wrote: post #67

dleslie wrote: post #37

Earlier quoted context omitted.

It's a startup, yes. I work eight hours a day on average, and being that we have staff on most continents we don't really have a need to be on call. That said, I've had a handful of 3am emergencies over the course of the last few years. I work in my garage; so I have no commute, and I no longer lose over two hours a day to commuting. That's meant I contribute far less to open source, which I did while on transit. How…

One more question if you don't mind. What is your vacation policy? Fixed amount + required to take or unlimited + take what you need? I am not a big fan of the latter, but not sure how it works for others. Thanks.

AFAICT, unlimited. I just ask and they always say yes. Last year I took around 4 weeks of vacation _as well as_ 5 weeks of paternity leave.

I think it helps that they've never taken issue with my general performance; if I weren't satisfactory in my output then I probably would have some push back.