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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

#81

Post by chadash »

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…

A founder takes far more risk than an employee. It's easy to look at extremely successful outliers and say in retrospect that they are unfairly wealthy, but for every Sergey Brin or Elon Musk, there are many many people who slave away at a company for years at a very small salary, burning through their savings and getting loans (or "investments") from friends and family.

Take Jeff Bezos. He was a fairly wealthy guy, having worked at D.E. Shaw before founding Amazon. Still, he took a $250k investment from his parents to help found the company. Yes, it turned out to be a great investment, possibly worth $30 billion today, but at the time, the more likely outcome was that it would be worth $0. So not only did he risk his own money, but that of his friends and family on his new venture.

Contrast this to an early employee who starts after the first round of outside money is made. That employee often gets paid a competitive salary (maybe not a FAANG level salary, but something that's fairly easy to live comfortably on). They certainly are not expected to raise money for the company. It's just a much safer thing to do, that really doesn't involve nearly as much sacrifice as the founder.

Now, I agree that there is a point where the rewards may not justify the risks, which is joining a company in the pre-series A stage. At this point, you might be asked to take a very significant salary/benefits cut, while your share of the company is likely to be in the low single digits (percent-wise). At that stage, I personally don't think the risk/reward ratio is fair (i.e. i think that stock grants to these early employees should generally be higher than they are).

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

#82

Post by geggam »

matthewowen wrote: post #71
dxbydt wrote: post #38

Earlier quoted context omitted.

> “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 a…

You mean people have quit coming in full cash 10-15% over ask for houses in the bay area ?

2 years ago people with standard financing didnt have a chance in hell of buying a house in the Bay

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

#84

Post by throwaway5752 »

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.

It's a big world, and a lot of interesting startups are not in SF. A lot of interesting startups in SF hire remote, too.

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

#85

Post by deanmoriarty »

neilv wrote: post #78
deanmoriarty wrote: post #39

Earlier quoted context omitted.

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,…

In my 10 year career, I've done 2 startups in the Bay Area (both early, one I left after Series A, another one I left after Series C) and more recently Google, and I can say the level of talent doesn't even compare in my opinion: from my experience, the engineers were so bad quality that I was feeling depressed and wasting my time most of the time (and constantly saying to myself "am I just a jerk in thinking of everyone else as doing bad work?").

Typical thing, that really happened: a coworker at a startup ("senior engineer") had to do some calls to a very simple HTTP API from an embedded C++ component. She proceeded to hand craft her own HTTP requests and manually dispatch them to a manually instantiated connection using sockets, and then manually parsing HTTP responses (!!). I suggested to not spend time on such irrelevant code, I was ignored. Management didn't chime in.

She kept having problems and problems once that 100s-lines long thing hit production, as you can imagine (every software engineer should know that writing a network client from scratch is not easy!): finally I broke down, linked libcurl in the application, and in 2 hours and 30 lines of code I had the whole thing solidly working. And that's how I afforded working 40 hours a week instead of 60.

At Google, this would never happen.

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

#86

Post by bitL »

It's sad that VC/founder's greed and throwing early employees under the bus became the norm :-( I guess that's a sign of maturity of our field and an indication for bright people to move on to take risks directly, offer their services to companies as legal persons and ignore startups as employers.

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

#87

Post by khazhou »

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…

My problem with it is that there are many scenarios that are fantastic for the founders, but only one (unicorn) that is fantastic for non-founders. You can put in the same long hours, pour your soul into it, take the same risk for years, but if there's an exit event, you'll only be feeding off crumbs while the founders feast on the rewards.

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

#88

Post by goobynight »

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…

It's "pissing in the pool" for the rest of us. I know it feels validated internally because it worked out for you though.

Even when I did a startup, I held pretty normal hours. Working on someone else's problem to make them rich is silly to me. I think it's something that you either get or you don't. I don't plan to convince you to change sides, but I'd 100% of the time rather spend hours 8 or 9 through 12 working on my own hard problems. They're easy to create. I definitely had more responsibility, did more coding, and felt more energy at a startup than a big corp though. Pay and nearly everything else was shit in comparison.

If someone did 10-12 hour regularly on my current team, we'd be pissed. It would set a new normal and management would think they could start replacing people until they get 10 of those guys that are willing to sit here half the day.

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

#89

Post by btilly »

conanbatt wrote: post #70
btilly wrote: post #19

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.

The easiest solution is that startup employees should be able to sell their shares in the open market, as they please. Then all the problems go away.

That requires that you have IPOed. And that comes with its own set of complications.

Though there are secondary markets arising for this sort of thing.

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

#90

Post by ssalazar »

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…

> Invalid reasons for working at a startup: > - Making a lot of money in salary.

Once a startup raises a series A is there actually any reason to pay below-market? Fresh out of college I was employee #1 at a startup that had funding, and was basically at the mythical "Google salary for new college graduate" figure that is thrown around here, and higher than competing offers from name brand tech cos.

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