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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

#141

Post by m0zg »

dleslie wrote: post #13
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.

Why not do consulting/contract work instead? I quit my job (ironically at a startup) and took a massive pay _raise_. I worked from home while I was consulting. For some reason people find it much easier to part with cash if you're not a permanent employee. :-) I was making _more_ money than I ever did at FANG, by quite a margin, even accounting for taxes, health insurance and PTO (lack thereof).

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

#143

Post by goobynight »

thesausageking wrote: post #21

He glosses over an important point: it's now typical for founders to take money off the table as part of financing rounds, sometimes as early as the A round. Founders will request it as part of a funding round and, there's so much competition to invest in the top startups, that VCs go along with it. Decades ago, this wasn't the case. Founders waited for the IPO like employees. If you're an engineer sitting on $5m of…

No way they'll make it easier to sell. That's not solving a problem for the business. They need to keep the carrot dangling.

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

#144

Post by CalChris »

maxxxxx wrote: post #140
CalChris wrote: post #44

Earlier quoted context omitted.

If you think of the Valley (or wherever you are) as a lottery then your chances of winning are about the same as those of a lottery. If you think of yourself as your personal VC then your odds approach those of a VC which while not great and moreover not diversified, they are much much better than a lottery.

How do you diversify as an employee/engineer? work for 10 startups at the same time?

You can't. That is what distinguishes you from a VC. Actually, you can. Serially. Plenty of people work for a startup through its early stage. A year here, a year there. That's diversification.

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

#145

Post by jm20 »

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…

A lot of smaller/early stage/seed startups actually do this. It's a restricted stock grant. And for the people saying they don't do it because of taxation on an illiquid asset, this is why 83(b)'s exist. They let you pay the full tax on a stock grant at time of the grant, not time of vesting.

You get a 409A valuation to establish the Fair Market Value of your stock. That valuation isn't based on the same criteria that investors use, it is much more rigorous and based on income, cash in the bank, etc. You could very well have a company raise money at at $10MM cap and be "worth" less than $1MM. If you grant someone stock at that price, their taxable income will be negligible - usually only a few hundred to a few thousand dollars, and then they don't have a giant tax bill at the end.

You still have to pay capital gains, but that only applies when you sell the stock, so you have the money to pay it.

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

#146

Post by wolco »

deanmoriarty wrote: post #102
matthewowen wrote: post #71

Earlier quoted context omitted.

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…

Unless you mean both spouses should earn around 200k and thus bringing in a FAANG-equivalent income of 400k, I really don't know how you could afford what you are saying on a single 150k-200k salary (and perhaps another 50k for your spouse's salary, since not everybody works in tech). After paying for CA taxes, fed taxes, kids' schools, rent, car expenses, 401k contributions, I really don't know how you would come up…

Why would it matter 20% or 700k as a seller I get the full amount from the bank.

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

#147

Post by neilv »

goobynight wrote: post #104
neilv wrote: post #78

Earlier quoted context omitted.

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,…

That's probably because you were talking to " CS-ish PhD students". First of all, they're looking to validate the choice they made in lieu of becoming a millionaire. It helps them sleep at night to think Google or whatever isn't cool (maybe it isn't). Second, they're interested and driven by different things. Every single good/great practical software engineer I know from college is working at FAANG or a unicorn.

Good point: that sample was of people who chose to go to PhD programs rather than to (or stay in) a lucrative FAANG engineering position, so maybe not representative of people considering engineering tracks.

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

#148

Post by jm20 »

6gvONxR4sf7o wrote: post #128
dgudkov wrote: post #125

>VC’s typically have pro-rata rights to keep their percentage of ownership intact, but employees don’t Either all shares must be diluted, or none. When someone's shares are diluted but someone's not, it's a scam. The concept of privileged shareholders is just wrong. The whole system looks overly complicated and corrupted.

I believe pro-rata rights are rights to invest in further rounds. They can keep their percent ownership only if they contribute more money. This is like employees on vesting schedules, who can continue to get more options by continuing to work. Startup shares are a shitty deal, but this doesn't strike me as one of the reasons.

Correct, you don't just "gift" them more equity, you have to pay more (usually a much higher per-share price) to keep that equity.

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

#149

Post by landryraccoon »

akoumis wrote: post #134
landryraccoon wrote: post #111

Earlier quoted context omitted.

Wait, I enjoy my job, want to write code and get lost in my work and you think that’s pissing in the pool? I know some people at work that sort of have your mindset. I think it’s the worst. Not only do they not want to help someone who’s passionate you now make me suspect they’re incentivized to undermine hard workers as well, since they make you look bad. Fine, take it easy at work, I don’t care. Just don’t make it…

You are being exploited. Do you get compensated 1.5x your base for all those 12 hour work days?

Making multiples of what the median American household makes, sitting in front of a computer, in an air conditioned office full of free food is being exploited?

I'm sure a lot of American workers are being exploited but I'm not.

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

#150

Post by fjp »

enjo wrote: post #129
mdorazio wrote: post #43

Earlier quoted context omitted.

FWIW, I've worked with a lot of entry-level people at normal companies over the years and would estimate that noob gainz are 30-50% higher in startup land for the first 1-2 years of career, maybe 10-20% higher the next two, then flat or actually lower than corporate thereafter. I think it comes down to 1) startups pile a lot more responsibility onto their young hires than normal companies are comfortable with + 2) st…

Yes startups will give you more responsibility, but that comes at the cost of far less mentorship. I often wonder if people only feel like they're growing faster at startups because the results are a bit more visible. It is true that it's easier to be stagnant as an associate at a larger company. If you're not interested in taking on new challenges you can generally sort of fall through the cracks. However, folks who…

You're not taking into account when the larger company simply won't allow you to to work on X because you're not the right team, title or level.

You may never get to manage a cloud VM. You will probably never get to help decide how a CI build pipeline works, how engineering hiring should work, etc etc.

I'm not discounting your point about learning to develop software at scale, but your overall scope of responsibility is much narrower. It's a tradeoff.

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