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

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

#211

Post by martin_ » Wed, Apr 10, 2019, 6:14 PM UTC

deanmoriarty wrote: post #196

kabdib wrote: post #183

I made a bunch of money from ISOs at large, established companies. I made zero (well, negative, really) from startup stock options, even before things got really shifty in the 2000s. One startup that I left, that is now a billion dollar company, simply decided to "extinguish" the shares I bought a few years after I resigned. I was probably cheated, but it's not worth the effort to go after them and they know it. Trea…

I would be really curious if someone could shed some light on how a healthy company could simply decide to "extinguish" exercised shares. Like how exactly would they go about doing that, and do you have examples I can read up describing where and how this happened? I would understand if that happened when the company is in trouble (e.g. valuation dropping below the last preferred valuation, so preferences kick in, or…

It happened to me recently, here's a couple of snippets document I received:

The TLDR is "The majority of the board has already approved the decision of eliminating common stock and distributing excess payments to two founders and the product lead"

Each holder of Preferred Shares is entitled to receive cash merger consideration in exchange for the cancellation of his, her or its shares pursuant to the terms of the Merger Agreement.

Each holder of Common Shares will not be entitled to receive any merger consideration in exchange for the cancellation of his, her or its Common Shares.

In case interested, here's the full redacted disclosure -- docusigns followed very shortly after: https://pastebin.com/q6q7XMvF

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

#212

Post by xrd » Wed, Apr 10, 2019, 6:14 PM UTC

deanmoriarty wrote: post #196

kabdib wrote: post #183

I made a bunch of money from ISOs at large, established companies. I made zero (well, negative, really) from startup stock options, even before things got really shifty in the 2000s. One startup that I left, that is now a billion dollar company, simply decided to "extinguish" the shares I bought a few years after I resigned. I was probably cheated, but it's not worth the effort to go after them and they know it. Trea…

I would be really curious if someone could shed some light on how a healthy company could simply decide to "extinguish" exercised shares. Like how exactly would they go about doing that, and do you have examples I can read up describing where and how this happened? I would understand if that happened when the company is in trouble (e.g. valuation dropping below the last preferred valuation, so preferences kick in, or…

This is what startups pay a lawyer to do. It's not that hard: restructure the company ownership in a long document with complicated terms. Get the employee to sign it and voila, early employees are screwed. The only real response is just not signing, but they will tell you the company will die if you don't do it, and you probably will just take it rather than fighting. At least I did.

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

#213

Post by landryraccoon » Wed, Apr 10, 2019, 6:14 PM UTC

toomuchtodo wrote: post #162

landryraccoon wrote: post #149

Earlier quoted context omitted.

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.

So you recognize the abuse disparity. Good! You can then understand why people fight against abuse despite the complaints from the comfortable.

I recognize that a lot of workers in America are exploited and abused. And I support policies to mitigate that. However, trying to associate myself with those or comparing my minor inconveniences to that of blue collar workers seems like it would be extremely spoiled and tone deaf given how exceptionally privileged the average tech worker is compared to blue collar workers.

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

#214

Post by drstewart » Wed, Apr 10, 2019, 6:14 PM UTC

ryanSrich wrote: post #152

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…

> Work / life balance Disagree here for one specific type of startup...remote (which I know you mentioned). Here's an example day at BigCorp: - Rise and shine at 5am to work out early enough - Leave the house by 7am - 1+ hour commute into work - Start work at 8am - Stay until 8pm - Get on/in the car, train, bus for a 1+ hour commute home - Late dinner around 9pm - Veg out because you're exhausted and go to bed by 11p…

What an absolutely ridiculous strawman. Anyone can come up with lopsided scenarios to make one seem better than the other.

Here's an example day at BigCorp:

- Rise at 9am because standup isn't until 10am

- 10 minute commute since you're paid well enough to live near the office

- Arrive at work at 10am

- 1 hour lunch break at 12pm

- Leave work early at 4pm to miss the gym rush

- Get home by 6pm, enjoy the rest of the day until midnight

Versus RemoteCorp:

- Rise at 6am, immediately start working since you're online

- Work through lunch and eat your desk because you don't have a separate space

- Don't clock off at 5pm because you're always on. Keep checkin in on emails until 10-11pm

- Don't go outside at all because you never changed out of your pajamas. Sunlight seen: 0. People talked to: 0.

I definitely know which I prefer.

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

#215

Post by deanmoriarty » Wed, Apr 10, 2019, 6:16 PM UTC

xrd wrote: post #212

deanmoriarty wrote: post #196

Earlier quoted context omitted.

I would be really curious if someone could shed some light on how a healthy company could simply decide to "extinguish" exercised shares. Like how exactly would they go about doing that, and do you have examples I can read up describing where and how this happened? I would understand if that happened when the company is in trouble (e.g. valuation dropping below the last preferred valuation, so preferences kick in, or…

This is what startups pay a lawyer to do. It's not that hard: restructure the company ownership in a long document with complicated terms. Get the employee to sign it and voila, early employees are screwed. The only real response is just not signing, but they will tell you the company will die if you don't do it, and you probably will just take it rather than fighting. At least I did.

But signing something without not understanding it is too naive.

So, assume I already left the company and exercised a big bag of common options and so I have a decent amount of common shares. If they tell me to sign something that looks shady I just say: "No, it looks shady".

What then, can they do?

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

#216

Post by landryraccoon » Wed, Apr 10, 2019, 6:17 PM UTC

akoumis wrote: post #206

landryraccoon wrote: post #149

Earlier quoted context omitted.

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.

At most startups (with illiquid equity), TC adjusted for cost of living (assuming Bay Area) is probably not far from median American household. Employers take advantage of youthful zeal which prevents ICs from understanding their true worth to the business. After startup engineers reach the point where 12 hours days become unacceptable from a logistics standpoint (kids, burnout), what do they have to show other than…

> what do they have to show other than enriching their founders?

I don’t get it. Being debt free and having a big pile of money, and a body that still works since I haven’t been doing backbreaking manual labor?

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

#217

Post by krupan » Wed, Apr 10, 2019, 6:18 PM UTC

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…

Other reasons for working at a start-up:

- way less big company type politics

- you won't get lost among the crowd at the big company

- if you join early enough you get to define how work is done, instead of just going with whatever process already exists at the big co

- you will know the CEO personally and have chances to discuss ideas and concerns with them in person, at big co there is zero chance of that

Also, the stability argument is interesting. I've actually experience more stability at the start-ups I've worked at than I have at the big companies. Big companies re-organize often and your manager, manager's manager, etc. might change several times in a single year. Lay-offs happen seemingly willy-nilly for reasons peons will never be told. Start-ups don't have any organization to re-organize, and don't have the people to be continually shifting things around and laying people off.

Big companies have multiple projects running in parallel, waiting to see which one will pan out. If you are working on one that doesn't pan out, it will be cancelled without a second thought (often with lay-offs involved). Start-ups have one project and it better work out or the company dies. It will not be cancelled lightly.

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

#218

Post by halfnibble » Wed, Apr 10, 2019, 6:19 PM UTC

orthecreedence wrote: post #182

ryanSrich wrote: post #152

Earlier quoted context omitted.

> Work / life balance Disagree here for one specific type of startup...remote (which I know you mentioned). Here's an example day at BigCorp: - Rise and shine at 5am to work out early enough - Leave the house by 7am - 1+ hour commute into work - Start work at 8am - Stay until 8pm - Get on/in the car, train, bus for a 1+ hour commute home - Late dinner around 9pm - Veg out because you're exhausted and go to bed by 11p…

You're being downvoted, but I agree. I worked at a BigCorp and it was one of the worst years of my life. The work/life balance was awful, and the pay was shit compared to the hours I put in and satisfaction I got out of the job. All other experiences I've had have been much more satisfying. On top of this, people think BigCorp is a safe bet where a startup is not, but BigCorp lays people off in large swaths all the t…

Can someone tell me what letter "BigCorp" starts with? I'm scared because I'm looking at a job at a big corp., but I was under the impression that I could leave the office at 5pm.

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

#219

Post by deanmoriarty » Wed, Apr 10, 2019, 6:21 PM UTC

martin_ wrote: post #211

deanmoriarty wrote: post #196

Earlier quoted context omitted.

I would be really curious if someone could shed some light on how a healthy company could simply decide to "extinguish" exercised shares. Like how exactly would they go about doing that, and do you have examples I can read up describing where and how this happened? I would understand if that happened when the company is in trouble (e.g. valuation dropping below the last preferred valuation, so preferences kick in, or…

It happened to me recently, here's a couple of snippets document I received: The TLDR is "The majority of the board has already approved the decision of eliminating common stock and distributing excess payments to two founders and the product lead" Each holder of Preferred Shares is entitled to receive cash merger consideration in exchange for the cancellation of his, her or its shares pursuant to the terms of the Me…

Hold on a second (and thanks for this!).

If I read your document right, it says:

  The Company expects that the proceeds available for 
  distribution to the holders of Preferred Shares,
  including the full release of the Indemnity Escrow Fund, 
  will be approximately $0.5816 for each Preferred
  Share (the “Estimated Per Share Consideration”).

And in another portion, it says:

  before any distribution or payment of merger consideration 
  is made to holders of
  Common Shares, the holders of Preferred Shares are entitled 
  to receive $2.66 per Preferred Share (the
  “Liquidation Preference”).

And

  The holders of
  Common Shares will not be entitled to receive any merger 
  consideration in exchange for the cancellation
  of their Common Shares because the maximum potential merger 
  consideration payable to the Stockholders
  pursuant to the Merger Agreement is less than the aggregate 
  amount of the Liquidation Preference.

Does this indicate that the company sold for an amount low enough that not even the investors recouped their original capital (selling shares at $0.5 instead of the $2.66 they were at least worth according to the liquidation preferences, so overall a significant "failure")? Because if that's the case, it seems completely normal to me that common shares were nullified and it's fundamentally different than saying that shares were extinguished for "no reason" (i.e. out of pure corporate greed), like I interpreted GP's comment.

If not, this is instead a horror story.

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

#220

Post by ryanSrich » Wed, Apr 10, 2019, 6:22 PM UTC

opportune wrote: post #208

ryanSrich wrote: post #152

Earlier quoted context omitted.

> Work / life balance Disagree here for one specific type of startup...remote (which I know you mentioned). Here's an example day at BigCorp: - Rise and shine at 5am to work out early enough - Leave the house by 7am - 1+ hour commute into work - Start work at 8am - Stay until 8pm - Get on/in the car, train, bus for a 1+ hour commute home - Late dinner around 9pm - Veg out because you're exhausted and go to bed by 11p…

Who the fuck works 12hr/day at bigcorp? I work at bigcorp and I think most people are probably working an average of 7 hr/day working generally any hours that have them in the office during core business hours

I know ~10 people that work at Google and 20+ that work at Amazon. I haven’t asked every single one, but the consensus is that around principle level your work days are pretty much always 12+ hours.