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

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

#241

Post by jkchu » Wed, Apr 10, 2019, 7:09 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…

I think a point of confusion is that "startup" means different things to different people. I believe the parent comment here really means "average, early-stage SF startup" in place of "startup".

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

#242

Post by kevstev » Wed, Apr 10, 2019, 7:14 PM UTC

deanmoriarty wrote: post #85

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,…

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 ever…

Interestingly, I have had the opposite experience. In a legit startup, at least one that is pre-significant revenue, when you are still looking for "market fit" (aka bleeding money), you don't have the time to reinvent the wheel. Its more like "Please god let there be some reasonably workable library already built for this so I can focus on the important stuff!"

Bigger companies IME, tend to be the ones that can afford to reinvent the wheel, and also tend to have the ~~arrogance~~ size to feel that they are a special enough snowflake to eschew something off the shelf and build something custom tailored exactly to their needs. They also have big enough budgets to be able to spare the manpower on it.

My experience has been largely in the financial space, maybe that is the key difference.

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

#243

Post by xrd » Wed, Apr 10, 2019, 7:15 PM UTC

johannes1234321 wrote: post #236

stingraycharles wrote: post #221

Earlier quoted context omitted.

Send to lawyer's office to pressure you. It doesn't take a lot of imagination to see that this can happen. People are generally naive, and there are just a few that will resist and fight.

Especially if you depend on the money the job pays now and you can't pay a legal battle while searching a new job.

This. Stated another way, you need to make a decision in the very small timeframe about the tiny chance of success in the far away future, versus guaranteed success (your next paycheck) in the very close future.

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

#244

Post by breischl » Wed, Apr 10, 2019, 7:18 PM UTC

markbnj wrote: post #58

> As Venture Capital emerged as an industry in the mid 1970’s, investors in venture-funded startups began to give stock options to all their employees. I don't understand this part of the post. When do "investors" grant stock options? When I did a startup back in the 90's the founders owned all the equity the day after the company was incorporated and a stockholder agreement signed specifying what each of us owned. W…

I imagine that was just a shorthand or maybe he misspoke. It would be a management decision, but they would most likely need to clear it with the investors. Frequently the funding deal between investors and management will even carve out a chunk of equity for incentives.

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

#245

Post by breischl » Wed, Apr 10, 2019, 7:23 PM UTC

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.

Oh, and he didn't even touch on things like liquidation preference and participation. Basically says that even though they own X% of the company, they get paid out like it was 4*X. Or maybe they get $YY out before anybody else gets paid.

This means that the percentage of the company your shares equate to is only a small part of the picture. You also need to know what deals were cut with every investor now _or in the future_ to know what your shares will be worth.

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

#246

Post by robbyking » Wed, Apr 10, 2019, 7:32 PM UTC

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 had a similar experience. It was a while ago so I don't remember the exact details, but the long and the short of it is the three founders started a new company, moved all the company's assets over to it, then dissolved original company.

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

#247

Post by martin_ » Wed, Apr 10, 2019, 7:32 PM UTC

deanmoriarty wrote: post #219

martin_ wrote: post #211

Earlier quoted context omitted.

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 consi…

Yes that’s correct, I don’t think anything nefarious happened. The big bummer, though, is I had $0.01 shares and paid AMT at a much higher valuation and expect it to take a few decades to claim back the loss. Was my first time working with ISOs and didn’t know about 83b’s

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

#248

Post by everdev » Wed, Apr 10, 2019, 7:34 PM UTC

deanmoriarty wrote: post #215

xrd wrote: post #212

Earlier quoted context omitted.

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?

Threaten to shut down the company. Then your shares are worth zero.

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

#249

Post by deanmoriarty » Wed, Apr 10, 2019, 7:36 PM UTC

martin_ wrote: post #247

deanmoriarty wrote: post #219

Earlier quoted context omitted.

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 consi…

Yes that’s correct, I don’t think anything nefarious happened. The big bummer, though, is I had $0.01 shares and paid AMT at a much higher valuation and expect it to take a few decades to claim back the loss. Was my first time working with ISOs and didn’t know about 83b’s

Yes, that indeed sucks. Out of curiosity, how much AMT credits are you able to recoup each year? I understand it completely depends on your tax situation since it's basically the spread between regular liability and AMT liability, but just to get an idea, is it to the tune of $1k/y, $5k/y, $10k/y?

I, like you, have a good amount of AMT credits from a previous employer, and will just start next year to try to recoup them more seriously (since in the years before I was always affected by AMT even without ISOs, due to California income...).

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

#250

Post by jiveturkey » Wed, Apr 10, 2019, 7:39 PM UTC

this is a contorted, misguided, wrong argument. as evidenced by the lack of a proposed solution.

i could refute his arguments point-by-point but i'll just highlight a few.

1. in a couple of places, he notes that "employees" put in as much hard work as "founders" but don't receive equivalent compensation. this is an absurd comparison. the amount of hard work is irrelevant, it's the value you bring to the table. part of that value is via hard work, and part is via the unique (or not) skill set. the unskilled janitor or maintenance man might put in hard work, but is an easily replaceable skill. if in fact you think you are bringing as much value as the founders, but aren't getting rewarded, the solution is very, very, very simple: become a founder.

2. So while the VCs gain the upside from keeping a startup private, employees get the downside. What? Given the very well known, no excuses for not knowing this, fact that the large majority of startups fail, VCs take 100% of the risk, by virtue of laying out 100% of the capital. The employees get a salary during this time (no "downside"), and any upside is free money to them. Now this isn't a perfect rebuttal, but steve's argument is also lacking in nuance so i'll leave it there.

3. VCs have moved the liquidity goal posts _but_ haven't moved the vesting goal posts. Is he suggesting the vesting schedule needs to be longer?? To match liquidity??? this is nonsensical.

the overriding problem, he suggests, is this new "growth capital" phase. i don't agree this has made the stock option deal "bad". yes, it changes the nature of it, but not to as negative a degree as he implies. if he wants companies to IPO earlier, well what happens is that your 1 basis point of options will be worth 10x less than if you stick it out. it's like people complaining about dilution: dilution isn't a problem ... your net cash value increases with each round. it's not really feasible to have the hoi polloi be able to liquidate options at each round.