Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

steveblank.com

Post reply on HN
Print view View original

11–20 of 379 posts

Re: Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

#11

Post by beagle3 »

geoffharcourt wrote: post #7
runawaybottle wrote: post #2

Are there any startups that offer revenue sharing so you don’t have to rely on the mythical exit?

Pre-IPO the venture is likely not profitable, so you'd be getting a share of zero. Companies that are VC-backed are going to be held to an expectation of a big payoff, and will be in general discouraged from offering incentives that uncouple employee incentives from an exit. If I understand this right, it's part of why founders have started to be allowed to sell some of their vested shares at funding events, it gives…

Note GP asked about revenue sharing, whereas you discuss profit sharing. That's not the same thing.

Salespeople and sales partners are often compensated with a sales based commission, which is a revenue sharing scheme. It's common and expected, and practiced everywhere there's deal flow.

Technical people can rarely prove "ownership" of revenue, so they can't leverage that in negotiation and are left with "general" ownership through options or RSUs or whatever. There's nothing inherent or natural (or unnatural) about it. If money flows through you, you can usually demand to keep some of it. If it doesn't, you usually can't.

Re: Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

#12

Post by polote »

In what world do we want employee to have stock options ?

I mean, for me this is where the problem is, there is no reason to promise a lot of equity to an employee. Pay them well. Now any (private growing) company is well funded, you can afford market salaries.

Re: Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

#13

Post by konschubert »

polote wrote: post #12

In what world do we want employee to have stock options ? I mean, for me this is where the problem is, there is no reason to promise a lot of equity to an employee. Pay them well. Now any (private growing) company is well funded, you can afford market salaries.

Stock options may motivate some people to think more about the interests of the company rather than their own.

Re: Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

#14

Post by the-dude »

konschubert wrote: post #13
polote wrote: post #12

In what world do we want employee to have stock options ? I mean, for me this is where the problem is, there is no reason to promise a lot of equity to an employee. Pay them well. Now any (private growing) company is well funded, you can afford market salaries.

Stock options may motivate some people to think more about the interests of the company rather than their own.

Stock options may motivate some people to inflate the stock price.

Re: Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

#15

Post by andi999 »

konschubert wrote: post #13
polote wrote: post #12

In what world do we want employee to have stock options ? I mean, for me this is where the problem is, there is no reason to promise a lot of equity to an employee. Pay them well. Now any (private growing) company is well funded, you can afford market salaries.

Stock options may motivate some people to think more about the interests of the company rather than their own.

I am nitpicking here, I know... They still think about their own interest, but the value of the company is now part of their own interest.

Re: Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

#16

Post by Fordec »

polote wrote: post #12

In what world do we want employee to have stock options ? I mean, for me this is where the problem is, there is no reason to promise a lot of equity to an employee. Pay them well. Now any (private growing) company is well funded, you can afford market salaries.

Very few startups are FAANG level funded. Why work for a startup and commit your soul to the effort for half what the big boys are paying? And far, far less risk of the company going bust in the next two years.

Re: Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

#17

Post by guywhocodes »

brabel wrote: post #10
jhowell wrote: post #8

> One possibility is to replace early employee (first ~10 employees) stock options with the same Restricted Stock Agreements (RSAs) as the founders. I am sure RSA are and will always be available to those with the skilleset that commands this level of compensation. I am unclear what would motivate the founding team or investors in a start-up to act otherwise.

Why would anyone want to work for your startup when they can get much higher salaries working for larger companies? Stock options used to be that differentiator for startups... now it's just an empty promise in most places.

Personally for me it has always been faster personal growth from wider responsibilities. This makes a lot of sense in some stages of your career and your career goals but hardly for everyone.

Re: Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

#19

Post by ransom1538 »

What makes options a rough deal is the part of the contract: "We can change anything at anytime for any reason". What kills your options is dilution. You have no control over this AND as time progresses you get more and more diluted with new hires and rounds. You could be the second employee - however, if the founders & VC decide to make 20 million more shares [which they will] - you effectively have toilet paper -- AND you wont be in that meeting.

Re: Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

#20

Post by eternalban »

beagle3 wrote: post #11
geoffharcourt wrote: post #7

Earlier quoted context omitted.

Pre-IPO the venture is likely not profitable, so you'd be getting a share of zero. Companies that are VC-backed are going to be held to an expectation of a big payoff, and will be in general discouraged from offering incentives that uncouple employee incentives from an exit. If I understand this right, it's part of why founders have started to be allowed to sell some of their vested shares at funding events, it gives…

Note GP asked about revenue sharing, whereas you discuss profit sharing. That's not the same thing. Salespeople and sales partners are often compensated with a sales based commission, which is a revenue sharing scheme. It's common and expected, and practiced everywhere there's deal flow. Technical people can rarely prove "ownership" of revenue, so they can't leverage that in negotiation and are left with "general" ow…

> Technical people can rarely prove "ownership" of revenue

Maybe we geeks should let the sales teams run Powerpoint presentations instead of the actual product to address that misunderstanding.

Post reply on HN