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

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

#21

Post by cik »

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.

I work with startups because of the array of possibilities - none of them monetary. I've never cared about shares, and mentor folks to do the same. If you do what you love you never work a day in your life. But if you chase the pot of gold, you have to hope there's always sunshine after the rain.

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

#22

Post by indymike »

runawaybottle wrote: post #2

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

It might say revenue share on the title of the contract, but the body of the contract will be about a share of net or gross profit.

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

#23

Post by ClumsyPilot »

cik wrote: post #21
brabel wrote: post #10

Earlier quoted context omitted.

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.

I work with startups because of the array of possibilities - none of them monetary. I've never cared about shares, and mentor folks to do the same. If you do what you love you never work a day in your life. But if you chase the pot of gold, you have to hope there's always sunshine after the rain.

So if people enjoy there work we don't have to compensate them competitively?

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

#24

Post by indymike »

eternalban wrote: post #20
beagle3 wrote: post #11

Earlier quoted context omitted.

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.

This is such a silly thing to argue about. Sales are very dependent on product quality, availability and dare I say delivering features customers need when they need them.

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

#25

Post by logicslave »

Startups are a financial vehicle created to transfer the value created by the employee to the founders and capitalists.

Often the founders have done very little of value before hiring a team to actually build the company. These people toil away, a decade later, the founder makes 20-100 million, the first employee, a few hundred thousand.

There are exceptions, but this is largely what it is.

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

#26

Post by roflc0ptic »

I just started working somewhere that does a different equity scheme called “profit interest.” The gist is, they issue you equity whose worth is based on growth in valuation from when you joined. So if you’re granted 1% shares and the company grows from 100m to 200m on liquidity, you’re entitled to 1m. It avoids you having to front money for stock options, and it also avoids the tax burden b/c when issued, the shares are worth zero dollars

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

#27

Post by polote »

Fordec wrote: post #16
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.

This is the most common error people on HN make. This is not startup VS FAANG. A small percentage of people make FAANG salary. A startup is mostly paying as much as any other company

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

#28

Post by Out_of_Characte »

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.

It lowers employee salary in a time a company is supposedly the least profitable (Starting up and having no products or customers) You're essentially loaning from your employees untill you become profitable and their stock options become something of worth. No matter how big or small your company, everyone has a limited budget. or at least seeks to not overspend on trivialities. Though the real world often doesn't reflect the theory due to unforeseen complexities.

It also makes sense from a game theory perspective, If your below market rate employees do not believe in your company or are agnostic to the companies success then the chance that their stock options become worth something will be less. It should also attract more people who understand the value or direction of your company yielding better decisions and hopefully increase their stock option worth.

Again, just theory. but its solid nonetheless

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

#30

Post by glitchc »

polote wrote: post #27
Fordec wrote: post #16

Earlier quoted context omitted.

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.

This is the most common error people on HN make. This is not startup VS FAANG. A small percentage of people make FAANG salary. A startup is mostly paying as much as any other company

In terms of total compensation, startups seem to be paying less than average.
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