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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)

#31

Post by mysterydip »

Out_of_Characte wrote: post #28
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 re…

But we gave them a ping pong table and the illusion of flexible hours!

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

#32

Post by mlthoughts2018 »

guywhocodes wrote: post #17
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.

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.

I’ve never heard of any startups where you can obtain faster skill or personal growth. “Wear many hats” means you must be whatever type of firefighting janitor the company needs this week, which often causes skill atrophy not skill growth.

Larger companies not only offer better compensation, but usually offer much better career development, responsibility growth, training and “learn by doing” opportunities.

The startup will promise you won’t be blocked by bureaucracy and as an early hire you can lead the design. Total lies. The bureaucracy and dysfunction will be even worse and probably involve a bunch of immature egos and “the design” will be endlessly compromised to get each successive round of diluting funding that yokes you to more and more traditional management bureaucracy through VCs.

After experiencing the special hell of unrestrained founders who don’t know what they are doing and nepotism hires all through middle management, most people quickly realize it’s an insane trap and wish for the comfort of large firm bureaucracy, where at least there’s some minimal policy protection against sexual harassment or cultivating alcoholism as a company value or generally grinding unwitting young people into the ground with 80 hour weeks.

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

#34

Post by School-Cotton »

ransom1538 wrote: post #19

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 --…

If the founders have the same class of shares as you, will this effect them equally?

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

#35

Post by xmodem »

phendrenad2 wrote: post #29

Has anyone here made significant (2x exercise price) amounts from stock options at a non-unicorn in the last 5 years?

Depends on your definition of unicorn. I did quite well out of options at a previous gig. They IPO'ed shortly before I left and are now trading at >50x the exercise price.

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

#36

Post by thomasahle »

roflc0ptic wrote: post #26

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…

> 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

Isn't that just like normal stock options?

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

#37

Post by Ygg2 »

ClumsyPilot wrote: post #23
cik wrote: post #21

Earlier quoted context omitted.

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?

See gaming industry.

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

#38

Post by itake »

School-Cotton wrote: post #34
ransom1538 wrote: post #19

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 --…

If the founders have the same class of shares as you, will this effect them equally?

Not if they just issue themselves more shares

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

#39

Post by wrnr »

School-Cotton wrote: post #34
ransom1538 wrote: post #19

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 --…

If the founders have the same class of shares as you, will this effect them equally?

They can negotiate for more shares for theme-selfs.

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

#40

Post by cj »

itake wrote: post #38
School-Cotton wrote: post #34

Earlier quoted context omitted.

If the founders have the same class of shares as you, will this effect them equally?

Not if they just issue themselves more shares

> Not if they just issue themselves more shares

This doesn't happen in the real world.

When more shares are issued, it's because you've raised another capital round and the new shares go directly to the new shareholders (new VCs) and future employees who haven't yet been hired.

New shares wouldn't go to the founders.

Yes, it's hypothetically possible, but it doesn't happen in the real world.

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