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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)

#41

Post by ericbarrett »

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…

It is pretty remarkable if it prevents dilution. Are you sure there's no weasel-wording in your contract that allows arbitrary changes in the future, has funky exercise restrictions, etc.? Their special tax structure makes me suspicious as well (if this is the US). Sadly I think VCs saw all the mini-millionaires being created at FAANGs in the last decade and have pressured many companies into watering down stock compensation, since it's "lost money."

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

#42

Post by cik »

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?

I don't see how what I wrote led to this assumption. It's just that I don't value the shares in a startup - ever. I value the salary side, and enjoy the interesting work.

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

#43

Post by cddotdotslash »

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.

> Why would anyone want to work for your startup when they can get much higher salaries working for larger companies?

As much as I agree with the "lottery ticket" mentality, this line of thinking has been popular to parrot on HN for at least 5-10 years. And as far as I'm aware, startups don't have much trouble attracting senior talent. So until that changes significantly, they are going to continue offering lower salaries and bigger lottery tickets for as long as they can. Why would they do otherwise?

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

#44

Post by naveen99 »

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 --…

That would be true weather you had shares or options... dilution may be worth it, if valuation grows. It’s only bad if there is a down round. But then it’s a black eye for founders and earlier vc also.

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

#45

Post by Nimitz14 »

mlthoughts2018 wrote: post #32
guywhocodes wrote: post #17

Earlier quoted context omitted.

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 start…

This does not match my experience.

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

#46

Post by konschubert »

cj wrote: post #40
itake wrote: post #38

Earlier quoted context omitted.

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.

It happens regularly and it's called a re-up http://christophjanz.blogspot.com/2018/11/founders-please-do...

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

#47

Post by konschubert »

thomasahle wrote: post #36
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?

It appears to simulate the normal stock options. Seems to be motivated by tax reasons.

I think I've seen this called a "virtual option plan".

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

#48

Post by drunkpotato »

mlthoughts2018 wrote: post #32
guywhocodes wrote: post #17

Earlier quoted context omitted.

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 start…

The variation in startups will be much greater than in corporate America, so some startups will be well run, but some will be more badly run than any large company and by some truly vile people. It’s definitely a gamble. Unfortunately, people just out of school lack the experience to judge, so some get lucky and some get taken advantage of. My advice is to treat options like a lottery ticket, make sure you get paid well in cash, and then startups can be a heck of a lot of fun. They won’t pay a google compensation, but enough to be comfortable, and hey, maybe you get lucky!

Early non-founder employees do tend to get screwed relative to the business vultures who show up later, the CTO getting $10 million/year brought on after the company has gone public but did nothing to get it there is just wasteful corporate cronyism.

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

#49

Post by johannes1234321 »

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?

The compensation has to cover the needs/expectstions. See Maslow's hierarchy as a simple model.

Pay me a million for something I don't care about in a bad environment and I won't do good work.

Pay me 50k (I make more, but 50k is a good value for a good living here in the region) and let me do something I like in a fun environment and I get things done.

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

#50

Post by [deleted] »

cj wrote: post #40
itake wrote: post #38

Earlier quoted context omitted.

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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