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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)

#131

Post by voodootrucker »

commandlinefan wrote: post #97
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 --…

This isn't new, either - this happened to me a couple times in the late 90's/early 2000's and I've since made a point of not even taking "stock options" into consideration when evaluating job offers. Yet my most downvoted comment on reddit ever was on /r/cscareerquestions when somebody was asking how to weigh stock options when considering job options and I said "not at all" and shared my own experiences.

It's a very interesting trend - opinions that got me down-voted into oblivion on HN in 2015 are now super popular. The biggest part of the change seemed to happen when Trump got elected. Anecdotally, it seems like that was the moment when this community lost it's innocence, stopped trusting authority, questioned it's own narratives, and in a sense grew up.

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

#132

Post by 6gvONxR4sf7o »

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’s often a bad deal for employees, but I think it’s a good deal for the industry’s competitive wages for folks to be paid in equity.

You have companies A and B with workers getting $100k in cash and $50k in equity. Company A goes under and B doubles, becoming known as an elite company worth hiring from. Employees from A demand their old wage ($150k) in their new jobs, and if you want to hire folks away from B, you have to match their new wage ($200k). It ratchets its way up as enough people see net wage growth to drag the industry’s competitive comp up.

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

#133

Post by frockington1 »

jaypeg25 wrote: post #109
travisoneill1 wrote: post #107

Earlier quoted context omitted.

I don't buy this explanation. Very few employees are paid in any financially complex way. Wages dropping overall must have a different explanation, which I suspect is an increase in labor supply due to women entering the labor force and illegal immigration combined with a decrease in demand due to automation.

You can't be serious. Are you insinuating it has nothing to do with executive wages ballooning (CEO compensation growing nearly 1,000% since the 1970's) and is instead because women are working? https://www.epi.org/publication/ceo-compensation-2018/

I think you are missing the scale and reaching for a political point where one does not need to be made. There are 500 CEOs in the SP500 and 164 million women in the US. The supply increase of 164 million women will have a far greater impact on the common persons salary than 500 CEOs getting paid more

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

#134

Post by jariel »

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…

"but usually offer much better career development, responsibility growth, training and “learn by doing” opportunities."

Usually the opposite.

At many large companies, people are frozen in operating jobs, and almost 'do' nothing.

Bell Canada (like Verizon), massive organization full of staff graft.

Companies that have a lock on revenue, fat monopolies, are where people park themselves.

Directories with large teams that do almost nothing. Years to make the smallest change in customer service inquiries etc..

The 'real' advantage at working at a startup, in my view - is that you actually get to 'do stuff'.

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

#135

Post by jariel »

mlthoughts2018 wrote: post #56
Nimitz14 wrote: post #45

Earlier quoted context omitted.

This does not match my experience.

Then you have an extremely rare experience. It’s like a professor who did happen to get tenure listening to all the post docs talking about how awful academia is. I’m happy for that one lottery winner but their experience doesn’t count for anything.

Totally the opposite.

Most startups are dynamic, most big corporations are not. They are 'big' because they are sitting on a value chain monopoly.

The same chocolate bars have been in my grocery aisle for 20 years. Variations on the same soap.

Some startups are very poorly run, but most are not led by 'unrestrained jerks'.

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

#136

Post by marcus_holmes »

contingencies wrote: post #68
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 --…

We can change anything at anytime for any reason In private companies, always remember: (1) control ≠ equity (2) equity ≠ profit (3) equity ≠ information. If this is new to you read Brad Feld's Venture Deals book and do the online course, it's time well invested. Note this is simply the nature of private equity. Companies go public to drink at the capitalisation trough of public markets, but the cost is regulation an…

I learned this in my first board position with VC's on the board (early 2000's). Thankfully I was vital to the company's platform, so had some leverage. But everything was fluid, and able to be changed according to how the VC's needed to present it in terms of a consistently successful investment story.

In the end, I walked away with less than I hoped but more than I think I deserved (for being so naive). But it's been an abject lesson since: nothing in a private company is fixed, it can all be changed according to who pulls the strings. Options and equity are very vulnerable to this. Having equity is no guarantee of power or even a seat at the table (or of future wealth).

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

#137

Post by mason55 »

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 --…

> 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.

People are way too obsessed with dilution because it sounds so scary. "With the stroke of a pen they can create a billion more shares and your percentage goes from 5% to 0.01%"

The reality is that all common shareholders have the same incentive to not dilute the outstanding shares. That almost always includes the founders. Outside of a money raise most of the people involved in the company are aligned in the desire to not dilute each other.

The major source of dilution is new fundraising and while it will effect your percentage of ownership it typically doesn't affect the value of your stake because the dilution is part of post-money valuation. So you might own 1% of a $10m company before the dilution and 0.5% of a $20m company after the dilution but the value of your holding didn't change.

The things people should be worried about are all the shenanigans that happen around participating preferred multiples. Or, the worst, 30-day exercise windows along with the tax treatment of options exercise/AMT. But since those are much more opaque concepts it's way harder to get people riled up about it.

And if you have an unscrupulous CEO there's basically nothing you can do to protect yourself as a worker. But that's way different from the normal dilution you get as part of raising money.

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

#138

Post by jariel »

formalsystem wrote: post #81

Is there any reason why stock options can't be non dilutable? If new investors want to come in, they need to buy existing shares, the number of shares can be infinitely divisible to make it easy to always accommodate new investors.

If you sell more shares, there is dilution - there is no way around it, it's math.

Each stock is a slice, more stocks, then each slice is smaller.

Now - if the company is growing you get 'diluted' but those stocks are worth more.

But in the examples above where employees are getting 'less/not diluted' it must be at the expense of someone else: founders or older investors who won't like that.

Given that founders, old investors and staff all generally get diluted at the same rate, dilution is actually one of the more fair things that happens in companies at least superficially.

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

#139

Post by 411111111111111 »

XorNot wrote: post #122
cgarvis wrote: post #118

Earlier quoted context omitted.

The population has grown from 205 million in 1970 to 330 million today. If you think 50% of the people join the workforce that is an increase of 65 million more people working.

Demand went up with population. This is an absurd argument: demand as kept up with supply (otherwise productivity basically couldn't go up) but mysteriously compensation has not.

> but mysteriously compensation has not.

I think the damning thing is that it has. Just not for the workers. wages for high level executives for example not only kept up, it's gone so high that they can't even invest their money anymore. they're complaining about the lack of got investment opportunities instead, sitting on their billions which destroys their society even more by keeping the money from circulation.

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