141–150 of 379 posts
> 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.
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…
I get the tax advantages of this, though. But I expect if it became common the taxman would want their cut of the nominal growth in value each year, or something. Bastards.
Earlier quoted context omitted.
>> I don't buy this explanation. Very few employees are paid in any financially complex way. It depends on the class of workers. I'd agree with you w/r/t most wage earners being paid in transparent manner. But I think the GP comment was referring to technology workers (given the context of HN.) In the case of tech workers, many are paid in very complex ways. If you have illiquid stock options in a private company, an…
> if you have taken a below-market salary as many startup employees have I think this is part of the startup mythos. At the three startups I've worked at (~10 people), none of us had to sacrifice competitive salaries for stock options. The options were on top to incentivize staying at the company longer. I wonder how common it actually is for people to take significant paycuts in 2020 for a startup opportunity (found…
One example I'm thinking of is Josh Elman who seemingly got into the VC game just on having worked at three companies that went on to IPO (LinkedIn, Twitter, FB) and so that was a track record that could stand in place of an investment record. It doesn't seem that impressive to me to have known that those three companies were going to do well, even pre-IPO. But is that repeatable?
Basically, if you are getting into top tier startups then a lot of your lottery tickets hit at least a little bit. Sure, nothing beats a FAANG salary for average financial gain.
But even little hits do a lot to even out the lower paying years.
I've been getting equity since 2005 and my experience is that there are a lot of winners around me. Is that just luck (to some extent, I'm sure). But could a person gauge a bit whether they are in the in-crowd of companies that seem likely to do well? Options for the first 50-100 employees do make a meaningful difference in someone's life, so you can join a company pretty late and have a pretty good sense of their traction.
I had or have equity in Odeo which would have led to Twitter stock if I'd stayed longer, Calm, Medium, Beyond Meat. I turned away Pinterest's corp dev when they were hunting to acquire a mobile team (not sure how serious, but I think we would have been a good team for them). So, that's a lot of winners that either actually hit, seem like they might hit, or that I was very close to.
I had equity in Wesabe which I think would have been Intuit's acquisition target if Mint (an abnormally excellently executed startup) hadn't gotten their first. That would have been $500k to me. Also had equity in Branch, acquired by FB and Neighborland. Those are the "losers."
I keep a loose accounting of how my friends did too, which is also a big part of why it feels like I've been working inside of an in-crowd. I started and then shut down a two person company. That other person went to Yammer (employee 70-ish) and made a big chunk of money. Wesable's CEO ended up VPE at Etsy and Stripe pre-IPO. That Stripe equity has got to be massive. A lot of the Wesabe team has done a stint at Stripe. The VP of Product at Odeo was the VP of something as Fitbit IPOd. The Branch founders got the FB acquisition and also had some Beyond stock. The people who've left my current company have all landed in good places including Squad which just got acquired by Twitter. A lot of my former team is at Medium (which I'm close enough to to feel pretty confident is a winner). Our employee #1 went on to be employee #57 at Pinterest.
Again, I'm not comparing this to FAANG. But I never wanted to work for those companies. Instead, I wanted to work for startups because that's what interested me. But I also want to be able to retire and own my home and so for me, Options, are a big part of the mix that made that possible.
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 outstand…
If that is indeed true, then there's almost no reason not to demand being paid in real cash money rather than stock options. If the company doubles in value and I have the same amount of money, then what's the point of getting options instead of USD?
This like saying, "don't worry, your lotto ticket won't be devalued: We'll make sure that even if those numbers win the jackpot, you'll still get the same $2 and it won't be diluted below that."
> “For later employees make sure the company offers “refresh” option grants to longer-tenured employees. Better yet, offer restricted stock units (RSUs). Restricted Stock Units are a company’s promise to give you shares of the company’s stock. Unlike a stock option, which always has a strike (purchase) price higher than $0, an RSU is an option with a $0 purchase price. The lower the strike price, the less you have to…
We had a couple of choices to pay the taxes: the default was that the employer would buy back some of the stock and use that cash to pay the taxes. Employees would get to keep 70-some percent of the stock. The other option was that employees could write the company a check for the taxes shortly before vesting, and then keep all of the stock.
The recent HN article on meritocracy comes to mind. I had never considered it this way in the past, but in the 70’s, productivity started decoupling massively from productivity gains. I.e. the best people at finance (meritocracy) figured out how to capture all the new earnings relative to the workers (who didn’t know this game was going on). This has snowballed into a situation where the financial meritocracy is comp…
The bigger factor is that per-worker productivity is amplified immensely by technology. Historically, businesses needed to scale their employee base nearly linearly with the number of customers. If you were in the business of building houses or growing produce, your economies of scale topped out early. If you want to serve more customers, you have to hire more people to do the work.
In the technology era, the marginal cost of additional customers is minuscule. Netflix has to pay marginally more for bandwidth and licensing fees with each additional customer, but the number of employees necessary to support a growing customer base is minuscule. Even physical goods can have automated production as they scale up, so physical workers are less and less necessary as scale grows.
For the jobs that remain, supply and demand still dominates the equation. Engineer salaries have been pushed upward because demand for engineering work exceeds supply. Factory worker salaries have been flat or gone down because demand for [domestic] manual labor is decreasing, meaning more people are willing to work for lower compensation just to take those jobs.
Try as they might, the financial people can’t simply break the laws of supply and demand. If they try to keep so much of the profits that their wages fall below other companies, employees will simply leave for higher paying jobs. If the company raises wages so much that they need to charge customers more, their customers will simply leave for lower cost competitors.
This behavior is more intuitive when you put yourself in the shoes of the decision makers. If you called a plumbing company to fix your drain and they quote you a price 2X that of the competitor but claim that it’s because they pay their plumbers more, are you going to gladly take it? Or would you just call any number of alternatives that will charge you market rate costs? (If you are among the few who would gladly pay more for the same service, ask yourself how the general population would behave)
Earlier quoted context omitted.
>> I don't buy this explanation. Very few employees are paid in any financially complex way. It depends on the class of workers. I'd agree with you w/r/t most wage earners being paid in transparent manner. But I think the GP comment was referring to technology workers (given the context of HN.) In the case of tech workers, many are paid in very complex ways. If you have illiquid stock options in a private company, an…
> ...at startups as employees, you dont get to see the cap table, so the whole maze is invisible too! I've never heard it adequately explained why employees should accept this state of affairs. Not only is the cap table invisible, but the fully-diluted cap table and terms of dilution and many other terms and conditions are also hidden from non-founders/investors at most startups I've read about. I've heard so many st…
There is always the chance you’ll get super lucky, but investors and founders have become experts at extracting the maximum possible portion of the value created. To the point where there isn’t a whole lot left for anyone else. Workers included.
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.
You'll have a much better chance of making money on stock and stock options if you join an already-public company that has an ESPP and regularly grants stock options for their publicly-traded stock as incentives to the employees.