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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)

#171

Post by barnacled »

throwaway4748 wrote: post #156

I became a millionaire with options from a startup IPO and hardly feel that I won the lottery. There’s thousands of employees at dozens of private companies that either went public this year or will next that will be in the same position. Certainly it helps that there’s a deluge of liquidity in the financial markets right now that has completely changed the calculus from even just a year ago. I would certainly be muc…

what was the company valued at and what % did you own after dilution? Roughly speaking of course.

I cashed out $500k pre-tax as employee #1 at ~1.3% post-dilution but pre-IPO with the startup valued at $35M so had the company been valued at a sub-unicorny $350M or so it would have made me a millionaire. Just wondering how the % numbers compare.

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

#172

Post by offtop5 »

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.

Reddit tends to be younger people without much life experience. When you're 20 years old and a startup offers you all this equity it does sound really good, but when you're 38 and you realize that equity isn't worth the paper it's printed on, you'd rather get more cash comp

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

#173

Post by PragmaticPulp »

tonystubblebine wrote: post #144

Sort of a devil's advocate question, but does the value of the options deal depend a lot on a person's ability to choose and join good startups? 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…

Unfortunately, no. The game has changed so much that even early employees can get nothing in $100 million acquisition deals some times.

Eero is a perfect example: https://mashable.com/article/amazon-eero-wifi-router-sale/

The new trick is for founders to do side negotiations at acquisition time if the shares would be worthless due to dilution and liquidation preference. For example, the Eero executives got cash bonuses of $225K to $608K for closing the acquisition, with parachute payments of up to $7.1 million for staying on after acquisition. Meanwhile, employee stock options were worthless despite the $100 million exit.

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

#174

Post by sanity »

I'm facing a headache with some options I was granted for a startup back in 2013 for being an advisor. I didn't exercise the options at the time (hindsight is 20-20).

The startup is doing well - it recently raised ~$300m at a ~$3b valuation, but my options expire in Dec 2023 and I'm growing increasingly concerned that they won't have a liquidity event before then.

If I exercise my options before then it will be taxed as income which could leave me owing >$100k in taxes to the IRS - but if the company hasn't yet had a liquidity event then I can't sell the options to pay that.

Seems like a ridiculous situation for early employees/advisors to be placed in.

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

#176

Post by VRay »

lumost wrote: post #113
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.

I think you overestimate how much negotiating power an individual worker has when deciding the price for their labor. Anecdotally, in the Software field there is a lot of "price anchoring" where a large employer decides that a software engineer makes ~125k, and both smaller/peer employers decide that a software engineer makes 125k +/- 10%. From past experience the base "going rate" in a given market doesn't seem to c…

Coding is basically the one tradeskill where the free market is still working reasonably well. Apple or Google can turn a $500k total compensation package for an employee into $2M/year or more in revenue, so they'll keep snapping up people and dragging wages up. Facebook doesn't even bring people on to a specific team, they know that coders are so valuable that they'll hire as many as they can and just find things for them to do.

Even at the low end, six months of tooling work from a $100k coder can often put a handful of $50k/year white collar employees permanently out of work (or make them twice as productive as before). If one company doesn't realize that, another eventually will. It's not too tough to pull in ~50-100k/year running a SaaS business or freelancing

Things in the USA are really broken in the retail sector. Companies pay the absolute bare minimum that will keep them in business, and make up for a lot of the terrible morale issues that come along with that using Orwellian management systems

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

#177

Post by psanford »

sanity wrote: post #174

I'm facing a headache with some options I was granted for a startup back in 2013 for being an advisor. I didn't exercise the options at the time (hindsight is 20-20). The startup is doing well - it recently raised ~$300m at a ~$3b valuation, but my options expire in Dec 2023 and I'm growing increasingly concerned that they won't have a liquidity event before then. If I exercise my options before then it will be taxed…

One strategy is to exercise as many options as you can until you would hit AMT (or an amount above AMT you are ok paying). You can do this each year until your expiration date comes up.

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

#179

Post by dudeman13 »

lumost wrote: post #113
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.

I think you overestimate how much negotiating power an individual worker has when deciding the price for their labor. Anecdotally, in the Software field there is a lot of "price anchoring" where a large employer decides that a software engineer makes ~125k, and both smaller/peer employers decide that a software engineer makes 125k +/- 10%. From past experience the base "going rate" in a given market doesn't seem to c…

I wished people had decided Software Engineers made 125k

Could achieve financial independence in 2 years

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