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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)

#211

Post by pm90 »

travisoneill1 wrote: post #107
mensetmanusman wrote: post #102

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…

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.

Stagnating wages for the middle class is a well known problem but most economists currently believe that it’s roots lie in the erosion of labor unions, stagnation of minimum wages and fiscal austerity measures. Illegal immigration specifically has been called out as something not making a big enough effect to warrant attention.

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

#212

Post by forkerenok »

sanity31415 wrote: post #191
oillio wrote: post #184

Earlier quoted context omitted.

Have you verified the valuation of the common stock the company is reporting to the IRS? The common stock (what you probably get for your options) is usually valued at significantly less than the valuation from the latest raise.

Interesting, I have not but will investigate.

The keyword you are looking for is 409A.

When paying taxes on your equity compensation, the amount you owe is based on the 409A.

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

#213

Post by pm90 »

zpeti wrote: post #167
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.

It’s funny how economists never talk about this (women in the workforce). Its adding 50% more people to the workforce. Yes, it’s less because women might work less or part time, buts it’s an insanely high number in terms of market effects. I wouldn’t be surprised if one of the reasons you simply can’t survive on one person per household working, as in the 60s and 70s, is simply that two people are willing to work now…

It’s not funny and it has been reported on, but you seem unwilling to see it (wonder why). Eg https://equitablegrowth.org/womens-history-month-u-s-womens-....

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

#214

Post by fatnoah »

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.

>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.

I'm pretty sure I had the exact same experience. I've been a part of three startups. One took nothing more than seed money and has been chugging along for over 15 years. It's a lifestyle business for the owner, so it also hasn't grown at all in over 10 years. The other two startups were both acquired. I was even a VP at one with over 1% equity in the company. Net value of my options was $0 after investors, credit holders, and founders got paid.

Yes, some folks are going to make millions from IPOs, but the opportunity cost is far too high (IMHO). As a VP at the startup, my total compensation with 15 years of experience wasn't a whole lot more (and less, in many cases) than what a new college grad makes nowadays.

Now that I've got a family, college to pay for at some point in the near future, and a retirement to fund, I'll gladly take the sure thing vs. the gamble. I've bid goodbye to startups and have quadrupled my income in doing so.

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

#215

Post by georgeecollins »

PragmaticPulp wrote: post #168

Another big difference in modern startups that wasn't mentioned in the article: It now takes more employees than ever before to get a startup company off the ground. It's basic math: You can give more equity to early employees when you have fewer of them. We have more services, frameworks, and technologies available to quickly build companies than ever before. Ironically, it somehow takes more engineers than ever to…

>> It now takes more employees than ever before to get a startup company off the ground.

But that is not true. If you look at the startups of the late 90's-- the time when people learned that stock options could be very valuable-- it took a lot of engineers and infrastructure to make a tech start up. As you point out more services and frameworks exist now.

The reason why it takes more employees is the reason cited in the paper, companies stay private longer to make more money for growth investors.

I agree completely with your point about the impact on employees. It's just that its not because the product requires it, it is because investors want the private growth.

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

#216

Post by annoyingnoob »

Its funny, I've been sitting on some shares for about 7 years since an acquisition, the company is buying them back this month. I had written the company and the shares off and somehow in 2020 they pulled the nose up. Really looking forward to the final payout!

I feel really fortunate to have had what Steve calls a 20th century deal in the 21st century. I was able to maintain an undiluted share of the company, which interestingly I was never able to do in the 20th century.

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

#217

Post by fennecfoxen »

BowBun wrote: post #112
TuringNYC wrote: post #110

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…

Maybe at super early stage startups where you get at least one percent of the company (if not more). At older startups you should see base salaries that are reasonably competitive with public company salaries: not everyone makes Google money, but you shouldn’t have much trouble getting what you’re worth elsewhere until you cross $200k or so.

The big difference is that the publicly traded companies can pay RSUs worth money NOW.

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

#218

Post by fennecfoxen »

dudeman13 wrote: post #179
lumost wrote: post #113

Earlier quoted context omitted.

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

I made $125k total by year 3 of my career. If you need $125k, look elsewhere (and specifically look in California and maybe possibly New York.)

The unfortunate consequence of the taboo of salary discussions is young software engineers not knowing how much they can actually make.

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

#219

Post by lisper »

PragmaticPulp wrote: post #147
mensetmanusman wrote: post #102

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…

Blaming bankers and proposing revolution is one of those explanations that sounds satisfying but doesn’t really match the evidence. In some ways, as markets have become more efficient and transparent it becomes harder, not easier, for finance people to simply squeeze money out of the systems through financial tricks. We’re also living in a world where interest rates are at historical lows, making the cost of capital…

> doesn’t really match the evidence

Here's some data:

https://www.pewsocialtrends.org/2020/01/09/trends-in-income-...

Something is driving down wealth at the low end while driving it up at the high end. It seems unlikely in the extreme that this a reflection of actual value produced by people at the high end relative to those at the low end. Much more likely is that this is a reflection of some kind of structural problem in the system that is being perpetuated by the people at the high end using the political power that being at the high end affords them. Whether those people are "bankers" or are better described by some other label is kind of irrelevant. It's the overall dynamic that matters.

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

#220

Post by ska »

BowBun wrote: post #112
TuringNYC wrote: post #110

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…

> I wonder how common it actually is for people to take significant paycuts in 2020 for a startup opportunity (founders aside)

I think it's still super common in general, although perhaps not in the bay area.

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