Startup Stock Options – Why A Good Deal Has Gone Bad (2019) • Hacker News Board

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

#231

Post by HALtheWise » Mon, Dec 21, 2020, 6:22 PM UTC

lisper wrote: post #219

PragmaticPulp wrote: post #147

Earlier quoted context omitted.

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 pro…

I wouldn't dismiss so quickly that it's impossible for some people to create orders of magnitude more value than others, or for that distribution to change dramatically with time. In farming, for example, increased mechanization has allowed a ~100x increase in per-worker production, and unless literally every other occupation had the same change over the same time period, that should lead to dramatic productivity differences.

The real difficulty is in deciding who "gets credit" for producing a given thing. Is the person driving the tractor really more productive, or is the tractor itself responsible for producing most of the value (return on capital)? Maybe the bank that provided the loan for the tractor is creating value? Without any of those components, the food wouldn't be grown, so there's not an obvious way to divide it into the sum of individual contributions.

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

#232

Post by jimbob45 » Mon, Dec 21, 2020, 6:23 PM UTC

JMTQp8lwXL wrote: post #223

PragmaticPulp wrote: post #147

Earlier quoted context omitted.

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…

Credit cards are a ~2% tax on the economy. I think they're squeezing quite well still, but as has been historically shown, the number and depth of those sorts of opportunities declines with time.

I’d say they’re more of a regressive tax since people at the middle to higher-end cash make great use of credit card benefits and people at the low-end often get caught up in the trap of high interest rates.

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

#233

Post by nostrademons » Mon, Dec 21, 2020, 6:24 PM UTC

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…

The increasing share of GDP going to finance & tech makes sense if you posit that the economically rational thing to do is to destroy the economy and rebuild it. Tech is the industry focused on rebuilding it; finance is the industry focused on redirecting resources away from the old economy and into the new one.

Most humans have an aversion to death and destruction: we get attached to people, institutions, ideas, employers, basically things that we can count on existing. Economics doesn't care though. If a new way of doing things is more efficient than the old, the market will select for the new way, regardless of the human suffering it causes. And since most humans are averse to causing suffering, they won't be willing to capitalize on this opportunity, which leaves large opportunities available to those who say "To hell with institutions, there's a more efficient way and I'm going to bring it to the masses." They (and the SWEs, SREs, UX, data scientists, etc. who help them) then reap large windfalls as they cannibalize large portions of the economy and throw the now-useless workers out of work.

This model explains nearly everything about the past decade. The downside is that it suggests that "revolution" - rather than being an angry but illogical reaction of a few disgruntled workers - is actually an inevitable consequence of the destruction of the old society. Political systems are embedded in the economic realities that birthed them; change economic reality and the economically rational outcome is for those political systems to fall. The same thing happened as industrialization destroyed feudal empires and ushered in the era of nationalism.

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

#234

Post by [deleted] » Mon, Dec 21, 2020, 6:26 PM UTC

roflc0ptic wrote: post #89

ericbarrett wrote: post #41

Earlier quoted context omitted.

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 comp…

Yes, I was suspicious, too. They offset my suspicions by 1. paying me a generous salary, and 2. giving me time to talk to an accountant about it. The accountant had never heard of it, but looked into it and it was legit. The reason that it's unfamiliar is because it's so danged advantageous to the employees. There is some room for them to dilute the shares out of existence. Notably I don't have to exercise them, I al…

[deleted]

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

#235

Post by leet_thow » Mon, Dec 21, 2020, 6:27 PM UTC

phendrenad2 wrote: post #29

Has anyone here made significant (2x exercise price) amounts from stock options at a non-unicorn in the last 5 years?

20x at a startup recently acquired for 1B (assuming they hit earn-outs), right at the unicorn threshold.

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

#236

Post by cik » Mon, Dec 21, 2020, 6:30 PM UTC

caust1c wrote: post #90

cik wrote: post #42

Earlier quoted context omitted.

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.

Work at a startup in a field you love with coworkers who also pour their blood sweat and tears into the company, only to have the founders fail upwards and employees left with nothing. Then you might feel differently. Founders shouldn't be exiting with massive rewards when the risk they took was only marginally higher than early employees. Yeah, I enjoyed my time there and I learned a lot. But a mismanaged company sh…

Been there, done that several times. Everything has risks, I've optimized for the ones I'm comfortable with.

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

#237

Post by s17n » Mon, Dec 21, 2020, 6:31 PM UTC

psanford wrote: post #177

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.

Not sure this would apply here - I don't think that advisors get ISOs (but I could be wrong).

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

#238

Post by fullshark » Mon, Dec 21, 2020, 6:32 PM UTC

As a restless employee in a big tech conglomerate, interested in possibly going to a startup, this blog perfectly outlines why it would be totally insane for me to even consider it, and why frankly I have not.

The big tech monsters have all the talent and unless the nature of the game changes it will be that way for the foreseeable future and tons of great ideas will die on the vine.

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

#239

Post by s17n » Mon, Dec 21, 2020, 6:34 PM UTC

cushychicken wrote: post #181

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…

Are you still susceptible to this if they are ISOs? My understanding is that ISOs are only ever taxed at the time of sale. Sounds like you're dealing in an ISO quantity beyond the limits my mind can comprehend though.

As others have said, AMT doesn't respect ISOs, which makes ISOs pretty useless.

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

#240

Post by [deleted] » Mon, Dec 21, 2020, 6:39 PM UTC

nullc wrote: post #199

jaypeg25 wrote: post #109

Earlier quoted context omitted.

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/

If you divide the CEO compensation increase by the number of employees in the company you'll see that it itself is not particularly relevant in employee wages. For example Tim Cook earns 133M/yr which is $976 per employee. ... and this probably massively overstates the figure due to contractors. Or Sundar Pichai with $86M/yr which is $676 per employee (again... not counting contractors). Obviously it's more if you in…

[deleted]