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)

#311

Post by taway21 » Mon, Dec 21, 2020, 10:10 PM UTC

PragmaticPulp wrote: post #173

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 bonus…

Another great example JUST FROM TWO DAYS AGO!

https://www.theglobeandmail.com/business/article-element-ai-...

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

#312

Post by robertlagrant » Mon, Dec 21, 2020, 10:24 PM UTC

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…

> I’d love to be proved wrong.

Why would you love that? It's 100% a factor. One of the key drivers of house price increases has been two-income households, with the nice double personal tax allowances, that allow much higher offers. Additionally in the UK I think it became illegal for mortgage companies to offer a lower multiplier on the second income, so it's a huge boost.

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

#313

Post by dlp211 » Mon, Dec 21, 2020, 10:28 PM UTC

robertlagrant wrote: post #285

spamizbad wrote: post #269

Earlier quoted context omitted.

I am reminded of Sagan's standard "Extraordinary claims require extraordinary evidence" Has been there been any detailed breakdown of how much more effective the median CEO in 2020 is over the median executive in 1970? I am certain they are doing things better, have more data, etc but what scale are we really looking at here? Because, just thinking out loud here, the bulk of the workforce in the United States is more…

First demonstrate that it's an extraordinary claim. Effectiveness isn't the measure, exactly, it's how replaceable the CEO is, and the same is true of any employee. If everyone is more educated (and education may be nothing to do with what's required, incidentally), then people are still just as replaceable. I have no good answers, as I definitely think there are pros and cons to modern executive teams, but it starts…

I would assert that CEOs are far more replaceable then they would have you believe.

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

#314

Post by lisper » Mon, Dec 21, 2020, 10:31 PM UTC

pdonis wrote: post #276

lisper wrote: post #259

Earlier quoted context omitted.

> Wealth is increasing for everyone, generally speaking That depends a lot on how you count. See: https://fred.stlouisfed.org/series/WFRBLB50107 The average net worth of the bottom 50% over the last 30 years is about the same as it was 30 years ago. Compare to: https://fred.stlouisfed.org/series/WFRBLT01026 and note that the net worth of the top 1% has been increasing more or less monotonically for the last 30 years,…

These charts aren't showing wealth, they're showing money. Money is not wealth. For example, suppose you have a car that you paid $20K in cash for this year. That works out to about $10K 30 years ago (I think the Fed charts you showed are in inflation-adjusted dollars, though they don't say so). So as far as monetary vaue is concerned, you have the same net worth in your $20K car today as a person 30 years ago would…

Yes, cars and computers have gotten cheaper relative to their quality. So what? Health care and education have gotten more expensive. Inflation-adjusted money is a pretty good proxy for wealth. What else is there?

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

#315

Post by dgb23 » Mon, Dec 21, 2020, 10:32 PM UTC

lock-free wrote: post #208

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…

I agree it doesn't make sense to blame bankers for exploiting the legal system that allows them to enrich the rich at the expense of the poor for a commission, other than the revolving doors between government and industry and lobbying efforts to maintain our broken society the way it is. There are numerous financial products and services available to only the wealthy that reduce tax burden and increase wealth and in…

> There are numerous financial products and services available to only the wealthy that reduce tax burden and increase wealth and income that are inaccessible to anyone else, create little value, and are predicated on the concentration of wealth in the hands of a few.

There is also additional pressure at the low end: Being poor is expensive, especially in a society with low solidarity.

Besides debt being a potential burden, there are many things that you don't have access to. You can't buy in bulk, you can't buy quality gear, a season ticket, a home, You simply cannot invest, even if that made sense in the long term for you, your community, society etc.

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

#316

Post by pdonis » Mon, Dec 21, 2020, 10:43 PM UTC

lisper wrote: post #314

pdonis wrote: post #276

Earlier quoted context omitted.

These charts aren't showing wealth, they're showing money. Money is not wealth. For example, suppose you have a car that you paid $20K in cash for this year. That works out to about $10K 30 years ago (I think the Fed charts you showed are in inflation-adjusted dollars, though they don't say so). So as far as monetary vaue is concerned, you have the same net worth in your $20K car today as a person 30 years ago would…

Yes, cars and computers have gotten cheaper relative to their quality. So what? Health care and education have gotten more expensive. Inflation-adjusted money is a pretty good proxy for wealth. What else is there?

> Health care and education have gotten more expensive.

I think this depends on where you get your health care and education, but I agree that in many cases quality vs. price is certainly not where it should be.

> Inflation-adjusted money is a pretty good proxy for wealth. What else is there?

Not trying to centrally plan an entire country's economy based on faulty proxies for something that cannot be reliably measured [1]. Central planning just makes it easier for the rich to siphon more wealth from everyone else while disguising it as "helping".

For example, if we take your observation about quality vs. price for health care and education as true, and compare it to my observation about cars and computers, the general pattern is that the areas where quality vs. price is worst are the areas that are the most centrally planned, and the areas where quality vs. price is best are the areas that are least centrally planned.

([1] - The reason wealth cannot be reliably measured is that it's subjective; the value of a good or service depends on who has it and what use they can make of it. This is the only reason wealth can be increased by specialization and trade in the firt place.)

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

#317

Post by njarboe » Mon, Dec 21, 2020, 11:18 PM UTC

Google IPO'd at $85 a share with a market cap of $23 billion.[1] Quite a big oversight by Blank to say it IPO'd for under a billion. It is too bad good companies don't list sooner to let the public get some of the gains. I would have liked to have invested in Google pre-unicorn.

[1]https://finance.yahoo.com/news/day-market-history-google-ipo...

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

#318

Post by LoSboccacc » Mon, Dec 21, 2020, 11:20 PM UTC

spamizbad wrote: post #269

HALtheWise wrote: post #231

Earlier quoted context omitted.

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 dif…

I am reminded of Sagan's standard "Extraordinary claims require extraordinary evidence" Has been there been any detailed breakdown of how much more effective the median CEO in 2020 is over the median executive in 1970? I am certain they are doing things better, have more data, etc but what scale are we really looking at here? Because, just thinking out loud here, the bulk of the workforce in the United States is more…

It's not the CEO that became more effective tho, it's the money.

You can't do a Tesla without PayPal exit level of money, you can't do a PayPal without zip2 exit money and you can't make a zip2 without a real estate agent footing the initial bills

It's financial levers all the way down

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

#319

Post by cedricd » Mon, Dec 21, 2020, 11:20 PM UTC

cj wrote: post #40

itake wrote: post #38

Earlier quoted context omitted.

Not if they just issue themselves more shares

> Not if they just issue themselves more shares This doesn't happen in the real world. When more shares are issued, it's because you've raised another capital round and the new shares go directly to the new shareholders (new VCs) and future employees who haven't yet been hired. New shares wouldn't go to the founders. Yes, it's hypothetically possible, but it doesn't happen in the real world.

I've seen it happen first hand. I had some stock in a company that was running out of money and having issues raising their next round. They ended up taking a deal with an investor that took a huge ownership stake and diluted the company significantly. To entice the founders not to bail they carved out some additional stock for them, but everyone else got hit by the full dilution.

Ultimately it was the right call from the company survival perspective -- everyone who was severely diluted (including early investors) at least still have something worth more than $0.

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

#320

Post by ummonk » Mon, Dec 21, 2020, 11:42 PM UTC

mason55 wrote: post #137

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 outstand…

Founders usually own a different class of stock though - enough to have a controlling share of the vote no matter how much they’re diluted. This control that they hold ensures they will get paid extra during acquisitions (or sometimes even during fundraising rounds), proportional to the value of the company rather than their share of the stock.