Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

steveblank.com

Post reply on HN
Print view View original

331–340 of 379 posts

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

#331

Post by ska »

joshuamorton wrote: post #290
Groxx wrote: post #268

Earlier quoted context omitted.

Lets say your company is valued at $100 and all stock is claimed for current employees. Now you want to raise money by selling 50% of your company to investors. So you create $100 more and now they own 50% (at $200 valuation). This means the investors either over-paid (2x what they were worth!), or you were strongly under-valuing the stocks that existed before. If you dilute , they get 50% at $50, and the existing st…

Let's imagine that there are two employees who each own half the company, so each has $50 of stock in the $100 company. You wish to raise money. You can sell 50% of each persons stake, or all of one person's stake, or something else. Without dilution, it would be a founders job to convince the other employees that giving up some of their shares was necessary (assuming the employee equity pool was the only source, but…

Ok, so I'm employee #17 and you, the founder, come to me and say "ska, you should really sell 172 of your shares and give the money to the company". Same goes for other investors.

Now your CEO has to horse trade with every investor in the round, and also every existing investor and every employee. Everyone who agrees to the scheme effectively gets diluted, but anyone who refused to go along effectively gets a "free" anti-dilution adjustment. So the incentives are all wonky.

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

#332

Post by logicslave »

barnacled wrote: post #169

just to a add a raw account of my experience for what it's worth: I joined a startup as employee #1 and though I opted to have slightly more salary than shares I ended up with 3.2% of the shares. I was with the startup long enough to fully vest and left with actual shares rather than share options (a product of me joining when the startup was just founded and had no share option scheme). After I left at I believe the…

Thanks for this! Seems about in line with what I have been reading elsewhere

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

#333

Post by logicslave »

ryandrake wrote: post #221
polote wrote: post #27

Earlier quoted context omitted.

This is the most common error people on HN make. This is not startup VS FAANG. A small percentage of people make FAANG salary. A startup is mostly paying as much as any other company

> A small percentage of people make FAANG salary. Also, keep in mind that only a small percentage of FAANG employees have the nosebleed-high comps people frequently quote here. So, we are talking about a small percentage of a small percentage.

300k a year is very standard for five years of experience.

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

#334

Post by JulesRosser »

barnacled wrote: post #169

just to a add a raw account of my experience for what it's worth: I joined a startup as employee #1 and though I opted to have slightly more salary than shares I ended up with 3.2% of the shares. I was with the startup long enough to fully vest and left with actual shares rather than share options (a product of me joining when the startup was just founded and had no share option scheme). After I left at I believe the…

Would you mind sharing what could have been done to prevent the last minute PAYE shock? Was this something that could have been avoided, or an inevitably that you should have been made aware of sooner?

Also, as you mention a $USD, did you receive UK EMI options?

Thanks for sharing!

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

#335

Post by neutronicus »

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…

Maybe people only listen to decision makers who make a fuckton of money, and maybe the effect has grown over time (like the Placebo effect).

In that case even if all CEOs are equivalent getting hired is a lottery ticket

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

#336

Post by throwaway09223 »

lisper wrote: post #259
throwaway09223 wrote: post #255

Earlier quoted context omitted.

I think it is more accurate to say that wealth growth at the low end is not as rapid as wealth growth at the high end. Nothing is driving wealth down . Wealth is increasing for everyone, generally speaking. This observation is important because it recognizes that wealth is created, not allocated. This is not a zero-sum game. You say it seems unlikely that actual value is increasing at the high end but I do not think…

> 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,…

"That depends a lot on how you count."

No, I don't think that it does. The bottom 50% generally do not have savings and investments - they invest their wealth in tangibles: Housing, food, belongings.

It is not meaningful to look at investments or savings as a measure of wealth when most people near the bottom do not and have never had those things. It's necessary to look at what does signify wealth in this class: Consumption and physical belongings.

For example, when we look at the average square footage of a home for the bottom 50% we see dramatic increases over the last century -- because wealth in the bottom 50% has had a dramatic increase.

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

#337

Post by aaronblohowiak »

VRay wrote: post #186
zpeti wrote: post #167

Earlier quoted context omitted.

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…

Man, I'd like to see some more info on the whole housing industry in general It seems to be completely FUBAR to me. In Japan, housing ISN'T a glamorous investment, and I think that helps the house pricing situation a lot.. You can get a nice apartment in the fanciest part of downtown Tokyo for cheaper than a dangerous hole in the wall in San Jose

Nothing can be both affordable and a good investment. (If it is a good investment, then its value relative to other things increases. If the value relative to other things goes up, then it ceases to be affordable.) Housing programs were a short-term boost to the wealth of the people that could access house lending (see redlining and the impact on Black wealth) but ultimately encouraging private ownership _as primary savings vehicle_ is a failed economic policy, and as things are often the case, the only thing worse than this policy is possibly the repercussions of unwinding it.

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

#338

Post by joshuamorton »

ska wrote: post #331
joshuamorton wrote: post #290

Earlier quoted context omitted.

Let's imagine that there are two employees who each own half the company, so each has $50 of stock in the $100 company. You wish to raise money. You can sell 50% of each persons stake, or all of one person's stake, or something else. Without dilution, it would be a founders job to convince the other employees that giving up some of their shares was necessary (assuming the employee equity pool was the only source, but…

Ok, so I'm employee #17 and you, the founder, come to me and say "ska, you should really sell 172 of your shares and give the money to the company". Same goes for other investors. Now your CEO has to horse trade with every investor in the round, and also every existing investor and every employee. Everyone who agrees to the scheme effectively gets diluted, but anyone who refused to go along effectively gets a "free"…

The incentives are precisely the same as they are today. And the argument, by the way, isn't that "you should sell 172 of your shares", its that "you should donate 172 of your shares back to the company, otherwise the value of the rest of your shares may go to $0".

I expect that the major differences you'd see are that you would need some kind of large pool of stock in reserve to save for future investments (or yes, to do buybacks which would give employees/investors early liquidity opportunities with each new round).

This way, at least, you aren't being lied to when they say you'll get X% of the company. My entire point here is that employees don't have enough representation in these kinds of negotiations, and thus almost always end with the shortest stick. So systematic changes, even if those changes make startups harder, are necessary to make them broadly enticing.

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

#339

Post by ska »

joshuamorton wrote: post #338
ska wrote: post #331

Earlier quoted context omitted.

Ok, so I'm employee #17 and you, the founder, come to me and say "ska, you should really sell 172 of your shares and give the money to the company". Same goes for other investors. Now your CEO has to horse trade with every investor in the round, and also every existing investor and every employee. Everyone who agrees to the scheme effectively gets diluted, but anyone who refused to go along effectively gets a "free"…

The incentives are precisely the same as they are today. And the argument, by the way, isn't that "you should sell 172 of your shares", its that "you should donate 172 of your shares back to the company, otherwise the value of the rest of your shares may go to $0". I expect that the major differences you'd see are that you would need some kind of large pool of stock in reserve to save for future investments (or yes,…

The incentives aren't the same because in previous system I can't try and hold out for a personal advantage,in yours I can.

I agree with your basic premise of some of the problems, I just don't see this as a practical way of addressing them. I can imagine explicit buybacks etc., as you suggest, but all those mechanisms will probably the funding side in similar ways to getting rid of liquidation preference.

Keeping a reserve stock for future investment is plausible (may give accounting headaches) but anything you do can't plan for all eventualities; when you are running out of money and all stock is committed you have a problem.

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

#340

Post by aaronblohowiak »

weeksie wrote: post #321
pdonis wrote: post #277

Earlier quoted context omitted.

> What happened was that in the 70s energy got expensive. Only temporarily. Energy today, adjusted for inflation, is actually quite a bit cheaper now than it was even before the early 70s oil crisis.

Nope [1] Lord grant me the confidence of a HN commentor talking about economics :/ [1] https://fred.stlouisfed.org/graph/?id=WTISPLC ,

Is this graph in nominal price or inflation-adjusted price? It is not obvious from the source.
Post reply on HN