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

Stock Options are like lottery tickets?

hunterwalk.com

Post reply on HN
Print view View original

21–27 of 27 posts

Re: Stock Options are like lottery tickets?

#21

Post by JumpCrisscross »

blackeyeblitzar wrote: post #17
JumpCrisscross wrote: post #9

Earlier quoted context omitted.

> options are generally worse than a lottery ticket, because the terms of ownership % can be changed later in closed board meetings, then you're screwed This is demonstrably false given there is a market value for common stock in private companies, even early ones, whereas few people would pay face value for a secondhand lottery ticket (even assuming zero risk of scam).

I am not sure what you mean by “market value”. What’s the market exactly when employees cannot freely trade their vested options? Most companies restrict that, which is very unjust. For a secondhand lottery ticket, if there is zero risk of scam, I’d say its value is at least its original retail value, and there is no restriction on trading it. So if someone wanted to make a market, they could.

> What’s the market exactly when employees cannot freely trade their vested options?

The underlying stock, including with companies that restrict transfers, is traded to the tune of hundreds of billions of dollars a year.

> if there is zero risk of scam, I’d say its value is at least its original retail value

Why would you ever pay a premium? It’s worth at most the cost of a new ticket; the discount is because you’re offering liquidity. The only way it could command a premium is in convenience.

Re: Stock Options are like lottery tickets?

#22

Post by JumpCrisscross »

PopAlongKid wrote: post #13
JumpCrisscross wrote: post #9

Earlier quoted context omitted.

> options are generally worse than a lottery ticket, because the terms of ownership % can be changed later in closed board meetings, then you're screwed This is demonstrably false given there is a market value for common stock in private companies, even early ones, whereas few people would pay face value for a secondhand lottery ticket (even assuming zero risk of scam).

>given there is a market value for common stock in private companies, even early ones I don't understand what you are talking about. I exercised stock options in a dot com startup within its first year and at no time in the ensuing eight years was there ever a market where I could sell my stock, which eventually became demonstrably worthless. As someone who knew more about it than me later explained, he didn't exerci…

> he didn't exercise his options because he knew there would always be millions of dollars in line ahead of him, because of the "board meetings"

You’re describing standard liquidation preference. There are shenanigans Boards can get up to, but assuming you’re incorporated in Delaware, there are limits.

Re: Stock Options are like lottery tickets?

#23

Post by metadat »

alephnerd wrote: post #12
metadat wrote: post #7

Earlier quoted context omitted.

As an employee, the options are generally worse than a lottery ticket, because the terms of ownership % can be changed later in closed board meetings, then you're screwed. Very few success stories for early non-founder employees making a big payday. You can do okay, but on average it's not better than getting Meta RSUs or equivalent.

> You can do okay, but on average it's not better than getting Meta RSUs or equivalent Most people aren't getting hired by Meta, and compensation packages at late stage companies will try to be competitive with peers. That said, late stage options might not always be a good bet. You as an employee need to do due diligence and ensure their meeting their metrics.

Most people who work at a startup have a decent chance of getting hired my Meta or another FAAG. Don't underestimate yourself!

Re: Stock Options are like lottery tickets?

#24

Post by blackeyeblitzar »

JumpCrisscross wrote: post #21
blackeyeblitzar wrote: post #17

Earlier quoted context omitted.

I am not sure what you mean by “market value”. What’s the market exactly when employees cannot freely trade their vested options? Most companies restrict that, which is very unjust. For a secondhand lottery ticket, if there is zero risk of scam, I’d say its value is at least its original retail value, and there is no restriction on trading it. So if someone wanted to make a market, they could.

> What’s the market exactly when employees cannot freely trade their vested options? The underlying stock, including with companies that restrict transfers, is traded to the tune of hundreds of billions of dollars a year. > if there is zero risk of scam, I’d say its value is at least its original retail value Why would you ever pay a premium? It’s worth at most the cost of a new ticket; the discount is because you’re…

> The underlying stock, including with companies that restrict transfers, is traded to the tune of hundreds of billions of dollars a year.

Can you explain this? How are they traded if they are restricted?

Re: Stock Options are like lottery tickets?

#25

Post by mavelikara »

JumpCrisscross wrote: post #9
metadat wrote: post #7

Earlier quoted context omitted.

As an employee, the options are generally worse than a lottery ticket, because the terms of ownership % can be changed later in closed board meetings, then you're screwed. Very few success stories for early non-founder employees making a big payday. You can do okay, but on average it's not better than getting Meta RSUs or equivalent.

> options are generally worse than a lottery ticket, because the terms of ownership % can be changed later in closed board meetings, then you're screwed This is demonstrably false given there is a market value for common stock in private companies, even early ones, whereas few people would pay face value for a secondhand lottery ticket (even assuming zero risk of scam).

> This is demonstrably false given there is a market value for common stock in private companies

For most startups no body is making a market for common stock. So I don’t understand what you mean by market value here.

IRS does impose that startups do a valuation process. Is that what you meant?

Re: Stock Options are like lottery tickets?

#26

Post by JumpCrisscross »

blackeyeblitzar wrote: post #24
JumpCrisscross wrote: post #21

Earlier quoted context omitted.

> What’s the market exactly when employees cannot freely trade their vested options? The underlying stock, including with companies that restrict transfers, is traded to the tune of hundreds of billions of dollars a year. > if there is zero risk of scam, I’d say its value is at least its original retail value Why would you ever pay a premium? It’s worth at most the cost of a new ticket; the discount is because you’re…

> The underlying stock, including with companies that restrict transfers, is traded to the tune of hundreds of billions of dollars a year. Can you explain this? How are they traded if they are restricted?

> Can you explain this? How are they traded if they are restricted?

Board approvals, forwards, SPVs. Uber, Airbnb and Neuralink rarely formally recognised transfers, but the shares are liquid for anyone with more than $100k, more so $1mm.

Re: Stock Options are like lottery tickets?

#27

Post by foobarkey »

boshalfoshal wrote: post #8
foobarkey wrote: post #4

I think there is a sweet spot between risk and expected value, ideally earlier before the IPO looks like an obvious next step. Won’t be retirement levels of money in one go but I would say it is more like 80/20 (success/failure) in that case. Gambling is only bad thing if the odds are not in your favor.

The thing is, at that point going to a larger public company would probably net you similar returns and less of the headache (immediately liquid compensation that you can invest into other things, no tail risk of option value suddenly becoming 0, likely better wlb, etc). Once it an "obvious" choice to join a startup then the valuation of the company is already close to fair, assuming you have about the same edge as V…

No, the company is hopefully in high growth stage at that point so ideally you want to join at x and get to IPO at 5x+ (or more) in 4 years. It’s sort of a combination of investing in low cap stocks and swing trading at the same.

Getting the train moving is the hard part but when it is already going it’s about not screwing up and execution, many times better odds (of course evaluate it like you would evaluate stock before buying)

The number of X-s for large cap RSU-s are less likely to be amazing so joining those RSU-s should be pretty much considered at face value (or maybe 10% YoY)

Post reply on HN