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An Engineer’s guide to Stock Options

blog.alexmaccaw.com

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Re: An Engineer’s guide to Stock Options

#51

Post by rpedela »

joosters wrote: post #40

Quick question: Why should a company give share options to employees, and not plain old shares? Is this just because it's better tax-wise for the company?

If you give shares, employees have to pay taxes on those shares. In the case of an 83b, employees pay all tax upfront which is good because that is supposedly the lowest value the shares will be worth so the taxes will be low too. However it is possible that the tax burden is still high depending on the value of the shares and number of shares. Options are generally better for employees because they are not forced into paying more tax. The exception is in the very early stage where shares are basically worth nothing so the tax is basically zero. Also remember that employees cannot sell shares at will if it is a private company, they need board approval.

For the company, there isn't much difference either way as far as I am aware.

Re: An Engineer’s guide to Stock Options

#54

Post by JshWright »

AsymetricCom wrote: post #37
JshWright wrote: post #30

I like thinking about shares as a virtual currency. Shareholders are speculating on that currency, and the company is trying to increase its value. Companies can inflate or deflate this currency depending on their performance, perceived potential or by issuing new shares. I consider myself a fairly smart person, who had a reasonable grasp on the basics of financial markets, currencies, etc. That simple paragraph just…

We should start a thread about how ignorant you were before this awesome guide. I'm sure we can talk about all sorts of stupid things people believe while managing to learn nothing beyond the scope of the very basic article.

Apparently I've triggered some deep seated angst... Let me try to clarify what I meant, and maybe you'll feel better?

This post didn't present any new 'facts' for me. I was already aware of all the details he explained (and most, but not all, of the implications of those details). My point was simply that by framing shares as currency presented them in a way that I had never considered before, and that comparison caused a number of other things to 'click.'

My apologies if my learning offended you...

Re: An Engineer’s guide to Stock Options

#56

Post by bobbles »

joosters wrote: post #40

Quick question: Why should a company give share options to employees, and not plain old shares? Is this just because it's better tax-wise for the company?

I guess it reduces the risk of offload some of the ownership of the company to someone that could leave the next day.

Re: An Engineer’s guide to Stock Options

#57

Post by michaelochurch »

patio11 wrote: post #38
michaelochurch wrote: post #2

Two corrections: 1. OP says: Once you’ve cliffed, you have the right to buy shares in the company. "Cliffing", when used as a verb, refers to firing someone just before the cliff-- not an employee achieving it. It's something you'd rather avoid. 2. If the company isn't publicly traded, you should ask to see the cap table. If you're employee #30 and your share is 0.05%, that might be fair if it's a biotech that has al…

You can ask feel free to ask for a pony in a salary negotiation, and in general I bow to no one in advising "ask for more", but that specific ask has the dual unhappy properties of being very awkward for founders to grant and yet not very useful to you the prospective employee. (Even an idealized employee who'd be capable of understanding what it meant.) "What was your most recent valuation?", "What is the size of my…

Cap table isn't the same thing as salary. It's the (future, in case of options) ownership of the company.

Cap table transparency would go a long way in making VC-istan honest because the equities in salary tend to be small while those in equity are massive. If engineers in a typical VC-istan startup found out that the non-tech VPs and "product people" working 10-to-4 were making $140k while they make $110k, nothing would happen. That's not enough of a difference to set most people off. If they found out that those people had 1% while they had 0.05%, it'd be epic. (That's why VC-istan hides cap tables. It doesn't want to have to admit that engineers are commodities to it.)

Re: An Engineer’s guide to Stock Options

#58

Post by patio11 »

vikas5678 wrote: post #52

Is it odd that almost every startup I or my friends have interviewed with refuse to answer the "number of outstanding shares" question? Have others had similar experiences?

Without some notion of how much your equity grant represents of the company (by current dilution), the actual number of options you get cannot be sensibly valued. The total number of shares at a company is totally arbitrary. Seriously, when you register one, the state just asks you to pick a number.

If a company won't tell you enough to calculate the percentage, that's like you asking "What's your offer for salary?", "Dollars. Definitely dollars.", "Can you be more specific?", "No. We consider exact salary offers to be competitively sensitive."

Re: An Engineer’s guide to Stock Options

#59

Post by vikas5678 »

patio11 wrote: post #58
vikas5678 wrote: post #52

Is it odd that almost every startup I or my friends have interviewed with refuse to answer the "number of outstanding shares" question? Have others had similar experiences?

Without some notion of how much your equity grant represents of the company (by current dilution), the actual number of options you get cannot be sensibly valued. The total number of shares at a company is totally arbitrary . Seriously, when you register one, the state just asks you to pick a number . If a company won't tell you enough to calculate the percentage, that's like you asking "What's your offer for salary?…

I agree, makes negotiation much harder. "We're giving you 25000 options"... but if I have no idea how much its potentially worth, I dont know what I'm saying OK to. This is often the case though, I'm quite sure.

Re: An Engineer’s guide to Stock Options

#60

Post by vladimirralev »

michaelochurch wrote: post #12
seiji wrote: post #4

Earlier quoted context omitted.

you should ask to see the cap table. I've asked that at every non-public company where I've had "options" and they've never complied. Just have to treat the options as confetti from then on.

Just have to treat the options as confetti from then on. Agree. (1) Don't ever take a salary drop for options w/out cap table, and (2) don't make sacrifices that would hurt your career or home life because of them either. Most people in the startup world have evolved enough to get (1) but (2) is where startup culture tends to go off the rails-- people start working 80-hour weeks on career-incoherent grunt work for th…

Engineers are smart these days. Is anybody really doing 80h/week for shady options? I doubt it. Employees stuck in this position generally aren't so bright or don't have any other choice for some other reason. But still very rare.
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