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Employee Equity

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Re: Employee Equity

#111

Post by michaelochurch »

jstrate wrote: post #69

I've worked at two startups, including one YC. Both were acquired by larger tech companies. I was employee #3 at one and rebuilt most of a broken codebase in the other. I got nothing out of either WRT options. I agree with the author on point 4 but I don't think more options are the answer, I should have just asked for a higher salary I would have been better off. Startup-bucks are even worse than a lottery ticket, b…

Now I work at a large tech company in SV and wont be involved in another startup unless I'm a founder.

You're making the right call. I'm probably older than you and I've done two startups. My career hasn't recovered from the lost time. Total waste.

Most startups (by startup, I mean "company focused on such rapid growth that VC investment is mandatory") are pure shit. They fuck up your finances, drain your emotional reserve, and (unless you're a founder) often spit you into junior roles that you won't be able to stand after a taste of real autonomy.

If you don't learn much, then you've wasted time. If you do learn a lot (which you can, with a good run as de facto CTO) then you still end up in a junior role, due to your lack of credibility on-paper, for which you're massively overqualified. That's the worst outcome, because you're better off actually being junior if you're in a junior role; overperformance is far more dangerous (in large companies) than underperformance.

Re: Employee Equity

#112

Post by michaelochurch »

brudgers wrote: post #42
birken wrote: post #19

The problem with the 10%/20%/30%/40% thing is that if the company shoots way up in value, an employee could theoretically be fired after two years and not capture much of the value they helped to create. It also doesn't necessarily need to be malicious [1], sometimes companies change and a person's skills aren't as valuable anymore. If I were a prospective employee I would never take a deal like this, because it is r…

The scenario is little different from any other where someone lacks a controlling interest. Controlling interests can sell the company to another company they control at a price that suits their interests. They can issue shares to dilute equity and use the shares to acquire a company which they also control. Any legal action agaist such practices can be defended on the company's dime. In other words, if scumbags cont…

In other words, if scumbags control the company, scumbags control the company. Fortunately, most people aren't scumbags.

Most people aren't, perhaps. Most people who have the connections to be VC-funded startup founders are scumbags.

Re: Employee Equity

#113

Post by x0x0 »

lettergram wrote: post #29
x0x0 wrote: post #7

The best solution I have heard is from Adam D’Angelo at Quora. The idea is to grant options that are exercisable for 10 years from the grant date, which should cover nearly all cases That is an awesome idea, and really classy on Adam's part.

I think 180 - 365 days seems far more reasonable. It's ridiculous to have the company shares tied up with the inability to give them back to other employees.

And that's why options are (mostly) a scam. If you leave before a liquidity event for any reason (they may not come, they take a long time, life circumstances, poor career growth, employers like to give shitty raises), you're stuck either investing often tens of thousands of dollars into an illiquid investment while paying taxes on it right now, or giving up your options. Sweet deal for employers either way. So when they hand out those option grants they probably get to apply a 50% discount or more to exercise.

Not to mention employers often try to avoid even telling employees what fraction of the total company their options represent, and definitely don't care to share their participation multiples. They're often very happy to let you think that in the case if a liquidation event, you get (exit amount) * (your ownership fraction) which just isn't true.

@apta: see [1] for a numerical example. You get taxed twice (or three times if someone is stupid) on typical ISOs:

1 - on grant, if the strike is less than the fmv (there are huge tax penalties for this, both for you and your employer, so it oughtn't happen)

2 - on exercise when you convert the option to a stock, on the spread between fmv and strike (but probably amt, depending on the type of option; it's mildly complicated)

3 - on sale of the stock, on the spread between the sale price and your basis

[1] https://news.ycombinator.com/item?id=7611512

Re: Employee Equity

#114

Post by deanmoriarty »

jstrate wrote: post #69

I've worked at two startups, including one YC. Both were acquired by larger tech companies. I was employee #3 at one and rebuilt most of a broken codebase in the other. I got nothing out of either WRT options. I agree with the author on point 4 but I don't think more options are the answer, I should have just asked for a higher salary I would have been better off. Startup-bucks are even worse than a lottery ticket, b…

Just out of curiosity and to better compare your experience with the one from the article, what were the numbers in percentage?

Re: Employee Equity

#115

Post by jstrate »

OmarIsmail wrote: post #94
jstrate wrote: post #69

I've worked at two startups, including one YC. Both were acquired by larger tech companies. I was employee #3 at one and rebuilt most of a broken codebase in the other. I got nothing out of either WRT options. I agree with the author on point 4 but I don't think more options are the answer, I should have just asked for a higher salary I would have been better off. Startup-bucks are even worse than a lottery ticket, b…

As a potential future founder what strategy will you employ in regards to compensation?

This is speculation but wont be hiring engineers until I can pay for it. I'd take a bonus instead of equity but I would rather the employee decide.

Re: Employee Equity

#116

Post by rhc2104 »

msoad wrote: post #96
jstrate wrote: post #69

I've worked at two startups, including one YC. Both were acquired by larger tech companies. I was employee #3 at one and rebuilt most of a broken codebase in the other. I got nothing out of either WRT options. I agree with the author on point 4 but I don't think more options are the answer, I should have just asked for a higher salary I would have been better off. Startup-bucks are even worse than a lottery ticket, b…

I had similar experience with startups. With current conventions in startup labor market, only being a founder or or being at Facebook as number Both are off my list because I'm not lucky enough to join the next Facebook and I'm not capable of founding a company myself at the moment. Getting sweet $170k salary with some bonus, massage, free food and shuttle is good enough for me.

You don't have to be one of the 10 first employees at Facebook to get paid: http://www.dailymail.co.uk/news/article-2072204/Facebook-IPO...

As a general rule of thumb, if a company is willing to do the extremely expensive action of acquihiring, they are willing to part a pretty high amount of equity of employees. Not acquihire-high of course, but a pretty good amount.

Of course, it could be argued that they aren't "startups" by that point, but "growth companies."

Re: Employee Equity

#117

Post by pedrosorio »

the_watcher wrote: post #4
runT1ME wrote: post #3

>Perhaps the best way to think about it is to try to come up with a total compensation package with the same expected value (using the company valuation of the last round, or a best-efforts guess if it’s been a long time since the round) as the employee would get at a big company like Google Am I missing something or is this saying people should be offered an 'expected' equal compensation package to what they would g…

I think he is saying to use the "expected value" calculation that guys like Michael O. Church and the others who warn of the dangers of overvaluing options. Generally, this applies a heavy discount to the potential value of the options to account for the increased risk. So the compensation package should be salary + EV(options) ~= big company. That leaves substantial upside in the case of a success (and if you are jo…

For different levels of risk, it is not rational to settle for the same expected value: http://en.wikipedia.org/wiki/Efficient_frontier

Re: Employee Equity

#118

Post by sbisker »

practicalpants wrote: post #92
dk8996 wrote: post #82

Earlier quoted context omitted.

A few points; .25% seems low but; a) How close is you hourly rate to what you would get normally? b) Are you learning tech that will set you up to make big money? c) Are you gaining insight about the industry that will set you up to be a co-founder?

Interesting points, thanks for your comment. a) It's actually about $15-20 an hour less going off of my last job. I do consider it extra compensation that they are remote friendly, because I got to do some world traveling while working and they were fine with it. But now I'm back home in the Bay (...but also considering traveling again to make it worth my while). b) Nope, just web stuff I'm already used to doing. The…

Remember they're saving 6.75% of your costs by keeping you as a contractor instead of a W2. And they're treating you as an employee, it sounds like.

In some states that's not even legal, even if you willingly agree to it, because it's considered an abusive employee relationship and tax evasion (for instance, Massachusetts.)

Re: Employee Equity

#119

Post by marvin »

jstrate wrote: post #69

I've worked at two startups, including one YC. Both were acquired by larger tech companies. I was employee #3 at one and rebuilt most of a broken codebase in the other. I got nothing out of either WRT options. I agree with the author on point 4 but I don't think more options are the answer, I should have just asked for a higher salary I would have been better off. Startup-bucks are even worse than a lottery ticket, b…

Has anyone stopped to think what a massive failing of the startup part of the industry this is? Practically everything I read online indicates that if you consider your stock options to have any value at all even in a moderately successful company, you are a major sucker and about to get exploited.

Surely this must reduce the quality of the talent pool available to new startups, as the experienced developers conclude that other options are a better use of their time.

Re: Employee Equity

#120

Post by x0x0 »

applecore wrote: post #51

> Founders certainly deserve a huge premium for starting the earliest, but probably not 100 or 200x what employee number 5 gets. When the founders started the company, their equity was pretty much worthless. When employee #5 is hired and gets 0.50% of the company, her equity presumably has some dollar value. Employee #5 gets a better deal than the founders, even though the founders have 100x more equity. The only thi…

and that dollar value is exactly $0.00 -- you can't give in-the-money-options without severe tax consequences [1]

http://www.mbbp.com/resources/business/stock_option_pricing....

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