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Employee Equity

blog.samaltman.com

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Re: Employee Equity

#151

Post by hga »

marvin wrote: post #119
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…

It's also a failure of the country's political and economic system, at least if you believe that a series of actions and laws culminating in Sar-Box ended the IPO exit shortly after the turn of the century. Other exits tend to be lots harder (my father had a specialty arranging them, and, hmmm, in the '60s also arranged an IPO...) and tend to leave much less money on the table.

Re: Employee Equity

#152

Post by spo81rty »

grimlck wrote: post #80
spo81rty wrote: post #41

This is where having a startup outside of the valley is nice. Nobody where we are (KC) really even expects stock options. We just pay a good competitive salary and don't have to compete with someone like Google paying 2x as much. We have given some people stock incentives but because we pay well and competitively it isn't the primary compensation. The costs of running a startup are so much lower here.

Private company valuations of companies based in VC are far than companies outside the valley, even with the same revenue/profit/growth potential. It sucks and doesn't make economic sense, but that is what I observe

Only because the costs of doing business are higher, not because the potential of the company is higher.

Re: Employee Equity

#154

Post by paulbaumgart »

diziet wrote: post #22

It's quite difficult to compete with Google and their revenue/cash hordes when it comes to salary / total comp. Especially if you price the options at the last round's price and discount them some more. Imagine a well to do company of 2 founders (in SF/Bay Area) and a team of 3-4 others that raised a seed at 10m cap. They want to grow their team headcount to 15 and are busy hiring, running servers, etc. They can offe…

15 employees on a ~$2M seed round would be very aggressive. Realistically you'd only want to hire around 5, so your runway lasts at least 18 months.

Low-single-digit percent equity stakes vesting over 4 years for those employees is pretty in-line with what I've seen on https://angel.co/salaries.

Re: Employee Equity

#155

Post by mattm »

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…

Agree with this from my experience.

I'll just take the higher salary and use it to fund my own ideas which I control 100%. Equity without say into decision making is practically worthless.

Re: Employee Equity

#156

Post by paulbaumgart »

Iftheshoefits wrote: post #100
ska wrote: post #76

Earlier quoted context omitted.

And that's why in the latter case, an early stage startup may not be for you. You join later, with a higher salary, when it has stabilized and looks to be going somewhere. And without the risk, you don't expect the equity to offset it. Pretty simple, really.

An equity offering of 1-5% doesn't offset the reduced salary. That equity typically doesn't imbue the recipient with the same authority as the founders' equity imbues them. Yet, for example, Hire #1 in a two-founder startup is pretty darn close to sharing 1/3 rd of the risk as the founders. It's just that his risk is assumed to be amortized over the term of his tenure and slightly reduced by a salary, so it has the a…

Being able to raise a seed round is a non-trivial hurdle and is not something most engineers can do. Compensation isn't really about risk (which is low for everyone involved given the current employment market), it's about value and opportunity cost.

Re: Employee Equity

#157

Post by UweSchmidt »

skrebbel wrote: post #83

Completely off topic, but I'm this post made me realise that Sam Altman went from programmer to enterpreneur to financial guy. This post has very little ado with what he once started doing. He's a partner (and president) of an investment fund now, a pretty odd career move once you take the pink Silicon Valley glasses off. This entire post is about finance. Not about business, not about products, not about customers,…

I was half-expecting him to advocate a "less equity for employees" stance since, superficially, don't investors already compete with founders for percentages?

Of course it makes sense on a higher level, e.g. when wanting startups to be desirable workplaces, or wishing for their own ecosystem to be a fair place etc.

So, maybe not your average "financial guy"...

Re: Employee Equity

#158

Post by jacobheller »

andrewfong wrote: post #10

I've been thinking of putting together something simple to analyze employee option paperwork and add some plain English annotations to help employees understand exactly what they're signing. Based on my experience, there's something like 5 or so templates that cover 90% of the startups in the valley, so shouldn't be too hard. Is there any interest in something like this?

We at Casetext are interested in this space as well. Our annotations technology will undergo some major improvements in the near future, but even the way they are today may be sufficient to meet your needs. Hit me up (jake at casetext.com) if you want to work together to make this a reality. Here's an example of what docs look like on Casetext now: https://casetext.com/contract/simple-agreement-for-future-eq...

Re: Employee Equity

#159

Post by dalef »

Great article, but I am still not really understand some of the part of the whole picture. Can someone help here?

I am now working in a series A company, taking 0.13% of the company, 13,000 shares (options). At the other side, Pinterest offers me 30,000 RSUs which I turned down because I thought Pinterest was already a late stage company.

But after I did these researches (including this post), I am wondering if I made a right decision? my 13,000 shares will always be 13,000 shares, no matter how much dilution we have in future, right? so does it mean even if my company grew to the size of Pinterest in future, I still only have that 13,000 shares instead of 30,000 I could get from Pinterest easily with less risk?

Or all late stage startup companies have split their stocks otherwise I don't see how joining a early startup for 13,000 would be any better

Re: Employee Equity

#160

Post by hga »

sbisker wrote: post #118
practicalpants wrote: post #92

Earlier quoted context omitted.

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.)

Worse, for the company, is that unless your arrangement passes various tests (e.g. do you have multiple clients? Who and how decides what you're going to work on, etc.), the IRS can decide you really were an employee and hit the company for that 6.75%, withholding for all of it, and interest.

Normally you have to go through a body shop to get around this (the Senator who was responsible for this change in 1986 seemed to have been working on the behalf of some big ones in his state).

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