Just how much is that 2% really worth? • Hacker News Board

Re: Just how much is that 2% really worth?

#71

Post by silverlake » Thu, Jul 03, 2014, 5:24 PM UTC

birken wrote: post #64

onion2k wrote: post #7

My advice to people who want to work in a startup is always very simple: Ignore any equity. If you'd take the job without any equity then take the job. If the equity is part of your reason for taking the job, you probably shouldn't take it. Base rate neglect[1] means we are terrible at evaluating the probability of equity being valuable. For every story about someone making millions out of their equity when the start…

Equity clearly has some value though, based on the fact that in any successful startup investors pay a lot of money for it. If you are considering taking equity, you should treat it like a potential investor would. Ask hard questions. Look at the balance sheet. Look at the company deck. Look at the previous funding rounds. Research the backgrounds of your potential coworkers. (If the company wont share this informati…

Aren't common shares far down on the equity totem pole? Investors get preferred shares w/ liquidation preferences. Employees get diluted to nothing.

Re: Just how much is that 2% really worth?

#72

Post by mahmoudimus » Thu, Jul 03, 2014, 5:26 PM UTC

The most interesting thing is that this website is licensed under GPLv2. Seems excessive.

Re: Just how much is that 2% really worth?

#73

Post by danielweber » Thu, Jul 03, 2014, 5:29 PM UTC

diego wrote: post #70

IgorPartola wrote: post #68

Earlier quoted context omitted.

From a strictly monetary point of view (as in, not counting the type of environment in which you want to work, etc.), let's say E1 is the expectation value of a payout of your equity in cash. So E1 = probability of a sale where your type of stock does not get screwed * cash value of your stock in this deal. E1 is by all accounts and all advice incredibly low. Now let's look at E2 which will be the expectation value o…

My former employees from IndexTank would differ. Our acquisition was life-changing to them. They didn't value equity at all when they joined, yet it worked out really well. You can think of employee equity as insurance against "I joined Facebook early and all I got was this lousy t-shirt."

It's not impossible to get life-changing money by being an employee in a start-up. But it does require a bunch of things to all line up, many of them outside of the employee's control, many others the employee hasn't even considered.

Re: Just how much is that 2% really worth?

#74

Post by mrb » Thu, Jul 03, 2014, 5:32 PM UTC

There is a blatant bug in the computation. Do not trust the site!

Enter $100k as the startup salary, and zero equity (0 shares, $0 strike price, no funding round, any sale price for the liquidity event happening after 12 months).

Enter $150k as the big co salary, and the default 5.75% rate of return.

The result should be Total Big Co Earnings = $152,875 ($2,875 is the interest gained on the $50k salary diff for 12 months), but instead it shows $196,947!

Re: Just how much is that 2% really worth?

#75

Post by zeeboo » Thu, Jul 03, 2014, 5:43 PM UTC

mrb wrote: post #74

There is a blatant bug in the computation. Do not trust the site! Enter $100k as the startup salary, and zero equity (0 shares, $0 strike price, no funding round, any sale price for the liquidity event happening after 12 months). Enter $150k as the big co salary, and the default 5.75% rate of return. The result should be Total Big Co Earnings = $152,875 ($2,875 is the interest gained on the $50k salary diff for 12 mo…

It appears to apply the interest rate monthly. I'd love to have a 5.75% interest every month.

Here's the calculation. It's a little high because we should be getting 1/12th of the 50k per month and compounding, but I'm assuming we got the full 50k up front and got a 5.75% interest compounded per month.

    50000*(1.0575 ^ 12)
    97799.02314394798212000000

edit: I take it all back. It's super broken. Just mess around with the interest rate and nothing makes any sense. For example, a 0% return still gives you $195,833.33 big co earnings on a 150k salary!

edit 2: The bug is in this function and the one below it: https://github.com/vijedi/equity_calculator/blob/master/js/a...

If your interest rate is zero, the calculated interest is 11 * the monthly difference. Then it's added to your base big company salary, which is clearly wrong. It should be 12 * the monthly difference added to the startup salary.

edit 3: Opened a pull request with what I think is the fix: https://github.com/vijedi/equity_calculator/pull/4

Re: Just how much is that 2% really worth?

#76

Post by [deleted] » Thu, Jul 03, 2014, 5:44 PM UTC

drcoopster wrote: post #37

calebclark wrote: post #10

Earlier quoted context omitted.

There is a bug that triggers when you add a funding round. It takes your equity percentage down to zero, regardless of the amount raised or pre-money valuation.

That's not a bug.

[deleted]

Re: Just how much is that 2% really worth?

#77

Post by [deleted] » Thu, Jul 03, 2014, 5:45 PM UTC

[deleted]

Re: Just how much is that 2% really worth?

#78

Post by potatolicious » Thu, Jul 03, 2014, 5:45 PM UTC

LaGrange wrote: post #45

kristiandupont wrote: post #43

Earlier quoted context omitted.

>Equity = compensation for taking the risk of working at a company with a high chance of failure But if you are getting a normal salary, what is this risk?

Increased risk of losing your job.

Right, but for engineers working in startup hubs, is that really a risk? You can pick up a phone and have a parade of offers on your desk in a few days.

At most your risk is missing out on, say, a week's wages between jobs.

Re: Just how much is that 2% really worth?

#79

Post by bksenior » Thu, Jul 03, 2014, 5:45 PM UTC

Iftheshoefits wrote: post #49

kristiandupont wrote: post #43

Earlier quoted context omitted.

>Equity = compensation for taking the risk of working at a company with a high chance of failure But if you are getting a normal salary, what is this risk?

It is much more likely the startup will fail than an established company. Consequently startup employees are taking a greater risk than established company employees. This, however, isn't really reflected in salary and is instead reflected in the lottery ticket/equity grant. And just to add: my view is that at a startup, "market rate" is too low, even with equity on the table (to a certain extent--if it gets to doubl…

That is a bit shortsighted way to look at value added for being part of a startup. Experience and an elevated role can increase earning power regardless of the start-up outcome.

Re: Just how much is that 2% really worth?

#80

Post by benmanns » Thu, Jul 03, 2014, 5:46 PM UTC

mrb wrote: post #74

There is a blatant bug in the computation. Do not trust the site! Enter $100k as the startup salary, and zero equity (0 shares, $0 strike price, no funding round, any sale price for the liquidity event happening after 12 months). Enter $150k as the big co salary, and the default 5.75% rate of return. The result should be Total Big Co Earnings = $152,875 ($2,875 is the interest gained on the $50k salary diff for 12 mo…

I think the 5.75% return is over the 48 month vesting duration, on the extra money you would have earned (and invested). So, the excess (per year) would be something more like (50(1.0575^3)+50(1.0575^2)+50*(1.0575^1))/4. (Though it seems I'm a little off, so maybe they do the calculation monthly or biweekly).

Edit: Search http://www.tejusparikh.com/projects/equity_calculator/js/app... for bigCoInterest.