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Just how much is that 2% really worth?

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

#111

Post by nwatson »

(All this is from US tax viewpoint ...)

Also factor in the huge one-time payout and how that's taxed at a higher rate than your normal big-company earnings. I know people who got hammered at Federal + California + special-California/Federal-taxes at 50%+ tax rate, all because the acquiring company decided to close a few days into 2013, when tax rates went up considerably, with special surtaxes to boot. A few days earlier would have cut the tax rate by a lot.

That tax is magnified if you don't pre-exercise for long-term capital gains advantages -- the whole liquidity event becomes straight income.

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

#112

Post by IgorPartola »

dasil003 wrote: post #108
IgorPartola wrote: post #81

Earlier quoted context omitted.

That is really good for you and your employees (no sarcasm intended at all; it really is a good thing). However, this case is an outlier. The percentage of startups that straight up fail or at least don't get sold is huge. The percentage of startups that succeed and make it to a sale/IPO but don't get a high valuation at this point is huge. The percentage of startups that get sold/go public but don't pay out or don't…

I think people who equate startup equity with lottery tickets don't really belong in startups to begin with. The whole point of working at a startup is that you go there and you make it succeed. Now of course there is still luck involved, and you shouldn't be so naive as to blindly take every founder's change-the-world pitch at face value, but whether you are a founder or early employee you have to believe that you c…

There is a huge difference between making a startup succeed and a sale that pays out to you. A startup can get sold for lots of money but if during that sale your stock is not set up to be paid out, you lose. As an employee you can make a difference for whether the sale happens or not. You have very little control over how it happens.

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

#113

Post by smm2000 »

potatolicious wrote: post #78
LaGrange wrote: post #45

Earlier quoted context omitted.

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.

You may loose your job at start up at the most unfortunate moment. In 2000 you can find 10 jobs in about an hour, in 2001 you could not find one job if you life dependent on it. Big companies do layoffs too of cause - but probability to be cut is lower and they almost always offer generous severance package. Also your personal circumstances may make lay off extremely inconvenient - for example right before child is born or you have medical emergency.

You should definitely get some premium for this risk - how much is open to interpretation.

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

#114

Post by newcf »

general_failure wrote: post #48
newcf wrote: post #18

Earlier quoted context omitted.

Ha! I hear you.. beach is good.... it was a truckload,not a boatload? :) I still have to work, but , you know.... I can do what I want when I want.. ok... I need to stop getting braggy.. sorry ... Yeah, I think it was with the equity addition.... Once I did that, my delta went in the negative, and it would have beeen better to stay corporate ;)

In my books, heckuva lot of money == never having to work again.

I got taught the various levels of FU (f*ck you) money...

Here are the responses available, when dealing with a pain in the ass at work:

Level 1) FU, I don't have to work here.. but I should probably find a job in the sometime near future.. like.. the next year

Level 2) FU, I don't have to work here.. or anywhere. I'm out

Level 3) FU, I don't have to work here.. or anywhere... I'm going to my yacht.

I got level 1 ;)

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

#115

Post by newcf »

russianbandit wrote: post #63
newcf wrote: post #6

I'm not entirely sure the calculations work.. Maybe I entered data wrong, but I was trying to model the acquisition/startup that I just went through. with our numbers, and our dollars, and my shares.... I walked with a heckuva lot of money, but that's not what the site said.

Mind sharing which start-up?

Unfortunately I can't... lots of people "didn't" do too well, since it was a little early exit.. I was in early enough that I did well..

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

#116

Post by jameshart »

bksenior wrote: post #79
Iftheshoefits wrote: post #49

Earlier quoted context omitted.

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.

You're assuming this evaluation is from the point of view of someone early in a programming career. If you've already got a bunch of experience, and had elevated roles, the cost benefit analysis is going to be different.

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

#117

Post by rhizome »

Iftheshoefits wrote: post #34
hkmurakami wrote: post #17

Earlier quoted context omitted.

I really don't understand what these companies try to accomplish by essentially lying to you and trying to defraud you of your value. Do they really think you'd sitck around for long under these terms after you find out inevitably how badly you're getting fucked?

I think you underestimate the number of programmers who are willing to work under such conditions for the "glory" they perceive the position to bring (and, of course, there is no shortage of people who actually think their lottery ticket is worth far more than it really is). In an area where there is a high concentration of people who are young (naive) and (relatively) debt/responsibility free it's easy, almost trivi…

It's like spam, right? If you respond based on hilarious numbers, you're exactly who they're looking for.

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

#118

Post by Iftheshoefits »

bksenior wrote: post #79
Iftheshoefits wrote: post #49

Earlier quoted context omitted.

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.

I think you're either overestimating the value of experience and title gained at a startup, or undervaluing the same at established companies, or possibly both.

Having a role at a startup doesn't automatically imply useful experience has been gained, or that the specific position and duties are somehow more solid than equivalent roles at established companies.

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

#119

Post by htormey »

dreese wrote: post #95
htormey wrote: post #58

Earlier quoted context omitted.

"Much better to say that you should consider salary and equity separately. One is for doing the job and the other for doing it now when uncertainty and the possibility of failure are high. Also, some people (like me) would trade an increase in equity for a smaller salary, so it's not a perfect separation. I had a job offer once that gave me two options to choose from, which was really cool." So the two options you we…

I don't think it negates my point. It's just that I don't follow my own advice perfectly. :) It's also a little similar to how founders essentially work for free in exchange for lots of ownership. If, as an employee, I can work for less money now, then I'm taking a bigger risk betting on the outcome of the company. Startups often want to minimize cash flow, and some employees are interested in helping out with that i…

I'm not sure I see your point. Isn't what you are describing the risk reward ratio:

http://www.investopedia.com/terms/r/riskrewardratio.asp

By trading salary (you could get paid more at a big co) for equity you are inherently making a financial decision by investing the difference. Keeping these things seperate is not the same as not thinking about them.

If you are talking taking about taking a pay cut to work with people you really like or to do more interesting or less stressful work then I understand. Apart from that I don't see any reason why you would take less salary unless you think the rick reward ratio was favorable.

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

#120

Post by vi_jedi »

zeeboo wrote: post #75
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 th…

I'm the guy that wrote this. Thanks for playing with it and fixing the issue. I guess writing interest calculation functions late at night is a really bad idea.
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