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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?

#151

Post by dreese »

htormey wrote: post #119
dreese wrote: post #95

Earlier quoted context omitted.

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 p…

My original point was that ignoring equity when evaluating a job offer isn't the best approach.

Most job offers don't include two options to choose from. Since I did have that choice, I evaluated my options exactly as you mention: whether to (effectively) invest the salary difference in exchange for more equity.

In most cases, job offers don't include that choice. If that had been my situation too, I would have evaluated whether the salary was worth doing the job. And then evaluated whether the equity was worth the risk of joining an insecure company.

But since this isn't an absolute rule, I might have tried to negotiate more equity if the salary wasn't quite high enough for me to make the jump. Or maybe asked for extra vacation time, or the option to work from home. (I've done all of those.) I know salary and equity cannot be kept totally separate, but I do start there when evaluating how I will respond to a given job offer.

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

#152

Post by dreese »

rhizome wrote: post #106
dreese wrote: post #38

Earlier quoted context omitted.

I think about startup employee equity like this: Salary = compensation for doing the job Equity = compensation for taking the risk of working at a company with a high chance of failure Therefore, in the future, an employee with lots of equity should still be paid a normal salary/raise/bonus because the equity isn't "current" compensation for doing the job, but a reward for taking a risk long ago. But ignoring equity…

I had a job offer once that gave me two options to choose from, which was really cool. In which they suckered you into a false dilemma. You should always reply to those stupid negotiating tactics with "Both. Higher salary and more options."

Perhaps. I was younger then and didn't feel comfortable negotiating. I'm better at it now. He even had to explain to me how options worked.

But I learned a lot from working with him and met people that I still keep in contact with. I don't regret my choice to take the offer.

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

#153

Post by dreese »

singingfish wrote: post #123
dreese wrote: post #99

Earlier quoted context omitted.

'Seriously, the difference between "last founder" and "first employee" is so huge that people who can derive their day to day motivation from equity should be founders.' I think this is spot-on.

hmm, I just got a gig where we want to cut a salary/equity deal (we're checking each other out for mutual fit via hourly at first). I will be in no way a founder, but it appears to me that my job will be in significant part to get the code into a state where it's in a state for handover for acquisition. So I don't think it's quite that clear cut.

I am also in the 'worked for a number of startups, been paid out non-life changing amounts more than once, and have never tried being a founder' category. What I meant to say is that founders take more risk and get more equity than early employees, and that is how it should be.

Once a company has enough revenue (or investment money) to hire employees, much of the risk has already been removed. A product is either prototyped and tested or partially built. Discussions with potential customers have already taken place. Initial marketing strategies and plans have been made. And founders often do that without getting paid or even a guarantee that they will ever get paid.

They also end up with 10x-20x more equity than an early employee who gets paid a normal salary.

So if equity in a company is highly motivating, and you don't mind working on an exciting idea knowing that you may never see any money, then founding a company might be a good fit.

Or you can make job decisions now that will help you learn to be a founder in the future.

Founding a company is a roller coaster of joy and despair, so it's not for everyone. I haven't tried it yet, but a side project of mine has felt like that roller coaster. I can only imagine that doing it full-time would be the same, except magnified.

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

#154

Post by dreese »

mattzito wrote: post #27
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?

A lot of the startups that I see that try this are doing it because they really believe that they're bringing the value in this relationship - that they're going to be so successful, there's so much money here, they have SUCH a good concept, that the applicant should be grateful to get in on the ground floor. Of course, 90%+ of the time they're totally wrong about everything about what they're bringing to the table,…

I'm going to have to watch that movie. I've actually seen that happen and could never figure out why.

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

#155

Post by dreese »

optimusclimb wrote: post #98

I'm starting to feel like the entire equity offering model is broken. While I agree that you should take a job at a startup for reasons intrinsic to the job itself, and not just the comp (or possible comp) - it is still part of the offer. If someone is offering you a form of compensation, that means you should be able to evaluate it. Otherwise the offer might as well come with a guarantee of two unicorns after four y…

I think that's why it's best to know the percentage of the company you are being offered. Share count is meaningless without knowing total number of shares.

Once you know the percentage (say 0.1%), you can figure out some other stuff. Asking about the company's hopes to go public or be acquired, and at what valuations, can lead to a lot of good discussions.

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

#156

Post by jacquesm »

grandalf wrote: post #144
delinka wrote: post #143

Earlier quoted context omitted.

The biggest problem in his situation is there's not contract in place to keep the employer honest. There's nothing to prevent them denying they ever offered equity, nor to prevent them starting the clock on vesting at the time the option agreement is signed. "Here's a meager salary for now, and you'll have to trust us to do The Right Thing later." The employee is the one getting the work done. And he's got to watch o…

True, but the employer can always fire the employee before the cliff. If you don't trust the employer, don't work there.

'accelerated vesting'.

Keeping employers honest with a contract in place is a lot easier than without.

Anyway, you seem to be stuck on this being equal so I have no illusions I'll be able to convince you of the differences.

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

#157

Post by Derson »

dreese wrote: post #152
rhizome wrote: post #106

Earlier quoted context omitted.

I had a job offer once that gave me two options to choose from, which was really cool. In which they suckered you into a false dilemma. You should always reply to those stupid negotiating tactics with "Both. Higher salary and more options."

Perhaps. I was younger then and didn't feel comfortable negotiating. I'm better at it now. He even had to explain to me how options worked. But I learned a lot from working with him and met people that I still keep in contact with. I don't regret my choice to take the offer.

Do you have any place you'd suggest online to learn more about options?

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

#158

Post by grandalf »

jacquesm wrote: post #156
grandalf wrote: post #144

Earlier quoted context omitted.

True, but the employer can always fire the employee before the cliff. If you don't trust the employer, don't work there.

'accelerated vesting'. Keeping employers honest with a contract in place is a lot easier than without. Anyway, you seem to be stuck on this being equal so I have no illusions I'll be able to convince you of the differences.

It's not strictly equal, and true, accelerated vesting is a factor.

Just attempting to make the point that one should not take too much comfort in any options package before he/she is over the cliff and unless he/she has seen the cap table.

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