Stock Options are like lottery tickets?
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Stock Options are like lottery tickets?
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Re: Stock Options are like lottery tickets?
#2[dead]
Re: Stock Options are like lottery tickets?
#3Yes, from the employee’s perspective in early-stage start-ups; no the rest of the time.
For an early-stage start-up employee, a stock option is akin to a lottery ticket in that its value is binary (lots or zero). For a late-stage start-up, the distribution is less binary, so I’d liken it to several rounds at an unbiased casino more than a lottery ticket. For a public company or private company with liquid stock, no. Those options are straight-up compensation with a variable component.
Systemically, employee stock options are totally unlike lotteries in that they’re part of a positive-sum system.
Re: Stock Options are like lottery tickets?
#4I think there is a sweet spot between risk and expected value, ideally earlier before the IPO looks like an obvious next step. Won’t be retirement levels of money in one go but I would say it is more like 80/20 (success/failure) in that case.
Gambling is only bad thing if the odds are not in your favor.
Re: Stock Options are like lottery tickets?
#5Yes, from the employee’s perspective in early-stage start-ups; no the rest of the time. For an early-stage start-up employee, a stock option is akin to a lottery ticket in that its value is binary (lots or zero). For a late-stage start-up, the distribution is less binary, so I’d liken it to several rounds at an unbiased casino more than a lottery ticket. For a public company or private company with liquid stock, no.…
Where do you delineate between early and late stage? Series A?
Edit: Thank you!
Re: Stock Options are like lottery tickets?
#6Yes, from the employee’s perspective in early-stage start-ups; no the rest of the time. For an early-stage start-up employee, a stock option is akin to a lottery ticket in that its value is binary (lots or zero). For a late-stage start-up, the distribution is less binary, so I’d liken it to several rounds at an unbiased casino more than a lottery ticket. For a public company or private company with liquid stock, no.…
Where do you delineate between early and late stage? Series A? Edit: Thank you!
> Where do you delineate between early and late stage? Series A?
Conventionally, it’s around Series C, though anyone who’s worth more than $1bn counts in my book.
For purposes of this discussion, the annual failure probability for American businesses seems to drop below 5% around the fourth year [1]. At that point, if your options aren’t underwater, it’s fair to consider them to be less like lottery tickets. (I couldn’t find failure probabilities by VC round or capital raised, so this is probably conservative inasmuch as small businesses fail at a higher rate than venture-backed companies.)
Re: Stock Options are like lottery tickets?
#7Yes, from the employee’s perspective in early-stage start-ups; no the rest of the time. For an early-stage start-up employee, a stock option is akin to a lottery ticket in that its value is binary (lots or zero). For a late-stage start-up, the distribution is less binary, so I’d liken it to several rounds at an unbiased casino more than a lottery ticket. For a public company or private company with liquid stock, no.…
As an employee, the options are generally worse than a lottery ticket, because the terms of ownership % can be changed later in closed board meetings, then you're screwed.
Very few success stories for early non-founder employees making a big payday. You can do okay, but on average it's not better than getting Meta RSUs or equivalent.
Re: Stock Options are like lottery tickets?
#8I think there is a sweet spot between risk and expected value, ideally earlier before the IPO looks like an obvious next step. Won’t be retirement levels of money in one go but I would say it is more like 80/20 (success/failure) in that case. Gambling is only bad thing if the odds are not in your favor.
The thing is, at that point going to a larger public company would probably net you similar returns and less of the headache (immediately liquid compensation that you can invest into other things, no tail risk of option value suddenly becoming 0, likely better wlb, etc).
Once it an "obvious" choice to join a startup then the valuation of the company is already close to fair, assuming you have about the same edge as VCs do when evaluating these companies. On IPO day it may jump up a bit from its last posted private valuation, but keep in mind once the company IPOs you're typically subjected to a 1-year lockup period, during which the value of the company could change drastically.
Re: Stock Options are like lottery tickets?
#9Yes, from the employee’s perspective in early-stage start-ups; no the rest of the time. For an early-stage start-up employee, a stock option is akin to a lottery ticket in that its value is binary (lots or zero). For a late-stage start-up, the distribution is less binary, so I’d liken it to several rounds at an unbiased casino more than a lottery ticket. For a public company or private company with liquid stock, no.…
As an employee, the options are generally worse than a lottery ticket, because the terms of ownership % can be changed later in closed board meetings, then you're screwed. Very few success stories for early non-founder employees making a big payday. You can do okay, but on average it's not better than getting Meta RSUs or equivalent.
> options are generally worse than a lottery ticket, because the terms of ownership % can be changed later in closed board meetings, then you're screwed
This is demonstrably false given there is a market value for common stock in private companies, even early ones, whereas few people would pay face value for a secondhand lottery ticket (even assuming zero risk of scam).
Re: Stock Options are like lottery tickets?
#10More like tickets to the ring toss.