Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

The value of employee equity depends a lot on volatility

devanshpanda.com

Post reply on HN
Print view View original

11–20 of 22 posts

Re: The value of employee equity depends a lot on volatility

#11

Post by Terretta »

biotechbio wrote: post #7

The obvious other factors in this reframing of equity compensation effectively render it a useless take. The disparity in expected value calculation is due to assuming you can predict the future after joining a company, which is obviously not true. If you can always tell a company is going to succeed after 1 year of working there, you should leave, as you are clearly destined to be the most successful venture capital…

> If you can always tell a company is going to succeed after 1 year of working there, you should leave, as you are clearly destined to be the most successful venture capitalist in history…

Except that "after 1 year of working there" is not how VCs work.

Re: The value of employee equity depends a lot on volatility

#12

Post by biotechbio »

Terretta wrote: post #11
biotechbio wrote: post #7

The obvious other factors in this reframing of equity compensation effectively render it a useless take. The disparity in expected value calculation is due to assuming you can predict the future after joining a company, which is obviously not true. If you can always tell a company is going to succeed after 1 year of working there, you should leave, as you are clearly destined to be the most successful venture capital…

> If you can always tell a company is going to succeed after 1 year of working there, you should leave, as you are clearly destined to be the most successful venture capitalist in history… Except that "after 1 year of working there" is not how VCs work.

Not true, there is a growing class of "operator" VCs that both fund and help run early stage companies.

Re: The value of employee equity depends a lot on volatility

#13

Post by gedy »

trjordan wrote: post #8

The worst thing that can happen at an early company is that it sort of works. I like the deal where I roll the dice and don't have to work again if I win. I'm fine with the deal where I take a barely-passable salary and do something wacky for a year. The worst deal I can imagine is that the startup slowly grinds its way to profitability over 3 years, can't raise, and grows 15% / year. Every company I've seen do that…

Yes, it’s a big problem I’ve seen in my circles: early employees are expected to work like "we’re all in this together!" - but you're really not. You aren’t an owner, you aren’t a founder. If and when money does come in to play, human nature is terrific about justifying selfish behavior. "Oh well it was was my idea." Or "Gee, I didn't take a salary.." (says the trust fund kid). Dilutable shares, etc.

Re: The value of employee equity depends a lot on volatility

#14

Post by [deleted] »

gedy wrote: post #13
trjordan wrote: post #8

The worst thing that can happen at an early company is that it sort of works. I like the deal where I roll the dice and don't have to work again if I win. I'm fine with the deal where I take a barely-passable salary and do something wacky for a year. The worst deal I can imagine is that the startup slowly grinds its way to profitability over 3 years, can't raise, and grows 15% / year. Every company I've seen do that…

Yes, it’s a big problem I’ve seen in my circles: early employees are expected to work like "we’re all in this together!" - but you're really not. You aren’t an owner, you aren’t a founder. If and when money does come in to play, human nature is terrific about justifying selfish behavior. "Oh well it was was my idea." Or "Gee, I didn't take a salary.." (says the trust fund kid). Dilutable shares, etc.

[deleted]

Re: The value of employee equity depends a lot on volatility

#15

Post by [deleted] »

trjordan wrote: post #8

The worst thing that can happen at an early company is that it sort of works. I like the deal where I roll the dice and don't have to work again if I win. I'm fine with the deal where I take a barely-passable salary and do something wacky for a year. The worst deal I can imagine is that the startup slowly grinds its way to profitability over 3 years, can't raise, and grows 15% / year. Every company I've seen do that…

[deleted]

Re: The value of employee equity depends a lot on volatility

#16

Post by vanuatu »

e9 wrote: post #5

Unfortunately this author has no idea about how equity works in real life, 2 things that stand out from experience of being very early employee 8 times: 1. If startup raised money at some point in the past and they are at 50M valuation then there is no chance average employee will get offer of 1% (you would need to be someone special to get that) 2. There will be many more dilution rounds before they get to 1B valuat…

you can get 1% as a founding eng at seed, and its not uncommon for a 5 at 50 seed

dilution is also dependent on the opex, founder negotiating power, and growth of the company. There are startups raising monster rounds at If you are an employee however and your co is raising highly diluted rounds with poor growth probably best to jump ship

Re: The value of employee equity depends a lot on volatility

#18

Post by SpicyLemonZest »

simianwords wrote: post #17

Isn't this the standard case of paying a premium for risk? An assured $500 dollars is worth more than 50% chance of 1200 dollars.

It's the opposite, the author is saying is that you have to consider the dynamics of how you're getting the money. In his view, an opportunity to work 5 days for an assured $500 may be worth less than the opportunity to work 5 days for a 50% chance of even $900, even though $500 > $900/2. If you expect that 50% chance to be resolved by the end of day 1, you can just quit the second job, and if there's a third job that will pay you just $200 for the remaining four days (half the job 1 rate) then the EV increases to $550.

Re: The value of employee equity depends a lot on volatility

#19

Post by Sohcahtoa82 »

yodon wrote: post #6

Calculations like this article neglect the far more common case where the liquidity event, if it ever happens, is years in the future, much longer than average employment times. Companies used to go from garage to IPO rapidly. Now a decade from founding to IPO is not uncommon. Unless the employee plans on committing their life to the startup that just hired them, they will most likely move on somewhere else before th…

At the startup I'm at, we were founded 12 years ago. Still no IPO.

Last year, we had a couple rounds of layoffs, and shortly after, a few of our top people voluntarily left. The company started issuing RSUs to try to keep people since they can't afford to give the raises they deserve, but even RSUs are only marginally better than ISOs.

Re: The value of employee equity depends a lot on volatility

#20

Post by littlexsparkee »

yodon wrote: post #6

Calculations like this article neglect the far more common case where the liquidity event, if it ever happens, is years in the future, much longer than average employment times. Companies used to go from garage to IPO rapidly. Now a decade from founding to IPO is not uncommon. Unless the employee plans on committing their life to the startup that just hired them, they will most likely move on somewhere else before th…

The company where I last worked went public 10 years after founding. It would've been life-changing at peak, except the price slumped in Dec '21 before end of lockup. I should've sold it on the slide down as it never recovered, but was too bought into what could've been. Still grateful for how it turned out as the job paid pretty well and the equity helped with financial independence but given the vagaries of implementation, timing, and psychology it feels like less of a motivating factor now. To think that life would be completely different having started months earlier still stings.
Post reply on HN