If you have startup stock options, check your option plan • Hacker News Board

Re: If you have startup stock options, check your option plan

#111

Post by harryh » Wed, Mar 04, 2015, 9:55 PM UTC

sgk284 wrote: post #67

cylinder wrote: post #30

Earlier quoted context omitted.

How did that happen? The acquirer just purchased a certain class of shares, i.e. preferred stock and didn't care about owning 100% of the company?

Suppose the following scenario: A VC invests $10MM at a $100MM valuation and owns 10% of the company with preferred shares. For simplicity, we'll assume they are the only holders of preferred shares. An employee is given $500,000 in common stock, equal to 0.5% of the company at the same $100MM valuation. The company then sells itself to an acquirer for $11MM, substantially below the $100MM valuation. The VC, with pre…

Correct up until your last sentence. Founders & executives do not often get preferred shares.

Re: If you have startup stock options, check your option plan

#112

Post by harryh » Wed, Mar 04, 2015, 10:01 PM UTC

phamilton wrote: post #62

tieTYT wrote: post #29

The last two companies I've gotten offers from gave me very, very heavy pushback when I tried to figure out what % of equity they were giving me. They told me they were giving me 5,000 shares (for example). OK... 5,000 of how many? What % of all the shares is 5,000? My understanding is you need this information to know if the equity is worth something or nothing. Yet, they really don't want to give me this informatio…

I encountered this myself and have a few conclusions: 1) Be open with them and tell them that without a cap table you have to assume the options are worth $0. Use that to push for more salary. 2) The reason for not disclosing that information is often that the company is close to another fundraising event (an IPO for example) and that is very confidential information. It's definitely not a bad thing. 3) A safe assump…

2) You are incorrect here. # of outstanding shares isn't a secret in the events you describe.

3) This is not a safe assumption at all. Just because it worked well for you in one situation does not mean that it will work out in all scenarios.

The reason that companies sometimes don't disclose this information is that when you state ownership as a % it can seem minuscule emotionally. Anything less than 1% just doesn't seem like much even if it actually it.

That being said I don't think this is a good enough reason. Companies should disclose this information and then educate candidates about how to interpret the numbers.

Re: If you have startup stock options, check your option plan

#113

Post by grimlck » Wed, Mar 04, 2015, 10:02 PM UTC

tieTYT wrote: post #29

The last two companies I've gotten offers from gave me very, very heavy pushback when I tried to figure out what % of equity they were giving me. They told me they were giving me 5,000 shares (for example). OK... 5,000 of how many? What % of all the shares is 5,000? My understanding is you need this information to know if the equity is worth something or nothing. Yet, they really don't want to give me this informatio…

You need to ask for more than just outstanding shares, but about also liquidation preferences and convertable notes as well. Otherwise, you won't get a true understanding of the value of the options.

Re: If you have startup stock options, check your option plan

#114

Post by harryh » Wed, Mar 04, 2015, 10:05 PM UTC

aetherson wrote: post #47

Iftheshoefits wrote: post #20

Earlier quoted context omitted.

That may be standard, but it's entirely not in the interests of any employee to play the game. The founders' and investors' beliefs regarding "skin in the game" are missing one key component: the reduced salary one takes at a startup. That reduced salary is skin in the game, as is the acceptance of risk by agreeing be compensated in equity in the first place. I don't object to 4-year vesting. I don't object to cliffs…

I think that people talk past each other a lot, and part of it is understanding that 1% is not 1%. Like, if I'm joining a company that has started to get traction, is well-funded and pays me say 80-90% what Google would pay me, and is likely to either fail or experience a monetization event in the next 3-5 years, and I get 1% of that company, holy shit guys that's amazing. Maybe still overall less compensation than G…

This is the best comment in this entire thread. People see 1% and immediately think small when that is not, in fact, the case.

They have almost never thought through the fact that it generally takes a lot of people to build a successful company so that 100% needs to get divided up into a lot of little pieces.

Re: If you have startup stock options, check your option plan

#115

Post by FeeTinesAMady » Wed, Mar 04, 2015, 10:12 PM UTC

tieTYT wrote: post #102

phamilton wrote: post #62

Earlier quoted context omitted.

I encountered this myself and have a few conclusions: 1) Be open with them and tell them that without a cap table you have to assume the options are worth $0. Use that to push for more salary. 2) The reason for not disclosing that information is often that the company is close to another fundraising event (an IPO for example) and that is very confidential information. It's definitely not a bad thing. 3) A safe assump…

And what do I do if they use #2? Are you saying it's reasonable for them to not give me that information? Should I assume they're worth $0 in this situation?

What else can you assume, though? You have no information at that point.

Re: If you have startup stock options, check your option plan

#116

Post by ditonal » Wed, Mar 04, 2015, 10:14 PM UTC

harryh wrote: post #83

ditonal wrote: post #25

Earlier quoted context omitted.

It's really unfortunate, because there are many engineers like me who would gladly take a pay cut if we were brought in as collaborators and offered real equity deals. Instead we are brought in as serfs to build their 'vision', with no input of our own or recourse if bad management runs our projects into the ground, and offered financial instruments that are obviously rigged against us. No engineer who understands pe…

What do you think fair terms look like for, say, the first 100 people at a tech company where you have 50 engineers, 20 product people, 20 sales people, and 10 business people? All roles will of course have varying levels of seniority and experience.

Preferred shares and invitations to board meetings. If I'm taking a pay cut, I'm an investor and want to be treated like one. If you're so big that you can't offer real equity, you're not a startup, youre an established business, so you should start paying competitive salaries and not use the "We're a startup" excuse to distort the market to your benefit. And competitive means it actually competes, not "competitive".

Re: If you have startup stock options, check your option plan

#117

Post by harryh » Wed, Mar 04, 2015, 10:30 PM UTC

ditonal wrote: post #116

harryh wrote: post #83

Earlier quoted context omitted.

What do you think fair terms look like for, say, the first 100 people at a tech company where you have 50 engineers, 20 product people, 20 sales people, and 10 business people? All roles will of course have varying levels of seniority and experience.

Preferred shares and invitations to board meetings. If I'm taking a pay cut, I'm an investor and want to be treated like one. If you're so big that you can't offer real equity, you're not a startup, youre an established business, so you should start paying competitive salaries and not use the "We're a startup" excuse to distort the market to your benefit. And competitive means it actually competes, not "competitive".

I don't think you understand the purpose of preferred shares or board meetings.

Re: If you have startup stock options, check your option plan

#118

Post by tieTYT » Wed, Mar 04, 2015, 10:32 PM UTC

grimlck wrote: post #113

tieTYT wrote: post #29

The last two companies I've gotten offers from gave me very, very heavy pushback when I tried to figure out what % of equity they were giving me. They told me they were giving me 5,000 shares (for example). OK... 5,000 of how many? What % of all the shares is 5,000? My understanding is you need this information to know if the equity is worth something or nothing. Yet, they really don't want to give me this informatio…

You need to ask for more than just outstanding shares, but about also liquidation preferences and convertable notes as well. Otherwise, you won't get a true understanding of the value of the options.

I just assume it's common stock if I'm not a founder/exec. Is there a lower liquidation preference than that?

I'll have to research what convertible notes are.

Re: If you have startup stock options, check your option plan

#119

Post by wiherek » Wed, Mar 04, 2015, 10:37 PM UTC

This is a great resource for legal advise on the case. I also was offered options on a startup that I worked at. I am adding this to my bookmarks :D some cross-reference http://www.businessinsider.com/stock-option-questions-startu...

Generally I prefer to leave the legal stuff for my lawyer and focus on coding, but having a reasonable knowledge on the case is preferred.

Re: If you have startup stock options, check your option plan

#120

Post by ditonal » Wed, Mar 04, 2015, 10:51 PM UTC

harryh wrote: post #117

ditonal wrote: post #116

Earlier quoted context omitted.

Preferred shares and invitations to board meetings. If I'm taking a pay cut, I'm an investor and want to be treated like one. If you're so big that you can't offer real equity, you're not a startup, youre an established business, so you should start paying competitive salaries and not use the "We're a startup" excuse to distort the market to your benefit. And competitive means it actually competes, not "competitive".

I don't think you understand the purpose of preferred shares or board meetings.

I assure you I do, and if I didn't you would be able to elaborate.