Do the math on your stock options • Hacker News Board

Re: Do the math on your stock options

#131

Post by [deleted] » Thu, Dec 31, 2015, 4:22 PM UTC

Lawtonfogle wrote: post #125

rahimnathwani wrote: post #9

Earlier quoted context omitted.

You did the right thing. The situation is analogous to someone telling you the numerical amount of your proposed salary, but not telling you the currency and/or frequency. You don't have a right to know the details, but without the details it's hard to evaluate them as worth more than 0.

If you are signing a contract, why don't you have the right to know? If I tried to defend the fact that I never specified paying in US currency in some contract and instead used what ever the new hyper-inflated currency is, a judge would kick me out of the court room. Only if it was explicitly stated would a judge uphold such a contract.

[deleted]

Re: Do the math on your stock options

#132

Post by amichal » Thu, Dec 31, 2015, 4:25 PM UTC

I've been through this before (15 years ago). As a "first engineer" as well. I was fully-vested in a fair deal. The start-up had been acquired outright by a large private co which gave a nice real world known valuation for the company and the new owners were entering a pre-IPO quiet period (we were told it would happen with few months). Exercising my options would net a 7 figure stake for at a cost of about six-months salary. I hadn't understood all the options complexities at the start but learned fast about this time thinking of selling some. Engineer #2 got a loan in order to exercise their similar options and got totally screwed as things slowly imploded. I never did exercise them thankfully. In another case my options as a early engineer (again fair enough terms) ended up actually worth actual money after a few rounds of dilution and conversions and sales ultimately to a public company. However it was a few K worth after 5 years of work on paper it had been variously valued up to high six figures. I know now that options are, as someone said elsewhere in the comments, "a variable odds lottery ticket".

Re: Do the math on your stock options

#133

Post by awinder » Thu, Dec 31, 2015, 4:33 PM UTC

DanielShir wrote: post #83

As a founder who's been through a liquidation event, I have to say that stock options are a terrible way to reward employees. The tax issues alone (not to mention all the other stuff mentioned in this thread) are a huge pain for most ordinary people. The only reason companies use this is that there's no better alternative... Anyone ever encounter some other financial instrument that's possible to use in this situatio…

How about exceptional 401k contributions? I believe the employer / employee contribution limit is around 50K / year, as an employee I feel like it'd be much clearer cut & less arduous if an employer just dumped extra money into a retirement vehicle, it's tax deductible by the business and the tax ramifications for employees is much clearer.

Re: Do the math on your stock options

#134

Post by Ixiaus » Thu, Dec 31, 2015, 4:43 PM UTC

ryanSrich wrote: post #82

drglitch wrote: post #58

I am considering an offer from an early stage startup. Salary is being dragged down ~40% under market due to stock options. The role is being a 'first key engineer' hire after the three co-founders. What kind of common-stock equity offer is 'average' in this case? 1%? 2%? 5%?

In my experience it's never a good idea to take a pay cut in lue of equity. Taking a pay cut because you like the product, the role, etc. are infinity better reasons than equity. In my opinion a 40% pay cut and being one of the first 5 engineers warrants co-founder status.

It does not warrant cofounder status at all. So much more goes into being a cofounder than simply being one of the first x employees.

Re: Do the math on your stock options

#135

Post by steven2012 » Thu, Dec 31, 2015, 4:49 PM UTC

There are some funds that some of my former coworkers talked to that will front all of the money to exercise your options, plus pay the taxes, in return for paying the money back for the above, plus 30% of the profits. You're basically borrowing the money to exercise and pay your taxes and then giving up 30% of the upside. It's seems like a good deal to me since you take on zero risk, especially if you're in that situation described in the blog post.

I won't advertise their name, but they seem legit and know several people that took them up on their offer.

Re: Do the math on your stock options

#136

Post by steven2012 » Thu, Dec 31, 2015, 4:52 PM UTC

rpedela wrote: post #76

fiachamp wrote: post #50

There actually IS a way to exercise after you leave without laying out cash + tax dollars today. Consider esofund.com, its a fund that will pay your exercise price and tax liability for a proportion of your upside in a good financial outcome. If it doesn't work out, well at least you didn't throw away your own cash. They're basically a vc that takes common stock in companies by getting rights to employee shares.

Only possible if you are able to sell your private shares without a liquidation event (IPO, acquisition) which is often not the case.

Not true. They don't own the shares, but you owe them a percentage of the upside, plus the money you borrowed to exercise and pay taxes. Not a bad deal if you're talking about a huge amount of money, and if you were in a questionable company like Square, etc.

Re: Do the math on your stock options

#137

Post by steven2012 » Thu, Dec 31, 2015, 4:53 PM UTC

DanielShir wrote: post #83

As a founder who's been through a liquidation event, I have to say that stock options are a terrible way to reward employees. The tax issues alone (not to mention all the other stuff mentioned in this thread) are a huge pain for most ordinary people. The only reason companies use this is that there's no better alternative... Anyone ever encounter some other financial instrument that's possible to use in this situatio…

RSUs are far better, especially for a later stage company.

Re: Do the math on your stock options

#138

Post by yasth » Thu, Dec 31, 2015, 5:02 PM UTC

maneesh wrote: post #104

DanielShir wrote: post #83

As a founder who's been through a liquidation event, I have to say that stock options are a terrible way to reward employees. The tax issues alone (not to mention all the other stuff mentioned in this thread) are a huge pain for most ordinary people. The only reason companies use this is that there's no better alternative... Anyone ever encounter some other financial instrument that's possible to use in this situatio…

Bonuses based on how well the company does. I.e. $1,500 bonus per $MM in revenue, each year

These cause huge cyclical attrition and mess with everything every vest/payout. Also if that is written to the contract as a formula it is a huge reason to lay off old employees, because as the company grows one expects the MM to grow larger. If it isn't written into the contract it is a crappy way to reward the initial brave few as initial revenue will be negligible and their share will decrease as the company grows.

Re: Do the math on your stock options

#139

Post by pinkunicorn » Thu, Dec 31, 2015, 5:11 PM UTC

dman wrote: post #89

pinkunicorn wrote: post #18

Earlier quoted context omitted.

I can almost guess the company from the number of stock options offered. I was in a similar situation, but I accepted the offer and these articles a bit too late :( I like the experience of working here, but now I totally realize I have lost a significant amount just by not negotiating anything.

What would you have done differently if you had known at that point what you know now?

1. Would've interviewed with other companies - I interviewed with one startup, cleared it and joined it. Never knew that stock options carried so much detail.

2. Would've asked for a better base salary citing all the "ifs" stock options carried with them.

Re: Do the math on your stock options

#140

Post by puppetmaster3 » Thu, Dec 31, 2015, 5:21 PM UTC

mamon wrote: post #54

puppetmaster3 wrote: post #52

Earlier quoted context omitted.

"obligated to act in the best interest of shareholders". Obligated how specifically? Also, all shareholders, or the majority?

Obligated by law: deliberately acting against (some) shareholders interest is a criminal offense.

So my interpretation is: this is good for shareholders.

Can you give me examples of people in jail for this 'crime'? At worst people saw social network, and it seemed a ok.

My understanding is that options for common shares, such as terms at YC, have not even anti dilution protection. So the # you have is a snap shot, and nothing to do what that % would be when you fully vest.