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10-Year Exercise Periods Make Sense

dangelo.quora.com

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Re: 10-Year Exercise Periods Make Sense

#141

Post by danielweber »

lukeschlather wrote: post #94
danielweber wrote: post #60

Earlier quoted context omitted.

During salary negotiations, say "tell me why I should think my options are safe against dilution."

From my (somewhat limited, but concrete) experience, there is no way to get a satisfactory answer to this question. Just value the options at $0 and set your salary expectations accordingly.

My answer was perhaps a little tongue-in-cheek, because I agree they won't. You'll hear things like "we want to encourage our employees to give it their all" and "we believe performers should be well-compensated," but those don't really answer the question.

You also might be told "you are in the same pot as the founders," which is technically true except that the founders can still be never-work-again-rich after a 90% dilution, and the founders will typically have a seat at the table when the question of "how do we re-up people who have been diluted so low but are still capable of spiking the deal if they don't like it?" comes up.

Re: 10-Year Exercise Periods Make Sense

#142

Post by throwaway6497 »

sama wrote: post #2

I agree with Adam's post and intensely disagree with A16Z's post on this topic. I don't think companies should take back stock compensation on a technicality. It'd be silly to even discuss taking back cash compensation when someone leaves a company! I appreciate Adam starting this trend years ago.

What I find amazing, is that except YC no-other VC firm would publicly acknowledge that 10 year exercise periods make sense. In this age of social media, I find it absolutely appalling that they still endorse the current 90 day rule. I am guessing they categorised the PR nightmare of not endorsing is marginal. So, they kept quiet, since keeping status quo is in their interest.

YC is trying to make things better and fair for employees. For a really long time the odds were always stacked against the employees the most. YC, Adam are hacking it for the better. All good entrepreneurs who believe in "making the world a better place" should endorse this. Unless, the idea gathers enough momemtum, the old-guard, vulture VCs will not change their stance. This includes A16Z.

Re: 10-Year Exercise Periods Make Sense

#143

Post by mywittyname »

snowwolf wrote: post #138

I understand where the 10 year exercise period came from and I can understand the arguments against it. A solution I haven't seen put forward is a compromise between the common 90 day window and the 10 year window, which is to have an exercise period equal to the amount of time you were an employee. This discourages people from bouncing around jobs collecting equity but gives a reasonable timeframe in which to exerci…

> This discourages people from bouncing around jobs collecting equity

Vesting periods solve this problem.

Re: 10-Year Exercise Periods Make Sense

#144

Post by jsprogrammer »

dmansen wrote: post #136
jsprogrammer wrote: post #77

Earlier quoted context omitted.

If it is technically a technicality, which it is, then all the other fluff pieces and unpunctuated sentences in the world do not matter. Maybe you could elucidate sama's "clear" meaning? It was lost on me. As far as I can tell, the post adds nothing but confusion to this conversation (you could counter by pointing out something of value contributed by the post). Annoying is when people continually post contradictory…

you said you wanted a response and not just downvotes. i tried ¯\_(ツ)_/¯

Thank you for the effort.

The sama account rarely makes responses and Sam Altman basically never responds to criticism of his pieces, or even outright proofs of wrongness. Honestly, this is the treatment I expect to receive here.

Re: 10-Year Exercise Periods Make Sense

#145

Post by argonaut »

ska wrote: post #137
argonaut wrote: post #133

Earlier quoted context omitted.

To be fair, there is another catch-22, which is that a low valuation means the startup is early-stage, which means your options are worth less. So sure, you can early exercise, but there is a greater chance your early exercising will lose you money (if the options end up worthless).

Note I said "give stock", not "give options". Granted, this doesn't solve everything - it was an aside comment about early stage vesting (where liquidation events can be a long way off)

My comment is equally valid if you replace "early exercise" with "paying taxes on" (assuming you do an 83b election).

Re: 10-Year Exercise Periods Make Sense

#146

Post by snowwolf »

mywittyname wrote: post #143
snowwolf wrote: post #138

I understand where the 10 year exercise period came from and I can understand the arguments against it. A solution I haven't seen put forward is a compromise between the common 90 day window and the 10 year window, which is to have an exercise period equal to the amount of time you were an employee. This discourages people from bouncing around jobs collecting equity but gives a reasonable timeframe in which to exerci…

> This discourages people from bouncing around jobs collecting equity Vesting periods solve this problem.

How does vesting solve that? Which would you rather have (giving a simple example of 1% options vested over 4 years) - 0.25% in 4 different companies or 1% in 1?

This is essentially the argument against 10 year exercise windows - it allows exactly the above scenario.

Re: 10-Year Exercise Periods Make Sense

#147

Post by wpietri »

argonaut wrote: post #127
wpietri wrote: post #117

Earlier quoted context omitted.

I find this sort of burden-shifting abhorrent. It's the company who will spend thousand or tens of thousands of dollars having the contract made. It's the company who gets to amortize the costs of a complicated contract over many hiring interactions. It's the company who has the advantage of a strong information and experience asymmetry. In short, the company has a lot more power. If somebody with power screws somebo…

Sure. But none of your perfectly valid comment changes the fact that if you are clueless about a contract, you should either talk to a lawyer (or otherwise someone knowledgeable) or decline to sign it. It goes without saying that employment contracts all use the same language, I have never personally run into a clause I found opaque or confusing.

Yes, people signing contracts should get good advice before signing. Also, they should study hard and floss every day.

My critique is not of generic, anodyne advice. It's of your assigning of blame to the weaker party.

Re: 10-Year Exercise Periods Make Sense

#148

Post by wpietri »

danielweber wrote: post #140
argonaut wrote: post #127

Earlier quoted context omitted.

Sure. But none of your perfectly valid comment changes the fact that if you are clueless about a contract, you should either talk to a lawyer (or otherwise someone knowledgeable) or decline to sign it. It goes without saying that employment contracts all use the same language, I have never personally run into a clause I found opaque or confusing.

You are making the argument that whatever the company does is legal . That's fine and I don't disagree with it. It's not just a matter of not understanding the entire legal contract. Someone could understand every single thing, but not realize, like you said above, "you won't be told about funding rounds if your contract doesn't mention it." They wouldn't even think about that because they aren't experts in that fiel…

Yes, 100% agreed. When I'm giving people options, I want them to treat them as valuable. So I work hard to make them valuable, and for people to understand what they're getting.

But at the end of the day, they could well be worthless, and they will never mean as much to an employee as they do to me. I had to just accept that people would value them at zero. For those interactions, I just had to think of the options as something we were doing so that in case we won big, we'd all feel good about the outcome.

Re: 10-Year Exercise Periods Make Sense

#149

Post by mywittyname »

snowwolf wrote: post #146
mywittyname wrote: post #143

Earlier quoted context omitted.

> This discourages people from bouncing around jobs collecting equity Vesting periods solve this problem.

How does vesting solve that? Which would you rather have (giving a simple example of 1% options vested over 4 years) - 0.25% in 4 different companies or 1% in 1? This is essentially the argument against 10 year exercise windows - it allows exactly the above scenario.

If your vesting cliff is 1 year, then people who job hop after 8 months get nothing. Thus discouraging people from bouncing around to collect equity because there is a minimum tenure needed to collect.

Just set the cliff to match your definition of "bouncing around jobs".

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