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Who pays when startup employees keep their equity?

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Re: Who pays when startup employees keep their equity?

#181

Post by jsprogrammer »

madgar wrote: post #172
jsprogrammer wrote: post #119

Earlier quoted context omitted.

You shouldn't be able to influence a lottery outcome. Presumably, you can influence share prices if you work for a company that you have an ownership claim on.

Do you actually believe that as a non-founding employee you'll be able to make the difference between the company delivering "a life changing amount of money" to employees instead of the far more common outcome? I guess the same type of mind that believes meritocracy really exists could believe such a thing...

Do you believe companies can accomplish anything they envision, without employees? Or do you think employees are entirely fungible?

Does my last employer not have a large contract with Prudential, because of my work?

Re: Who pays when startup employees keep their equity?

#182

Post by jonknee »

bjacokes wrote: post #156
jonknee wrote: post #55

Earlier quoted context omitted.

No, having your options be worth a lot is a very rare event. That's why they hand them out instead of giving you more money.

The main reason that options are handed out is to compensate for below-market salaries, and the main reason salaries are below market is that the company wants to increase its runway. Some specific valuations or offers warrant cynicism, but remember that any startup with negative cash flow (even successful ones with near-market salaries) should be giving out equity to keep their salaries costs down.

Yes, but most of these companies fail and the options thus worthless. I mean it's great when it works out, but like lottery tickets they usually aren't worth the paper they are printed on.

Re: Who pays when startup employees keep their equity?

#183

Post by madgar »

ericd wrote: post #45
codeonfire wrote: post #30

Earlier quoted context omitted.

Normal people that like money. If this article is about how equity compensation can be improved, then that is a fairly messed up world view and kind of insulting. Employee equity compensation is always designed to explode or have no value. Workers are sick of the schemes. Just pay cash. Companies don't want to and never will improve equity compensation. A better solution would be a law that requires a cash value of g…

Actually there's a big movement to making options exercisable well after employees leave. So, no. Startups don't have enough cash to compete in terms of pure salary with the leverage that the Googles of the world have. And stock can turn out very well for employees, I've seen it happen at a fairly good rate. You just need to make sure you're getting what you're worth, risk adjusted.

There's a "movement" in the sense that people are writing blog posts. Fewer than a handful of name-brand startups are putting any money where their mouth is. Any there's huge VCs trying to hold the line and keep anyone from changing the industry standard practice.

Re: Who pays when startup employees keep their equity?

#184

Post by rhizome »

pm24601 wrote: post #154
rhizome wrote: post #113

Earlier quoted context omitted.

Or you start working for a company thinking their product(s) are cool, strong and survivable as its own thing, and then it turns out the plan was not to build a business but to cash out.

or you get laid off, or you get diluted, or it takes 6 years and you want to do something else with the rest of your life, ....

To be sure, it was a thinly-veiled anecdote.

Re: Who pays when startup employees keep their equity?

#185

Post by rhizome »

vinceguidry wrote: post #162
rhizome wrote: post #113

Earlier quoted context omitted.

Or you start working for a company thinking their product(s) are cool, strong and survivable as its own thing, and then it turns out the plan was not to build a business but to cash out.

You're still taking a risk, only you're betting with your time and not money.

Actually it was only 7 months and I still got ripped in the deal. You can say "low risk, low reward," but in the big picture my reward was sorely out of scale to my contribution. Sorely.

Re: Who pays when startup employees keep their equity?

#186

Post by greenleafjacob »

dasil003 wrote: post #28
gringofyx wrote: post #5

Either way it's a losing game, consider a company like Google - how would they attract new employees on either scheme given that the company has been around for 15+ years? The only people who win are those who get in early, or invest big. Any IPO ultimately results in people earning money who don't "work" for that money - that means the actual workers lose out everytime.

So getting paid way above market and working at a place where software engineering talent is highly respected and valued is "losing out"? I'm sorry but this entitled attitude just grates at me. If you are in SV getting paid 3-5 times the median household income you already are in the 1% and you already have all the advantages in terms of upward mobility. If you want to earn millions go out and start your own company…

Well, they were convicted in a price fixing scandal not too long ago [1]. How soon it is forgotten though. How strange.

[1] https://en.wikipedia.org/wiki/High-Tech_Employee_Antitrust_L...

Re: Who pays when startup employees keep their equity?

#187

Post by bjacokes »

jonknee wrote: post #182
bjacokes wrote: post #156

Earlier quoted context omitted.

The main reason that options are handed out is to compensate for below-market salaries, and the main reason salaries are below market is that the company wants to increase its runway. Some specific valuations or offers warrant cynicism, but remember that any startup with negative cash flow (even successful ones with near-market salaries) should be giving out equity to keep their salaries costs down.

Yes, but most of these companies fail and the options thus worthless. I mean it's great when it works out, but like lottery tickets they usually aren't worth the paper they are printed on.

Right: startups give out options, and those options are likely to be worthless. Your previous comment, however, was also suggesting causation: startups give out options because they are likely to be worthless. That's certainly not the entire reason. Like I said, a startup doesn't want to pay market salary because it would effectively ~halve their cash runway versus shifting compensation towards equity.

Re: Who pays when startup employees keep their equity?

#188

Post by sokoloff »

madgar wrote: post #172
jsprogrammer wrote: post #119

Earlier quoted context omitted.

You shouldn't be able to influence a lottery outcome. Presumably, you can influence share prices if you work for a company that you have an ownership claim on.

Do you actually believe that as a non-founding employee you'll be able to make the difference between the company delivering "a life changing amount of money" to employees instead of the far more common outcome? I guess the same type of mind that believes meritocracy really exists could believe such a thing...

"make the difference" alone? Probably not.

Did I "positively influence the outcome" in the company I work for? Almost assuredly.

Of course, this is coming from a mind which does basically believe in a meritocracy, so...

Re: Who pays when startup employees keep their equity?

#189

Post by sokoloff »

khuey wrote: post #74
justinlardinois wrote: post #52

Earlier quoted context omitted.

Are you talking about options being the entirety of one's financial compensation? Because I wonder how people who work without a salary manage to pay the bills every month. > the tax on W2 income is simply the worst As opposed to getting taxed on what you eventually make from your options?

The maximum federal tax rate on what "you eventually make from your options" is likely 23.8%, whereas on the equivalent salary it'd be 43.4%.

It's hard to get substantial sums of money from options and have it all be taxable only at LTCG rates. ISOs are limited to $100K/yr when first exercisable and doing an 83b election (assuming your plan permits it) on unvested shares is fairly risky, to put it mildly.

Yes, it's possible to get such tax rates, but generally only for amounts under $100K.

Re: Who pays when startup employees keep their equity?

#190

Post by steven2012 »

Retric wrote: post #128
dpark wrote: post #118

Earlier quoted context omitted.

I'm not sure why you think single is a positive if you're trying to save. It's far more cost effective to be married to another high-income earner. Living in a cheap location is also not everyone's dream. It would be life changing for me to retire to Costa Rica, but it would not be a positive change. I live in a pretty expensive city (Seattle) because I like it here.

If X, says nothing about if not X. Dual income no kids @ 200+k can be a great way to save a lot of money. But, you have far less control over your spouses spending and willingness to relocate. Also, even if you don't move having 500+k / person in the bank is life changing. The median bay area house is 635,000$ which becomes affordable while saving money. Dual income with a 1+ Million down payment and you can actually…

Lol $635k. Maybe including condos but definitely not SFHs
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