There is so much conflation in that first paragraph I couldn't get past it. The way I think about it is that options are how you earn money for doing a (/if you do a) good job. Much like doing a good job of picking a house in a neighborhood that you believe will appreciate, doing the right amount of renovation and renting it out while waiting, if you did this well you could make money on the appreciating assets. In a startup, your two main assets are time and people. Salary is how a company compensates you for the FACT that you're doing a good job. Bonuses are how the company compensates you for going above and beyond. In our company we have standard compensation packages based on tenure, within the structure, there is no way for anyone to make any more than anyone else outside of just being at the company for a long time. When you're betting on a startup you're betting on the founders and the team, not the VC, if you want a proper salary go work for a business that is already built, don't work on building one. Hedge funds and banks pay really well.
Options vs. Cash
21–30 of 325 posts
Re: Options vs. Cash
#22I started off once thinking "yay, X% means I get X% of the company!" and then I found out the shares can be diluted. Then I learned "non-dillutable". Then I learned about vesting periods, windows for exercising options, and a whole slew of financial terms and devices; each one seemed to come with its own unique "gotcha" that, if you didn't know about, would cost you nearly everything. Everyone I talk to about these a…
Let's not forget the "asset only" acquisition where the company sells it's IP and employees but doesn't sell any shares. Been through one of these and this is what happened, screwing over former employees who had bought options and investors. I think the only people who profited were the bankers.
Re: Options vs. Cash
#23Options by definition are worthless when they are granted, because strike price is the current estimated value of the stock.
This is not true, the right to purchase at the current price but not the obligation has value in itself. Of course this is no where near the sum of the strike price for the options.
Right, with options you can choose not to exercise if valuation goes down, avoiding a loss.
Re: Options vs. Cash
#24If you're having to debate in your head "options vs cash", then the answer is definitely cash. Because if the options were worth something, that thought wouldn't even come up. Also, companies where options are of actual value generally do not give you such a choice, they give you plenty of both (provided you are worth it), the objective is to retain you because you are valuable, not to pay you the minimum possible value by presenting tricky choices of "options or cash".
Re: Options vs. Cash
#25I know 100+ people from a dozen companies who've made $1mm+ on equity. None of my friends would write a post like this. That said, valuing equity is complicated: - most offers include a healthy mix of cash and equity and benefits. Evaluate the whole package. - unless you can pre-exercise via 83(b), I generally avoid options. RSUs are fine and many companies are offering them. Clever hack: counter the offer with a dem…
That last idea about how to deal with illiquidity is very interesting. Never seen that suggestion before. Will definitely keep that in mind moving forward (both as an offer taker and an offer maker). Thanks!
Re: Options vs. Cash
#26Working at a startup as an employee with the expectation your gonna get rich is a fools game.
Negotiate for the best deal on options you can get (I.e quantity, terms like early excercise etc) but treat them as a lottery ticket.
A startup is a good way to learn rapidly so focus more on the quality of the people you will be working with, technologies used, what your role will be, vcs backing it etc.
In the long run the network and experience you build from doing this will probably have a greater impact on your networth. Especially if you yourself want to start a startup.
Re: Options vs. Cash
#27I started off once thinking "yay, X% means I get X% of the company!" and then I found out the shares can be diluted. Then I learned "non-dillutable". Then I learned about vesting periods, windows for exercising options, and a whole slew of financial terms and devices; each one seemed to come with its own unique "gotcha" that, if you didn't know about, would cost you nearly everything. Everyone I talk to about these a…
>"yay, X% means I get X% of the company!" and then I found out the shares can be diluted.
There seems to be a common misunderstanding about dilution.
Dilution is not really the issue. In fact, dilution is a positive sign. It means more investors value the company and want to buy into the ownership.
How do current owners who collectively own 100% of the shares "sell" more shares to future owners?!? By way of dilution. That means everybody gets diluted including the founders, the angels, the VCs, and yes the employees too.
More important than dilution is the shares multiplied by price.
Re: Options vs. Cash
#28I know 100+ people from a dozen companies who've made $1mm+ on equity. None of my friends would write a post like this. That said, valuing equity is complicated: - most offers include a healthy mix of cash and equity and benefits. Evaluate the whole package. - unless you can pre-exercise via 83(b), I generally avoid options. RSUs are fine and many companies are offering them. Clever hack: counter the offer with a dem…
Are you really going to be able to negotiate terms like that with a company that's at the stage where they are offering RSUs (I.e Airbnb)? I can imagine negotiating terms on options at earlyier stage companies.
Wouldn't you have to be going for a job in senior management to have a shot at doing something like this? Genuinely curious to hear if you have ever successfully done something like this?
Re: Options vs. Cash
#29Man I wish I knew more about options before I joined a pre IPO company. Kind of like how I wish I knew about salary negotiation before my first job out of college. It's like companies exist to scam us.
Re: Options vs. Cash
#30Working at a startup as an employee with the expectation your gonna get rich is a fools game. Negotiate for the best deal on options you can get (I.e quantity, terms like early excercise etc) but treat them as a lottery ticket. A startup is a good way to learn rapidly so focus more on the quality of the people you will be working with, technologies used, what your role will be, vcs backing it etc. In the long run the…
I'm a founder at a high-growth startup in Mountain View. I always tell potential hires, "options are worth nothing until they're worth something. And, they may never be worth anything."
I think that's the opposite of the unrealistic optimism job candidates get. But I think it also helps set the stage for a culture of transparency and honesty very early. Even before that person becomes an employee.
I'm curios to know what HN'ers think of that explanation vs hearing only the optimistic case. Does it make you second guess the company prospects?