Employee Equity • Hacker News Board

Re: Employee Equity

#211

Post by carterschonwald » Sat, Apr 19, 2014, 1:24 AM UTC

sitkack wrote: post #183

michaelochurch wrote: post #142

Earlier quoted context omitted.

You alienate yourself with respect to your peers and your boss will think you are trying to take their job. Nearly everyone around you will consider you a threat. Bingo. You fucking nailed it. The best thing to do after having been tainted by startup education is to go into consulting. How easy is that? I'm considering that avenue for myself, largely because I'm sick of office politics, re-orgs, and other time-wastin…

I'll try and follow up on this tomorrow, but I dont have a lot of insight. It is difficult. Lots of hustling.

indeed, having any deal flow in consulting requires A LOT of work building up a reputation of trust and quality with clients (and choosing clients well!)

Re: Employee Equity

#212

Post by argonaut » Sat, Apr 19, 2014, 1:30 AM UTC

sockgrant wrote: post #185

prostoalex wrote: post #77

Earlier quoted context omitted.

How many startups with $1 bln+ valuation are there in KC?

The OP's chance of being a $1bn+ valued company is unrelated to how many $1 bn startups have come out of KC.

For better or for worse, those chances actually are related, because the #1 source of >$1BB exits is being acquired by other billion dollar tech companies, most of which are heavily networked in SV.

Re: Employee Equity

#213

Post by lsc » Sat, Apr 19, 2014, 1:32 AM UTC

harryh wrote: post #202

patio11 wrote: post #162

Earlier quoted context omitted.

This is one of the things which we like to say about startups, but it doesn't stand up under scrutiny. The competing job offer is Google or another megacorp. What's their turnover for engineers in a year? 10%? 15%? The definitionally average startup has a higher turnover even if we restrict it to turnover caused by business failure , to say nothing of voluntarily or involuntarily losing one's job. If you exit a posit…

For engineers above a certain skill level it's difficult to imagine job security becoming a real concern in the foreseeable future. You're certainly correct about the opportunity cost of forgoing higher guaranteed comp at a BigCorp in return for a potentially higher reward, but I don't think that directly relates to the question of job security.

Do you remember 2001? One moment everything was brilliant. a year later and I had people who were working alongside me... people who were better than me in the late '90s... working for me, because their other option was retail. "I can't pay you what you are worth," I said to an ex-coworker I found working in a sandwich shop in the mid-aughts, "But I can pay you more than this place does." The guy really was pretty good, and he ended up working for me for many years.

Now, maybe we are in a bubble and maybe we are not, but the tech sector has a history of very sharp ups and downs, and in the downs? my experience is that a lot of pretty good people end up un[der]employed.

The other interesting thing is that from what I've seen? Layoffs at big companies (and if the sector takes a dump, there will be layoffs) are generally more "fair" than interviews at the same places. By that, I mean that those people who are shy but good are often the last to get laid off, but beyond a certain level, when interviewing, the "shy" part hurts you more than the "good" part helps you.

Re: Employee Equity

#214

Post by gibybo » Sat, Apr 19, 2014, 1:34 AM UTC

Vesting options at a startup are really like second-order options. If they were granted to you immediately they would just be ordinary options: you have the option to buy the stock at the strike price. However, since they must vest over a period of time in which you are sacrificing a higher salary, you are also given the option of whether to continue vesting those options (by staying at the company) or not (leaving the company).

The second-order option is what makes them valuable. Most startups either grow aggressively during those 4 years or they die. If they fail early, you don't have to sacrifice much salary for the now worthless options. If they are doing well, the options are now worth much more yet you are still only sacrificing the same amount of salary for them.

The problem is that the value of this presents a direct conflict between the company and employee. When the value of the unvested options grow, the company can reduce the unvested amount (or fire them if they don't agree)[1] because it will be disproportionate to the value the employee is providing. Note that they don't actually have to go after the unvested shares to recapture this value. They can go after any other form of compensation they are providing since it will still be more than the employee can get elsewhere. Essentially, this means the employee's upside potential is severely limited. Since the value of a share in a startup is based almost entirely on a massively higher future value, this tremendously reduces the value of typical startup vesting options.

If I worked for a startup I'd want straight equity. Find the value of the common stock and pay 10-30% of my salary in common stock. The amount of shares will float as the value of the company does, but this is required in order to keep incentives aligned. I'll pay the tax out of my salary (at ordinary income rates). If the company succeeds, almost the entire value derived from the equity will still be taxed at capital gains rates.

[1] See Zynga, Skype, and probably many others we never hear about.

Re: Employee Equity

#215

Post by paulbaumgart » Sat, Apr 19, 2014, 1:41 AM UTC

acgourley wrote: post #210

paulbaumgart wrote: post #164

Earlier quoted context omitted.

The valuation is the expected value. And since we're talking about investors who get preferred shares, the actual valuation for determining the value of the common shares (which employees get) is lower than that, still.

You're not wrong and that view represents the normal thinking I suppose. But don't you think it feels weird to say, "We're going to pay you next year in equity at this years valuation"? if you choose to stay in the company for year 2, it's strange to think that your risk goes down while value per share goes up. Your effective cash+stock compensation for year 2/3/4 goes way way up if you think in those terms. Then dro…

Value per share goes up, but presumably the employee had a significant role in making it go up, so that part seems fair. The 5th year discontinuity is an unresolved problem, though. It seems that, for the most part, people don't expect their employees to stick around that long. In the blog post, it mentions that some people are moving to 5 or 6 year vesting.

Re: Employee Equity

#216

Post by coffeemug » Sat, Apr 19, 2014, 1:48 AM UTC

webwright wrote: post #197

coffeemug wrote: post #177

Earlier quoted context omitted.

Pick a market where you can get to significant traction in less than a year with a founding team of 3-5. Split equity evenly between all founders, but do pick one CEO. Then work like hell to get to significant traction. Don't hire until series A. (If my current company doesn't work out, this is how I'll do it next time around)

I feel like I remember PG telling me that large founding teams (more than 3) were highly correlated with failure. If I were to guess why: The more relationships you have on the founding team, the more likely you are to have ONE of them blow up or have someone lose their nerve/interest. Early startups are fragile things. Seems like you could go with a hybrid approach (start with 2-3 founders, raise a small amount or s…

> I feel like I remember PG telling me that large founding teams (more than 3) were highly correlated with failure.

They usually are, but the median is not the message. If it's a group of college friends coming together to start a company for the first time, 2-3 people is way better than 4-5. But if you've worked with a few people before, know them well, and know how to set up expectations on day one, you can successfully have a larger group of cofounders without worrying about conflict. (This is something I've discovered for myself, it doesn't mean it would work for everyone)

Re: Employee Equity

#217

Post by calinet6 » Sat, Apr 19, 2014, 2:14 AM UTC

prostoalex wrote: post #74

enjo wrote: post #57

Earlier quoted context omitted.

How do you define performance? It's a fantastically difficult thing to define. In my experience every attempt at this (at least for engineers) ends up in a situation where people are putting their effort into maximizing metrics as opposed to furthering business goals. We completely decouple performance reviews from compensation. Full stop.

What? Why? Don't the overachievers then become bitter knowing that the guy next desk to them is making more by working less, just because he was better at negotiating at some point?

You'd think that, but in fact, it fosters such a collaborative and unselfish environment that people who might otherwise be "along for the ride" can't help but be caught up in the team.

Build a culture of productivity, not productive individuals.

Re: Employee Equity

#218

Post by wprl » Sat, Apr 19, 2014, 2:14 AM UTC

Iftheshoefits wrote: post #89

jstrate wrote: post #69

I've worked at two startups, including one YC. Both were acquired by larger tech companies. I was employee #3 at one and rebuilt most of a broken codebase in the other. I got nothing out of either WRT options. I agree with the author on point 4 but I don't think more options are the answer, I should have just asked for a higher salary I would have been better off. Startup-bucks are even worse than a lottery ticket, b…

You've identified one of the reasons I hesitate to put myself in the "startup labor market" for any startup that isn't well-funded. Even well-funded startups give me pause. I'm not interested in putting in founder-like work for entry-level employee-like compensation plus a lottery ticket. Unless the equity is meaningful and imbues the recipient with an actual, real voice in the direction of the company it's just a wa…

Agreed. I don't work for equity ever... don't feel like gambling with my livelihood.

Re: Employee Equity

#219

Post by prostoalex » Sat, Apr 19, 2014, 2:16 AM UTC

sockgrant wrote: post #185

prostoalex wrote: post #77

Earlier quoted context omitted.

How many startups with $1 bln+ valuation are there in KC?

The OP's chance of being a $1bn+ valued company is unrelated to how many $1 bn startups have come out of KC.

That changes the negotiating perspective of the job seeker. If you're surrounded by a rather large number of companies in that range - http://graphics.wsj.com/billion-dollar-club/ - and are skillful enough to enjoy offers from multiple suitors, you're bound to do your analysis, perhaps employing some backchannel communication.

If the theoretical maximum of company exit is in single millions, then spending time negotiating 0.25% vs 0.3% equity package is meaningless.

Re: Employee Equity

#220

Post by wprl » Sat, Apr 19, 2014, 2:19 AM UTC

hga wrote: post #95

jstrate wrote: post #69

I've worked at two startups, including one YC. Both were acquired by larger tech companies. I was employee #3 at one and rebuilt most of a broken codebase in the other. I got nothing out of either WRT options. I agree with the author on point 4 but I don't think more options are the answer, I should have just asked for a higher salary I would have been better off. Startup-bucks are even worse than a lottery ticket, b…

" Startup-bucks are even worse than a lottery ticket.... " Also because if they are worth something, it's a motivation for the company to fire you before you can cash out. E.g. while the discrimination case against Google was settled out of court for undisclosed terms, whatever the motivation, the timing of the firing of Brian Reid 9 days before the company's IPO was clearly not an accident. (119,000 options, $10 mil…

I'd rather be paid in barley than to have to deal with BS politics like this!