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Startup Stock Options – Why a Good Deal Has Gone Bad

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Re: Startup Stock Options – Why a Good Deal Has Gone Bad

#261

Post by deanmoriarty »

eanzenberg wrote: post #259
deanmoriarty wrote: post #85

Earlier quoted context omitted.

In my 10 year career, I've done 2 startups in the Bay Area (both early, one I left after Series A, another one I left after Series C) and more recently Google, and I can say the level of talent doesn't even compare in my opinion: from my experience, the engineers were so bad quality that I was feeling depressed and wasting my time most of the time (and constantly saying to myself "am I just a jerk in thinking of ever…

Right.. at Google, you have immense numbers of people work on entirely useless products that get canceled a year later.

I shouldn't reply, but oh well:

> people work on entirely useless products that get canceled a year later.

You just described 99% of startups :-)

Re: Startup Stock Options – Why a Good Deal Has Gone Bad

#262

Post by matthewowen »

deanmoriarty wrote: post #102
matthewowen wrote: post #71

Earlier quoted context omitted.

SF startup cash comp for engineers is comfortably in the 150k-200k range, and often higher. This is series A, series B stage companies. If you have a few years of experience and are making less than this then I'm please to be able to inform you that you are underpaid. If you have one of those incomes at the higher end, you can do these things in the bay area. If you have more than one then that stuff is not hard at a…

Unless you mean both spouses should earn around 200k and thus bringing in a FAANG-equivalent income of 400k, I really don't know how you could afford what you are saying on a single 150k-200k salary (and perhaps another 50k for your spouse's salary, since not everybody works in tech). After paying for CA taxes, fed taxes, kids' schools, rent, car expenses, 401k contributions, I really don't know how you would come up…

Yes, based on my own experience and that of my peers, I think it's very plausible that you would have accumulated savings to get you 20% down on a $1MM place over the course of (say) spending the last six to eight years in San Francisco with household income in the 150 to 200k range. You might have to make a tradeoff of (eg) not maxing your 401k contributions if you're on the lower end. I mean, we're talking probably about saving $20k/yr when you factor in compounded returns from (eg) the S&P500.

I agree that this math does _not_ work as well if you're moving to San Francisco and already have a family but no preexisting savings, so don't do that.

It's also true that if you rely on financing you will get outbid on some houses. But I know plenty of people who've successfully bought using financing.

Re: Startup Stock Options – Why a Good Deal Has Gone Bad

#263

Post by deadmik3 »

pnw_hazor wrote: post #103
dasil003 wrote: post #45

Earlier quoted context omitted.

FANG is undisputably the best risk-adjusted compensation return for a programmer, and they're up there in terms of working with super smart colleagues, and therefore they have a high floor, compared to say a startup that goes nowhere with the blind leading the blind, but the ceiling is also constrained by what projects you're working on. In terms of raw software engineering development there's probably no substitute…

Though at F and G there is the cost of having to rationalize working for an organization that is evil.

and for me that cost is easily covered by the salaries they hand out

Re: Startup Stock Options – Why a Good Deal Has Gone Bad

#264

Post by deanmoriarty »

eanzenberg wrote: post #260
deanmoriarty wrote: post #102

Earlier quoted context omitted.

Unless you mean both spouses should earn around 200k and thus bringing in a FAANG-equivalent income of 400k, I really don't know how you could afford what you are saying on a single 150k-200k salary (and perhaps another 50k for your spouse's salary, since not everybody works in tech). After paying for CA taxes, fed taxes, kids' schools, rent, car expenses, 401k contributions, I really don't know how you would come up…

>>FAANG-equivalent income of 400k LUL dude, I hear this shit being parroted ad-nauseum. The amount of FAANG people that hit this level or more is like, 5-10%. Take a look at the top 5-10% of non-FAANG companies and you'll see those employees are also hitting this mark. There's nothing special about FAANG. I understand lots of FAANG employees parrot this around to make themselves feel better about their life choices.

According to my experience (and again, that's the only thing I know), that's not even remotely true.

When I interviewed a couple years ago, I made sure to interview at FAANG (specifically Facebook, Google, Netflix) and I also interviewed at half dozen big public companies in the same couple months (among which Oracle, Salesforce, Cisco, Juniper, Palo Alto Networks). I didn't interview at any private company (Uber, AirBnB, ...), since I was coming out of the startup world and I wanted liquid compensation.

The FAANG offers that came back were all significantly higher than the other ones, and the constant was certainly me (a software engineer with 7 years of experience at the time and a BS + MS in Computer Engineering).

All the FAANG offers (luckily I got an offer from all the 3 I interviewed at) were at a total liquid compensation of $~400-450k/y (annualized cash + RSU), and I'm certainly not in the top 10% of their tech workforce, not even remotely close, I come in as a generalist with some ops experience who spent a couple months studying algorithms and data structures. I don't even have an active GitHub profile.

All the other non-FAANG tech companies (I got an offer from 4) were at a total liquid compensation of $~220k/y (annualized cash + RSU).

The only other companies who matched the FAANG offers were a couple of hedge funds on the East Coast, but I didn't want to relocate and I wanted to keep working for a tech company.

In the end, I joined Google.

So, I'm just reporting my own personal experience based on the data I directly experienced (I have PDFs of all the offers :-)). Feel free to ask any follow up question, I love educating software engineers on their real market value, since I think many sell themselves too short in this thriving market.

Re: Startup Stock Options – Why a Good Deal Has Gone Bad

#265

Post by matthewowen »

nostrademons wrote: post #118
matthewowen wrote: post #71

Earlier quoted context omitted.

SF startup cash comp for engineers is comfortably in the 150k-200k range, and often higher. This is series A, series B stage companies. If you have a few years of experience and are making less than this then I'm please to be able to inform you that you are underpaid. If you have one of those incomes at the higher end, you can do these things in the bay area. If you have more than one then that stuff is not hard at a…

You pay for it in commute time, though. I just checked Zillow; the houses that are anywhere within walking distance of BART go for $1.7-$2.8M, with the $1M homes clustered near the freeway. Driving across the Bay Bridge into SF can easily take an hour; hell, I know people who've been stuck on the bridge for over an hour.

I checked this before I posted to make sure things hadn't changed.

Here's an example: https://www.redfin.com/CA/Berkeley/2333-Sacramento-St-94702/...

BART is a 20 minute walk, five minute bike ride (and with the weather and topography cycling is a great option).

Re: Startup Stock Options – Why a Good Deal Has Gone Bad

#266

Post by Bombthecat »

martin_ wrote: post #247
deanmoriarty wrote: post #219

Earlier quoted context omitted.

Hold on a second (and thanks for this!). If I read your document right, it says: The Company expects that the proceeds available for distribution to the holders of Preferred Shares, including the full release of the Indemnity Escrow Fund, will be approximately $0.5816 for each Preferred Share (the “Estimated Per Share Consideration”). And in another portion, it says: before any distribution or payment of merger consi…

Yes that’s correct, I don’t think anything nefarious happened. The big bummer, though, is I had $0.01 shares and paid AMT at a much higher valuation and expect it to take a few decades to claim back the loss. Was my first time working with ISOs and didn’t know about 83b’s

In germany, you can sell those claims to firms. Which then make use of it. Can't you do it?

Re: Startup Stock Options – Why a Good Deal Has Gone Bad

#267

Post by defen »

matthewowen wrote: post #257
defen wrote: post #153

Earlier quoted context omitted.

> Berkeley has pleasant single family homes in a great school district around the $1MM mark. You can absolutely do that on $200k/year. Let's say you make $200k/year and manage to put together a $300k down payment and get a $700k mortgage at 3.8%. Here is the breakdown of your annual spending (using 2018 numbers): $18,500 to 401K $35,930 in federal income tax $10,593 in FICA (Social security and medicare) $13,724 in C…

2+ hours per day commuting? BART from Berkeley to Powell St station is 30 minutes. You have last mile for sure, but this totally works for most SF based startup jobs. But either way... doesn't this prove my point? This does not sound like a difficult way to live, _and_ it factors in luxuries (I for one definitely do not spend $10k/year on car ownership).

> 2+ hours per day commuting? BART from Berkeley to Powell St station is 30 minutes.

1 hour on/waiting for BART + ~40 minutes walking between your house and BART + ~20 minutes walking between BART and your job gets pretty close to 2 hours.

Car cost is indeed high, but if you have a kid you'll probably need one and then you have to factor in the cost of childcare... $2k/month?

Re: Startup Stock Options – Why a Good Deal Has Gone Bad

#268

Post by commandlinefan »

SkyMarshal wrote: post #253
kabdib wrote: post #183

I made a bunch of money from ISOs at large, established companies. I made zero (well, negative, really) from startup stock options, even before things got really shifty in the 2000s. One startup that I left, that is now a billion dollar company, simply decided to "extinguish" the shares I bought a few years after I resigned. I was probably cheated, but it's not worth the effort to go after them and they know it. Trea…

>One startup that I left, that is now a billion dollar company, simply decided to "extinguish" the shares I bought a few years after I resigned. I was probably cheated, but it's not worth the effort to go after them and they know it. Sounds like an opportunity for a class action lawsuit. If they did it to you, they probably did it to others.

> they probably did it to others.

They all do it to everybody. They're careful to make sure there's nothing/nobody to sue - the stock options are offered by an S-corporation, which then goes "out of business". You can sue the now out-of-business S-corporation if you'd like, but it has no value, being out of business.

Re: Startup Stock Options – Why a Good Deal Has Gone Bad

#269

Post by matthewowen »

defen wrote: post #267
matthewowen wrote: post #257

Earlier quoted context omitted.

2+ hours per day commuting? BART from Berkeley to Powell St station is 30 minutes. You have last mile for sure, but this totally works for most SF based startup jobs. But either way... doesn't this prove my point? This does not sound like a difficult way to live, _and_ it factors in luxuries (I for one definitely do not spend $10k/year on car ownership).

> 2+ hours per day commuting? BART from Berkeley to Powell St station is 30 minutes. 1 hour on/waiting for BART + ~40 minutes walking between your house and BART + ~20 minutes walking between BART and your job gets pretty close to 2 hours. Car cost is indeed high, but if you have a kid you'll probably need one and then you have to factor in the cost of childcare... $2k/month?

I generously based this on one income. If we need childcare then we presumably have a second income?

I realize that single parent households do exist, but we're not covering every case here.

You don't need to spend $10k/year to have a car. This is pretty trivially provable because there are lots of people who own cars who clearly wouldn't be able to do so if that were the case.

Re: Startup Stock Options – Why a Good Deal Has Gone Bad

#270

Post by acjohnson55 »

jm20 wrote: post #145
save_ferris wrote: post #10

Why don't startups offer actual equity grants instead of options? It seemed strange to me when I was starting out in my career that I needed to take a lower salary and options to exercise upon my exit, which wound up costing me thousands of dollars from that lower salary. Two years later, one founder forced out his two other cofounders, started a new company in the exact same space, and poached his best employees, es…

A lot of smaller/early stage/seed startups actually do this. It's a restricted stock grant. And for the people saying they don't do it because of taxation on an illiquid asset, this is why 83(b)'s exist. They let you pay the full tax on a stock grant at time of the grant, not time of vesting. You get a 409A valuation to establish the Fair Market Value of your stock. That valuation isn't based on the same criteria tha…

That only works if you're a really early employee. Most moderately successful companies reach the point where their equity grants are worth enough that the exercise cost plus tax bill for an early exercise will be in the thousands.
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