Be careful with those golden handcuffs: they only work if everyone thinks they're real. A bad quarter or even a bad rumor can prompt staff to bail en masse.
Options vs. Cash
291–300 of 325 posts
Re: Options vs. Cash
#292Earlier quoted context omitted.
> I'm getting a bit more per paycheck, but on the whole I suspect my tax returns over the next few years will add up to less than I was making before, even if the startup succeeds. That sounds counter-intuitive -- why would that be? Did you have some expense you could claim at [large corporation] that you can no longer claim?
Most of the big post-IPO companies hand out stock on a regular basis as a bonus or a top-up to the actual pay. The corp in question for me was Amazon. Around 1/3 of my pay (more some years) was in the form of AMZN stock that vested every six months. Stock, not Stock Options. No paying for it, no decisions, just boom, you now own X more stocks and how would you like to pay the income tax on that?
What's worth more? A $200K lump sum in 20 years or $10K every year for the next 10?
The answer depends on how much interest you can earn on the $10K/year. At around ~7% the $10K/year is worth more than the $200K in 20 years.
Your stock grants from Amazon are equivalent to the $10K/year, the options, if you get them, are equivalent to the $200K. The actual weighting is impossible to get precisely but the way you approach it can give you better accuracy than just comparing apples to oranges.
Good news, even if it's horrible, ~2 years is the typical employee tenure so you probably wont be there long. If you are and it's going to be successful you'll be able to renegotiate based on foregone comp at Amazon.
Re: Options vs. Cash
#293Earlier quoted context omitted.
Which should have been clear to you when you joined the company and read and signed the employment and stock options agreements (you did read them, didn't you?). If that isn't to your liking, don't work for a startup.
"It's in the contract!" is a poor excuse for the company acting shitty to you.
You miss the point. I don't think they are acting shitty. They're acting according to what both you and they agreed to in advance. You knew (or should have known) what they were (and were not) going to give you in return for your effort. It's only shitty of them (and illegal) if they don't follow through on that agreement.
Re: Options vs. Cash
#294Earlier quoted context omitted.
> I know 100+ people from a dozen companies who've made $1mm+ on equity. None of my friends would write a post like this. This is addressed in the post: > Another common objection is something like “I know lots of people who’ve made $1m from startups”. Me too, but I also know lots of people who’ve made much more than that working at public companies. This post is about the relative value of compensation packages, not…
The biggest difference may be the tax status of the way those two millions are earned. If you're earning $1m from a public company, you're likely finding yourself in a near-top tax bracket and running into AMT in most years. If you get that same $1m from options, you can be paying taxes like a rich person. If you've handled it right, you can mostly avoid AMT and pay the long-term cap gains rate. Another difference co…
I'm not sure post-spending is the right thing to look at. One of the many reasons working at a startup is an awkward sell is that it means giving up money during your lowest-earning years in hope of getting more in your higher-earning years. That's the opposite of the smoothing function a rational person would prefer. That extra spending may well have provided a large amount of extra utility.
As far as taxes, a big difference you didn't mention is that startups most frequently exit in a single liquidity event that can't be deferred (i.e. acquisition). Getting that $1MM in one tax year is much worse than spreading it out over even 3-5. At least in my locality, the difference between taxes on a $1mm windfall in one tax year vs. a senior dev salary at a place like Google is ~5%.
Re: Options vs. Cash
#295"...compensation package has a higher expected value..." Expected value is a good measure when you're summing over lots of instances, e.g. if you're a VC fund investing in lots of startups. As an employee, where you're working for a single startup at a time, robust statistics[1] suggests that the median is a better measure of what you'll expect to make: you have a 50/50 chance of making more/less than the median. Mor…
Why take the median? For me personally all I need is one year where I make a couple million bucks. What I really care about for my personal financial position is either the sum or mean, because that's what hits my bank account.
Some lotteries that accumulate when there are no winners have weeks with better-than-even odds. By this logic, you should wait until the odds are sufficiently in your favor and then dump your entire savings account into lotto tickets, for an immediate gain.
Of course, even if you can pick up a 20% gain in EV, that small chance you end up a billionaire won't save you from the 99.99..% of cases when you're eating cat food in retirement.
Re: Options vs. Cash
#296Earlier quoted context omitted.
"It's in the contract!" is a poor excuse for the company acting shitty to you.
You miss the point. I don't think they are acting shitty. They're acting according to what both you and they agreed to in advance. You knew (or should have known) what they were (and were not) going to give you in return for your effort. It's only shitty of them (and illegal) if they don't follow through on that agreement.
And I disagree.
Re: Options vs. Cash
#297$$$$$$$$$ cash cash cash cash cash cash cash cash cash cash cash cash cash cash cash now now now now now now now now or even better yesterday. $$$$$$$$$$. Time value of money!! Time value of (startup) (non-founder) options? Not so much. The expected value of your average Silicon Valley start up with golden handcuffs included must be downright negative.
Please don't.
Re: Options vs. Cash
#298Earlier quoted context omitted.
I didn't say anything about anti-dilution. There are complexities, but as you explain, if you take more money, you need to give the investors something. If you look purely at the accounting, and ignoring voting rights and other complications, you are right. Dilution doesn't change anything. IMHO this argument is a case of technically accurate, and completely useless. It doesn't matter what the value of the company is…
>IMHO this argument is a case of technically accurate, and completely useless. Actually, your statement of "All things being equal, owning more % of a company == more money." ... is what's misleading. People are cargo-culting the meme that "dilution is bad" and it has the perverse effect of making them think that awareness of it is "financial sophistication." Your other statement, "Mostly from people trying to sell t…
> If the company needs the investment, it needs the investment.
Agreed, but it might not. The fact that it is taking the investment does not mean it is needed, or that it is good for all stakeholders. Investors, founders, and employees all have different goals, motivations, and risk profiles. It is also very possible for the board to make a mistake and take funding that is a net negative for the company as a whole.
My problem is with this argument from your original post:
> In fact, dilution is a positive sign.
These are complex situations. Boiling them down to dilution is good, vs dilution is bad just leads to misunderstanding. Which, in my experience, can be the goal of the person making the argument.
I never said dilution is bad. My original comment was in response to your blanket statement that dilution should be assumed to be good.
I am just saying, "Hold on. It isn't so simple."
In the end, I think we are in violent agreement. People should not get hung up on dilution, it a natural part of the startup lifecycle. It is a factor in the equation, but only a factor. As I alluded to originally, it is much more important what the company is planning on doing with the funds.
Personally, I think the outrage about dilution is due to the fact that many new employees don't take the time to fully understand how it all works when they are hired. The single most important thing employees need to understand about dilution is that, if they join an early startup, it will probably happen at some point. Options for 1% of the company doesn't mean you will own 1% at the end.
Re: Options vs. Cash
#299What strikes me as odd given the USA's reputation as the home of the self made millionaire that the taxation of employee options is so broken. Treating options on shares as Income when they are not is just stupid options are a high risk instrument that well be worth nothing as opposed to a higher sallery. Why is there not a PAC made up of tech industry employees lobbying for reform of Federal and state laws and argua…
If you are arguing that grants of options shouldn't be taxed -- they are not. If you are arguing that the eventual income from ISO's shouldn't be taxed -- that would be a very odd position, since pretty much every form of income out there in the world is taxed, even illegal income. I can't think of any other income category that is un-taxed under USA tax laws, with the exception of government bonds.
We are talking about capital gains and not income most companies we are talking about don't pay dividends.
Re: Options vs. Cash
#300Earlier quoted context omitted.
> 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. Sure, you can ask for a 100% non-dilutable share, but you're not going to get it. In order to negotiate meaningfully, you need to have a valuation of the things you're negotiating on, so you can decide what tradeoffs are good and which are bad.
This is what I don't understand... Why can't developers get non-dilutable shares? If someone helps you invent something, and they are willing to put their own skin in the game in exchange for an ownership stake, then shouldn't they become wealthy along with you if it is successful? This whole notion that developers are expendable and disposable and that it is acceptable to give them dilutable stock options is fundame…
When I said "100% non-dilutable share", that was unclear. I meant non-dilutable 100% share. As in, total ownership.