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Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

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Re: Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

#301

Post by simonebrunozzi »

mensetmanusman wrote: post #102

The recent HN article on meritocracy comes to mind. I had never considered it this way in the past, but in the 70’s, productivity started decoupling massively from productivity gains. I.e. the best people at finance (meritocracy) figured out how to capture all the new earnings relative to the workers (who didn’t know this game was going on). This has snowballed into a situation where the financial meritocracy is comp…

Or, you get someone very influential (like YC) to start that revolution. Oh, wait: they don't have a strong incentive to do that.

Even if my guess is that YC partners are well intentioned, doing something this radical would make many enemies in the VC ranks, and damage YC in the long run.

I don't know... Perhaps a "revolution", like you're saying.

Re: Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

#302

Post by forkerenok »

lemonspat wrote: post #289
forkerenok wrote: post #204

Earlier quoted context omitted.

You can get non-recourse financing to cover exercise costs and taxes. I.e. you can offload the risk of early exercise for a share of the potential upside. Source: I work at Secfi ( https://secfi.com ) and our equity and tax advisors are amazing.

Could you explain more on what this means?

Gladly!

Non-recourse financing in this context means that in the event that shares (which are held as collateral) became worthless there is no personal recourse. I.e. your savings, house and whatnot are not on the hook. The contract is just dissolved.

In this scenario you spend $0 of your own money on exercise.

The "catch" is that you'll have to share the upside in case of a better outcome (according to pre-agreed rates). But the reality is that it's still a better option than just waiting for IPO/acquisition to exercise and sell shares at the same time (so called cashless exercise) [1].

[1] My colleague, Vieje, twitted a great case study on this topic: https://twitter.com/viejep/status/1306364614720909312

Re: Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

#303

Post by rhino369 »

travisoneill1 wrote: post #107
mensetmanusman wrote: post #102

The recent HN article on meritocracy comes to mind. I had never considered it this way in the past, but in the 70’s, productivity started decoupling massively from productivity gains. I.e. the best people at finance (meritocracy) figured out how to capture all the new earnings relative to the workers (who didn’t know this game was going on). This has snowballed into a situation where the financial meritocracy is comp…

I don't buy this explanation. Very few employees are paid in any financially complex way. Wages dropping overall must have a different explanation, which I suspect is an increase in labor supply due to women entering the labor force and illegal immigration combined with a decrease in demand due to automation.

Globalization is a factor too. Doesn't matter if Ford workers are 200% more productive when Mexican workers are 30% of the cost at similar productivity levels.

Re: Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

#304

Post by simonebrunozzi »

snowmaker wrote: post #242
chubot wrote: post #201

Earlier quoted context omitted.

Blog post from 2014: https://blog.samaltman.com/employee-equity That's more of an admonishment, but at least they recognized the problem ...

(I work at YC) Yes, we care a lot about making employee equity more generous and more fair. Part of our YC curriculum now is teaching founders about these issues and encouraging them to follow best practices around being generous and transparent with employees about equity compensation like Sam discussed in his blog post. I think there is still a lot more we can do, though.

Good to hear this.

I would be happy to spend an hour on a call with you and provide my very humble suggestions, if you're up for it. My HN username at gmail.

Edit: of course we can do this over email, too. I just feel that in the year of Covid, you don't throw away an opportunity for a warmer human connection.

Re: Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

#305

Post by vladTheInhaler »

zpeti wrote: post #167
travisoneill1 wrote: post #107

Earlier quoted context omitted.

I don't buy this explanation. Very few employees are paid in any financially complex way. Wages dropping overall must have a different explanation, which I suspect is an increase in labor supply due to women entering the labor force and illegal immigration combined with a decrease in demand due to automation.

It’s funny how economists never talk about this (women in the workforce). Its adding 50% more people to the workforce. Yes, it’s less because women might work less or part time, buts it’s an insanely high number in terms of market effects. I wouldn’t be surprised if one of the reasons you simply can’t survive on one person per household working, as in the 60s and 70s, is simply that two people are willing to work now…

Elizabeth Warren is talking about it. In fact, she literally wrote the book about it: https://en.wikipedia.org/wiki/The_Two-Income_Trap

Re: Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

#306

Post by mason55 »

ForHackernews wrote: post #292
mason55 wrote: post #185

Earlier quoted context omitted.

> If the company doubles in value and I have the same amount of money, then what's the point of getting options instead of USD? Huh? You should compare the current value of the options to their value at the last fundraising round, not between pre- and post-money in the same round. The doubling in value happen between (e.g.) the Series A raise and the Series B raise, not at the time of the Series B raise, and when you…

If it's a privately held company, then I think you could reasonably argue that the "pre-money" valuation is illusory. There's no market price, and the company is only worth whatever investors can be convinced to pay for it. To take your example: my hypothetical 10% isn't worth $2m -- it's worth an unknown amount (one hopes more than the $100k it started at). Only after somebody is willing to pay $5m for 20% of the co…

Ah, in the context of this conversation "pre-money" means the value of the company before taking into account the cash raised in the current round. It doesn't mean a company that's never taken any outside investment. It's perfectly reasonable to talk about a pre-money valuation that has a market price. If you raise $20m for 20% of the company then you can say the company had a post-money valuation of $100m or a pre-money valuation of $80m, and both of those numbers are market-based.

The poster I was replying to seemed to think that the act of raising money is what should increase the value of your shares, which is not the case.

See here for more info on how the terms are used: https://www.investopedia.com/ask/answers/difference-between-...

Re: Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

#307

Post by smallnamespace »

pdonis wrote: post #276
lisper wrote: post #259

Earlier quoted context omitted.

> Wealth is increasing for everyone, generally speaking That depends a lot on how you count. See: https://fred.stlouisfed.org/series/WFRBLB50107 The average net worth of the bottom 50% over the last 30 years is about the same as it was 30 years ago. Compare to: https://fred.stlouisfed.org/series/WFRBLT01026 and note that the net worth of the top 1% has been increasing more or less monotonically for the last 30 years,…

These charts aren't showing wealth, they're showing money. Money is not wealth. For example, suppose you have a car that you paid $20K in cash for this year. That works out to about $10K 30 years ago (I think the Fed charts you showed are in inflation-adjusted dollars, though they don't say so). So as far as monetary vaue is concerned, you have the same net worth in your $20K car today as a person 30 years ago would…

You may be surprised to hear that economists are well aware that consumer goods have improved over time, and even explicitly adjust for it when calculating inflation [1].

[1] https://www.bls.gov/cpi/quality-adjustment/questions-and-ans...

Re: Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

#308

Post by vladTheInhaler »

VRay wrote: post #186
zpeti wrote: post #167

Earlier quoted context omitted.

It’s funny how economists never talk about this (women in the workforce). Its adding 50% more people to the workforce. Yes, it’s less because women might work less or part time, buts it’s an insanely high number in terms of market effects. I wouldn’t be surprised if one of the reasons you simply can’t survive on one person per household working, as in the 60s and 70s, is simply that two people are willing to work now…

Man, I'd like to see some more info on the whole housing industry in general It seems to be completely FUBAR to me. In Japan, housing ISN'T a glamorous investment, and I think that helps the house pricing situation a lot.. You can get a nice apartment in the fanciest part of downtown Tokyo for cheaper than a dangerous hole in the wall in San Jose

The housing market in Japan is very different, for better or worse. As a consequence of the fact that houses aren't seen as investments, people...don't invest in their houses. They don't make necessary repairs, so the next owner would rather knock it over and rebuild than risk living in a rotting deathtrap [1]. From a macroscopic level, this is an enormous waste, because society is investing all these resources just to tread water, instead of accumulating wealth and resources over generations.

[1] Raze, rebuild, repeat: why Japan knocks down its houses after 30 years: https://www.theguardian.com/cities/2017/nov/16/japan-reusabl...

Re: Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

#309

Post by pdonis »

smallnamespace wrote: post #307
pdonis wrote: post #276

Earlier quoted context omitted.

These charts aren't showing wealth, they're showing money. Money is not wealth. For example, suppose you have a car that you paid $20K in cash for this year. That works out to about $10K 30 years ago (I think the Fed charts you showed are in inflation-adjusted dollars, though they don't say so). So as far as monetary vaue is concerned, you have the same net worth in your $20K car today as a person 30 years ago would…

You may be surprised to hear that economists are well aware that consumer goods have improved over time, and even explicitly adjust for it when calculating inflation [1]. [1] https://www.bls.gov/cpi/quality-adjustment/questions-and-ans...

They do this in the Consumer Price Index, yes. But that's not the same as doing it in all the analyses that are claimed to show wealth inequality. Not all sources define "inflation" the way the CPI does.

Also, even in the CPI, they don't do "hedonic adjustments", which is what you are describing, for all goods. For example, I mentioned cars and computers; the only adjustments made for those items are "cost based adjustments". And many items don't even get those.

Then there's the question of whether the methodology they are using for making "hedonic adjustments" where they are making them actually captures what it claims to capture, which is, to say the least, not something everyone agrees on.

Re: Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

#310

Post by taway21 »

tonystubblebine wrote: post #144

Sort of a devil's advocate question, but does the value of the options deal depend a lot on a person's ability to choose and join good startups? One example I'm thinking of is Josh Elman who seemingly got into the VC game just on having worked at three companies that went on to IPO (LinkedIn, Twitter, FB) and so that was a track record that could stand in place of an investment record. It doesn't seem that impressive…

Apparently even the godfather of AI couldnt pick the right company.

Element AI sold for $230-million as founders saw value mostly wiped out, document reveals

https://www.theglobeandmail.com/business/article-element-ai-...

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