IMO, startup options should be treated like lottery tickets: some people might win big, but the EV is ~0.
Negotiate compensation accordingly.
Startup Stock Options – Why a Good Deal Has Gone Bad
311–320 of 391 posts
Re: Startup Stock Options – Why a Good Deal Has Gone Bad
#312He glosses over an important point: it's now typical for founders to take money off the table as part of financing rounds, sometimes as early as the A round. Founders will request it as part of a funding round and, there's so much competition to invest in the top startups, that VCs go along with it. Decades ago, this wasn't the case. Founders waited for the IPO like employees. If you're an engineer sitting on $5m of…
If early liquidity wasn't an option for founders, this massive pre-ipo/private-ipo market wouldn't exist. Without early liquidity, a pre-ipo zuck/kalanick/etc. would be a paper billionaire with $0 in the bank and >$1bn "invested" in a risky tech startup. That's not financially or mentally sound, even by their risk lovin standards. If investors demanded every penny go towards growing the business, those CEOs would jus…
Good companies will often let early employees cash out in whole or in part with a "Tender Offer". https://carta.com/blog/tender-offer-faq/
This can benefit the founders and major investors, because they take less dilution.
Personally, I think founders should do this any time they take money off the table.
Re: Startup Stock Options – Why a Good Deal Has Gone Bad
#313Earlier quoted context omitted.
The easiest solution is that startup employees should be able to sell their shares in the open market, as they please. Then all the problems go away.
Until you're forced to start publishing quarterlies, or until the employees all unwittingly sell to the same would-be hostile takeover buyer.
Why would anyone else be able to sell shares to hostile buyers except employees. Hell, that clearly screws over employees.
Re: Startup Stock Options – Why a Good Deal Has Gone Bad
#314Earlier quoted context omitted.
>Treat startup options as wastepaper. You might get lucky, but it's really, really unlikely. I have a similar story. I've been a part of three startups (two exited, one still going) and the options in all were only worth an eventual capital loss. For my last company, I owned nearly a percent of shares, but they were still worth zero. The only money I got was a cash bonus and stock from the acquiring company as a rete…
You got $0 from your equity with ~1% of the company: is the reason the fact that the company turned against its employees, or more that the company exited for less than its last valuation and so there was no other way than make common shares worthless (like in the other conversation parallel to this one)? Thanks
Is basically fraud, but you need money to investigate it, collect evidence and sue which they fraudster know isn’t worth it for any employee.
Re: Startup Stock Options – Why a Good Deal Has Gone Bad
#315Earlier quoted context omitted.
The easiest solution is that startup employees should be able to sell their shares in the open market, as they please. Then all the problems go away.
That requires that you have IPOed. And that comes with its own set of complications. Though there are secondary markets arising for this sort of thing.
It requires the SEC stop prohibiting it.
Re: Startup Stock Options – Why a Good Deal Has Gone Bad
#316I was part of a very well know incubator and a very early employee at a flagship company. Founder blew tons of cash and dilutions but that is part of it and I didn’t mind. What was ethically shady was shortly after I left with 4yrs vested they decided to restructure the entire company so they could attract investment. They took all the debt from the original company and put that in a shell company that then owned a p…
My first job in the US was at a startup located in an incubator building. In the same building was another startup that wasn't doing so well after a lot of growth and management there made sure that they would make some serious money at the firesale while everybody else made nothing. It really opened my eyes about the ethics of VCs and a lot of founders (who were very pleasant and nice people if you met them at the gym or the cafe).
Re: Startup Stock Options – Why a Good Deal Has Gone Bad
#317Earlier quoted context omitted.
A company I used to work for is in the process of doing this right now. Makes me feel really stupid spending ~10k exercising the shares.
While you're probably bound by some restricted shareholder agreement, you may get a lot of mileage by just asking a lawyer to ask some questions on your behalf. If this restructuring is going on in the context of some larger time sensitive deal, they may throw something your way to not screw up the timeline. Of course, this all depends on your tolerance for pain.
I have heard that too. By raising an issue you may delay some deals so they may choose to pay you off just to get rid of you. But obviously there are no guarantees and hiring a lawyer may cost money.
Re: Startup Stock Options – Why a Good Deal Has Gone Bad
#318Earlier quoted context omitted.
Article is titled "why a good deal has gone bad." My point is that winning does not make it a good deal. To expand on it further, even if you are lucky to have joined a unicorn, you still didn't get a good deal in comparison to virtually everyone else involved in the company. The founders are likely billionaires and you made off with a low 7 figure outcome while taking on only marginally less risk. That's not a good…
A founder takes far more risk than an employee. It's easy to look at extremely successful outliers and say in retrospect that they are unfairly wealthy, but for every Sergey Brin or Elon Musk, there are many many people who slave away at a company for years at a very small salary, burning through their savings and getting loans (or "investments") from friends and family. Take Jeff Bezos. He was a fairly wealthy guy,…
"Still, he took a $250k investment from his parents to help found the company."
Seems he is another wealthy guy who "made it on his own". I couldn't raise even a 10th of that from my family.
Re: Startup Stock Options – Why a Good Deal Has Gone Bad
#319Valid reasons to work for a startup: - You are a cofounder. - You have little experience and you are using this to break into the industry, and get experience on many different technologies ("wear many hats"). - They are working on a very specific problem or using a specific technology that you strongly desire to work on and it's difficult to do it anywhere else. - You want to work a certain way (remote, on the beach…
Wow, the music business.
Re: Startup Stock Options – Why a Good Deal Has Gone Bad
#320Earlier quoted context omitted.
I've worked at two startups, then a BigCo, and now another startup. The wearing of many hats was definitely a leveling-up experience, but I felt that I plateaued in just the way you describe. Equity from both of those first two startups is now worth zero. In my years at BigCo I worked with engineers who have 10-20 years more experience than I do. Often felt like the dumbest guy in the room. I learned a ton. No compar…
I think there's a similar dynamic with consulting - ThoughtWorks / Pivotal Labs type places. You get shunted around between many different projects, there are never enough people, so there are opportunities to take more responsibilities, and things are often a bit fluid, because a consultancy coming in tends to (should!) crack the organisation a bit. There are downsides to all of that, but it's also a way of getting…
I worked in Pivotal Labs for about two years. It is an amazing place to learn the craft.