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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

#41

Post by achillesheels »

mlthoughts2018 wrote: post #5

It’s not just that the structure of option grants has worsened (also, expiration practices still are pretty bad for employees), but also that the valuation of the option grants is often way too low. If, as in the article, a start-up is effectively offering a low salary + a lottery ticket and expecting candidates to see it as at least equally as valuable as a high total comp figure from a competitor, then the lottery…

And poetically I just read a HN post touting the imperative of capital efficiency. This is the best way to do it!

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

#42

Post by m12k »

seibelj wrote: post #3

Valid 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…

Another valid reason: - You'd like to found a company yourself but would prefer to learn from other people's mistakes first.

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

#43

Post by mdorazio »

ohaideredevs wrote: post #11
seibelj wrote: post #3

Valid 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…

Not exactly a unique experience, but my .05 - I started of at a startup with a "lol just do it" attitude to whatever the problem was. Worked 12 hours a day a lot, was stressed out all the time, didn't have a life, got calls at odd hours to deploy...but, if I didn't have that experience, I wouldn't have grown nearly as fast. Got to see all aspects of the products and the consequences of the decisions we made early on.…

FWIW, I've worked with a lot of entry-level people at normal companies over the years and would estimate that noob gainz are 30-50% higher in startup land for the first 1-2 years of career, maybe 10-20% higher the next two, then flat or actually lower than corporate thereafter. I think it comes down to 1) startups pile a lot more responsibility onto their young hires than normal companies are comfortable with + 2) startups have a lot higher tolerance for failure + 3) small companies in general don't have headcount for specialized roles, so everyone has to level up in multiple areas.

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

#44

Post by CalChris »

seibelj wrote: post #4
l2c1928 wrote: post #2

It's bad for most people, but when it's good it's really good. I was lucky to join a now unicorn as one of the first few dozen employees a few years ago. I forward exercised with a few thousand out of pocket (section 83b) an equity grant now worth around $1.5m. Because I forward exercised my options at a low valuation I didn't have to worry about paying taxes if I exercised at a later time when the company's valuatio…

I too would like to win the lottery.

If you think of the Valley (or wherever you are) as a lottery then your chances of winning are about the same as those of a lottery. If you think of yourself as your personal VC then your odds approach those of a VC which while not great and moreover not diversified, they are much much better than a lottery.

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

#45

Post by dasil003 »

ohaideredevs wrote: post #11
seibelj wrote: post #3

Valid 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…

Not exactly a unique experience, but my .05 - I started of at a startup with a "lol just do it" attitude to whatever the problem was. Worked 12 hours a day a lot, was stressed out all the time, didn't have a life, got calls at odd hours to deploy...but, if I didn't have that experience, I wouldn't have grown nearly as fast. Got to see all aspects of the products and the consequences of the decisions we made early on.…

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 for joining early in a hypergrowth scenario, because you'll have to solve way more problems in an efficient way, and understand the direct impact on the business in a way that is totally obscured when you come into a massive corporation with thousands of engineers. It's likely company growth will outpace your personal growth (hence the outside hires), but even so you will get challenged in ways that just don't exist in large, stable companies.

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

#46

Post by jerguismi »

aliston wrote: post #18
chadash wrote: post #12

Earlier quoted context omitted.

Parent started with "It's bad for most people, but when it's good it's really good.". So yes, roulette is similarly bad for those who don't win and good for the few who do.

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…

> 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 deal by any reasonable definition.

I wouldn't see the risk of being an employee and founder as similar. Typically often founders are for time periods without salary etc. Early employee should just consider it as a job with more risk of the company going down under (that risk also exists in more established company). You can request more salary for the job or some additional perks (such as options).

I think for the employee the risks of joining to startup are quite easy to manage compared to a founder.

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

#47

Post by SkyBelow »

l2c1928 wrote: post #2

It's bad for most people, but when it's good it's really good. I was lucky to join a now unicorn as one of the first few dozen employees a few years ago. I forward exercised with a few thousand out of pocket (section 83b) an equity grant now worth around $1.5m. Because I forward exercised my options at a low valuation I didn't have to worry about paying taxes if I exercised at a later time when the company's valuatio…

>but when it's good it's really good.

I don't think this is true. There are cases where people have broken equal or made slightly more than working at a corporation would have. It can be really good, but it can also be just okayish or not that great.

This is based off my reading of the phrase, which means that good options have to be really good. The "it is really good" that is actually written verses "it can be really good" that is closer to the truth (imo).

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

#48

Post by mlthoughts2018 »

l2c1928 wrote: post #34
mlthoughts2018 wrote: post #22

Earlier quoted context omitted.

Your story still leaves a lot of room for skepticism. For one, 1.5MM is not actually a very good deal for an engineer in your situation, and likely the company gave you very unfavorable terms. Electing 83b is a fairly irrelevant detail in your story as it only affects taxes, not the outcome of the company. Your shares are likely going to get hugely diluted exactly because of growth investing like in the article. Inve…

There's a myth that you can't realize gains if a company doesn't IPO...I've already sold some shares in a tender offer. There is an active secondary market for shares if I chose to sell more. Not sure what your point is about $3MM over 10 years. Why would you divide it over anything other than the number of years you actually worked at the company? You've assumed I was a senior engineering hire. I was in a junior non…

Early selling for employees is exceedingly rare and also often on bad terms, this was mentioned in the OP article. Again, it’s lucky that you were able to, but is such a wildly unlikely outcome that functionally everyone else has to ignore that aspect of your story. To boot, being able to sell in a secondary market transaction only after about 3 years is even more ridiculously rare (to the point that it makes me question if your whole story is even true, or just some trolling). The few companies I’ve heard of allowing that type of thing (late pre-IPO Spotify, Squarespace), only allowed it after early employees like yourself would have waited 7-10 years before getting any payout.

> “Not sure what your point is about $3MM over 10 years.”

Please re-read my comment to help understand.

> “You've assumed I was a senior engineering hire. I was in a junior non-technical role a year out of college.”

Where did I make an assumption about junior vs senior level?

As for your claim you were given this grant for a non-technical role 1 year out of college, I think it’s more likely you’re just lying to troll this comment thread. Just in a Bayesian sense, the conditional probability that you’re lying is higher than that this is a true story.

It’s not impossible that this could have happened for a non-tech hire with no experience, but that mere possibility also is irrelevant compared with the far greater probability that this is just made up.

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

#49

Post by kurthr »

btilly wrote: post #19

To his suggestions, I have another. Offer internal Dutch auctions on a regular basis to provide an opportunity for investors/the company/etc to buy stock from employees at a reasonable price. This makes the value of the company, from the point of view of the employee, not "funny money" but something very tangible. With an opportunity to cash out long before it is public.

I'd be very careful with that... there are all sorts of internal/external events that can influence the perceived value of the company and information about them is not evenly distributed. Creating an environment where individuals in some groups can profit from this disparity (or even misinformation) is asking for ugly office politics.

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

#50

Post by sky_rw »

rooam-dev wrote: post #27
dleslie wrote: post #13

Earlier quoted context omitted.

> You want to work a certain way (remote, on the beach, whatever) and they are willing to go this route. This is me. I quit my well paid job and took a massive pay hit so that I could work from home and so be able to spend more time with my daughters. Absolutely worth it.

At a start-up? How do you manage live/work balance? Are there any on-call duties? Thanks in advance.

Adding to the other responses here; in my experience many engineers at startups get sucked into the mindset of aggressive sprints and crunch time. This manifests as a failure to properly estimate project time. If you are working remote, managing your own hours, and properly estimating your tickets then there is no reason you can't have a very reasonable work/life balance.
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