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If you have startup stock options, check your option plan

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Re: If you have startup stock options, check your option plan

#61

Post by iykwimthrowaway »

ditonal wrote: post #50
iykwimthrowaway wrote: post #44

Earlier quoted context omitted.

I'm very curious about the middle part of this spectrum, since I'm currently in it: I'm an early employee with a significant chunk of options (high single-digit %), and the company is profitable and valued at (to my understanding) somewhere well over 10x the total amount of funding we took (I've heard talk of 40-50x). Management is explicitly not looking for an exit: they just want to keep building this company for t…

Are you invited to board meetings? If not, considering yourself a "potential owner" when you're not invited to the meetings where owners decide things means you are very confused about things. There's a reason why when a company goes public, the quarterly minutes at board meetings become public as well, because you aren't really an owner if you're excluded from even learning about the biggest of decisions. What you s…

> considering yourself a "potential owner" when you're not invited to the meetings where owners decide things means you are very confused about things

Well gosh, I don't think there's any need to get nasty about it. I may be naive but give me a break. When I refer to ownership I'm obviously simply referring to being a shareholder. No, I am not invited to board meetings, but as far as I know, neither is anybody else who's not exec staff. Is this unusual?

The options are on common shares. Can you elaborate on schemes in which common shares are made to become worthless? I have been explicitly told that there are no liquidation preference multipliers on the preferred shares, and the valuation is well above where that would matter. So what sorts of shenanigans would make my shares worth less? Please be specific if you don't mind. It may be a dumb question, but just telling me I'm dumb isn't really getting the point across.

Regarding going to {GOOG,FB,AMZN,MSFT}, I've actually already been through a couple of those and experienced the "real compensation packages and stock plans" and got a couple pretty respectable windfalls out of them, but I've decided the tradeoffs aren't worth it. Job satisfaction absolutely can't be beat where I am, and that's worth a lot to me. That doesn't mean I don't wonder what my n% is actually worth and how specifically that works.

Re: If you have startup stock options, check your option plan

#62

Post by phamilton »

tieTYT wrote: post #29

The last two companies I've gotten offers from gave me very, very heavy pushback when I tried to figure out what % of equity they were giving me. They told me they were giving me 5,000 shares (for example). OK... 5,000 of how many? What % of all the shares is 5,000? My understanding is you need this information to know if the equity is worth something or nothing. Yet, they really don't want to give me this informatio…

I encountered this myself and have a few conclusions:

1) Be open with them and tell them that without a cap table you have to assume the options are worth $0. Use that to push for more salary.

2) The reason for not disclosing that information is often that the company is close to another fundraising event (an IPO for example) and that is very confidential information. It's definitely not a bad thing.

3) A safe assumption (to use yourself, not in negotiations) is that the company will exit at around $10/share. There might be a reverse split or something so take this assumption with a grain of salt.

My experience was not that the company was being malicious. I joined and it worked out fairly well.

Re: If you have startup stock options, check your option plan

#63

Post by guelo »

dmitrygr wrote: post #56
tieTYT wrote: post #29

The last two companies I've gotten offers from gave me very, very heavy pushback when I tried to figure out what % of equity they were giving me. They told me they were giving me 5,000 shares (for example). OK... 5,000 of how many? What % of all the shares is 5,000? My understanding is you need this information to know if the equity is worth something or nothing. Yet, they really don't want to give me this informatio…

"nobody has ever asked these questions about the options they were getting" -> "company is full of idiots - run (dont't walk) away"

I'd think it's more greedy liars than idiots necessarily. Though if you're just talking to the recruiters it's both.

Re: If you have startup stock options, check your option plan

#64

Post by ditonal »

ditonal wrote: post #50
iykwimthrowaway wrote: post #44

Earlier quoted context omitted.

I'm very curious about the middle part of this spectrum, since I'm currently in it: I'm an early employee with a significant chunk of options (high single-digit %), and the company is profitable and valued at (to my understanding) somewhere well over 10x the total amount of funding we took (I've heard talk of 40-50x). Management is explicitly not looking for an exit: they just want to keep building this company for t…

Are you invited to board meetings? If not, considering yourself a "potential owner" when you're not invited to the meetings where owners decide things means you are very confused about things. There's a reason why when a company goes public, the quarterly minutes at board meetings become public as well, because you aren't really an owner if you're excluded from even learning about the biggest of decisions. What you s…

I think they're worthless because of the nature of liquidation preference. There are a select few elite startups like Dropbox that I would value common options at, but those companies will obviously IPO. Clearly the person who I responded to is at a company that is not going to IPO, exercising options is extremely expensive, and there are well known avenues to making common shares worth $0 and so it's an enormous financial risk. Again, if you're not invited to board meetings, how much do they value you, and how much do they consider you a co-owner and partner? If they don't, and you're in the dark about so much critical information, taking that financial risk is even more of a bad play.

Re: If you have startup stock options, check your option plan

#65

Post by serve_yay »

mcdoug wrote: post #9

Why worry about stock options at all? There is a spectrum of outcomes. On one end the startup flops, or is bought for so little that your share, even if paid out, is close to 0. On the other end you have Google, Facebook, Instagram, etc. Companies where 0.5% is worth quite a bit of money. The problem is that the majority fall in-between, where your stock options will be worth nothing, yet the company will sell for a…

Totally agreed, they're not likely to be worth anything. Maybe they will! But probably not, and getting your hopes up is counterproductive. But then maybe I've just read one too many stories about people's options turning out to be worthless, even when one would expect otherwise.

Re: If you have startup stock options, check your option plan

#66

Post by Domenic_S »

tieTYT wrote: post #29

The last two companies I've gotten offers from gave me very, very heavy pushback when I tried to figure out what % of equity they were giving me. They told me they were giving me 5,000 shares (for example). OK... 5,000 of how many? What % of all the shares is 5,000? My understanding is you need this information to know if the equity is worth something or nothing. Yet, they really don't want to give me this informatio…

> the recruiter I was going through literally told me nobody has ever asked these questions about the options they were getting.

Whenever someone says something like that during a negotiation, you can be sure it's because they don't want to answer the question.

Other good ones:

-"This is totally standard"

-"That form is industry standard"

-"Nobody else has ever had a problem with that"

Re: If you have startup stock options, check your option plan

#67

Post by sgk284 »

cylinder wrote: post #30
bluehex wrote: post #5

Another thing to understand (and this will sound obvious to many of you) is that your options may be worth nothing, even after a multi-million dollar acquisition if there are priority stock holders (the investors) ahead of you in line. As a young and naive engineer I learned of this fact the day the first startup I worked for was acquired. First I read the big number that was to be paid for the company, was ecstatic,…

How did that happen? The acquirer just purchased a certain class of shares, i.e. preferred stock and didn't care about owning 100% of the company?

Suppose the following scenario:

A VC invests $10MM at a $100MM valuation and owns 10% of the company with preferred shares. For simplicity, we'll assume they are the only holders of preferred shares.

An employee is given $500,000 in common stock, equal to 0.5% of the company at the same $100MM valuation.

The company then sells itself to an acquirer for $11MM, substantially below the $100MM valuation. The VC, with preferred shares, gets paid first. So they get their $10MM back. The remaining $1MM would then be divided among common stock holders. The employee above would get $5,000, instead of the $55,000 that 0.5% of $11MM would imply.

In the real world, founders, executives, and VCs often get preferred shares, which ultimately screws regular employees.

Re: If you have startup stock options, check your option plan

#68

Post by goatforce5 »

tieTYT wrote: post #29

The last two companies I've gotten offers from gave me very, very heavy pushback when I tried to figure out what % of equity they were giving me. They told me they were giving me 5,000 shares (for example). OK... 5,000 of how many? What % of all the shares is 5,000? My understanding is you need this information to know if the equity is worth something or nothing. Yet, they really don't want to give me this informatio…

It's a totally reasonable question. If you were working for the same person and you signed a contract that obliged the company to do/purchase something and there was un undefined number in there, you'd probably find yourself fired.

"The service level agreement says if something goes wrong we'll get 50% of their staff working on it."

"How many staff do they have?"

"I dunno, but 50% of it sounds like a lot!"

Ask them if they want employees who would sign contracts which lack key bits of information.

Re: If you have startup stock options, check your option plan

#69

Post by kwisatzh »

mcdoug wrote: post #9

Why worry about stock options at all? There is a spectrum of outcomes. On one end the startup flops, or is bought for so little that your share, even if paid out, is close to 0. On the other end you have Google, Facebook, Instagram, etc. Companies where 0.5% is worth quite a bit of money. The problem is that the majority fall in-between, where your stock options will be worth nothing, yet the company will sell for a…

I think there is a deeper conversation to be had over here -- many outfits in the valley seduce engineers and the talent with this spiel of making money, while as you say the chances of this happening is very rare. In expectation, one would probably make more money working at FB/Google/Apple over a lifetime than at a random startup. Founders would likely prosper, and of course investors will likely recoup their money but most of the time a staff engineer wouldn't make much. I feel that the VCs in the valley are running this racket of seducing and exploiting talent, all the while knowing that most folks wouldn't get much out of the hard work. I suppose one can make a case of Wall Street being more fair in terms of wages distributed as a function of effort (and ensuing results) put in.

Re: If you have startup stock options, check your option plan

#70

Post by mahyarm »

nadeemk wrote: post #34
tieTYT wrote: post #29

The last two companies I've gotten offers from gave me very, very heavy pushback when I tried to figure out what % of equity they were giving me. They told me they were giving me 5,000 shares (for example). OK... 5,000 of how many? What % of all the shares is 5,000? My understanding is you need this information to know if the equity is worth something or nothing. Yet, they really don't want to give me this informatio…

It's not only reasonable but very crucial for you to ask the total number of outstanding shares. I have made it a point to ask every company this question and have gotten an answer out of them. Also, and this is me, I don't trust a word recruiters say. Not a single word. Ask to talk to the VP (or if possible CEO directly) if the recruiter is being cagey about it.

Usually recruiters are told not to tell people the number. And usually they don't know themselves. So it's probably coming from the top.
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