If you have startup stock options, check your option plan • Hacker News Board

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

#91

Post by dkfmn » Wed, Mar 04, 2015, 8:48 PM UTC

bradleyjg wrote: post #82

ChuckMcM wrote: post #57

Earlier quoted context omitted.

It works as follows, there is a line of people who need to get paid, If the startup took on any debt, at the front of the line is a bank. Their 'note' usually gets paid first. $POOL -= $BANK When people invested in the Series A, B, C, ... their stock came with a 'liquidation preference' (which can have a few variants, but the two most common are, the investor chooses if they want the liquidation preference or the com…

The implicit question is—where the acquisition allocates $0 to common, in what sense are the board of directors fulfilling their fiduciary duty to common shareholders in approving the deal?

Well, their fiduciary duty is to all shareholders and common generally holds a minority ownership interest.

It depends heavily on circumstances, but in a less than amazing sale the acquiring company often wants an incentive for employees to stay. So the acquisition offer will ensure that common gets nothing but they'll be covered by an earn-out over the next year(s).

As you can imagine the negotiation gets very tricky because investors do not generally participate in the earn-out.

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

#92

Post by cj » Wed, Mar 04, 2015, 8:53 PM UTC

harryh wrote: post #85

AndrewKemendo wrote: post #11

I read a lot about how employees get screwed over with stock options, so what we decided to do was to just give employees vesting stock straight up as a buy through. Basically the way this works is that we give new employees an up front lump sum in the amount of how much it costs to purchase the shares of the company. The employee then purchases those shares from us in line with a vesting agreement. All warrants and…

So what you're saying is if you give an employee say, 10k shares at $2/share strike price you give them a 20k signing bonus? Then the idea is that they pay, say, 6k in taxes on the bonus. Then they write you a check for 20k to early exercise the options and file and 83b. So they're out 6k in taxes but on the other hand they've early exercised so they actually own the stock (subject to 4 years of vesting). 1) What hap…

1) Company could offer more than exercise cost, so it also covers any tax liability. If I'm not mistaken, this is how [Google|Facebook|Apple] RSUs work.

2) Cash bonus would be dependent on employe exercising the grant.. it probably shouldn't be presented as a bonus, so the employee doesn't have to select between the bonus or the stock. If they prefer a cash heavy compensation package, that should probably be discussed in isolation from a stock purchase reimbursement / bonus.

3) This is a tough question. If an employee leaves before 4 years, the company has to buy the restricted stock back from the employee. Perhaps there's a way to legally require the employee to return the buyback check to the company.

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

#93

Post by pjc50 » Wed, Mar 04, 2015, 8:59 PM UTC

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,…

I too have been in this situation. It was obvious that we weren't going to be a massive success, but it was still very disappointing to get zero.

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

#94

Post by mcfunley » Wed, Mar 04, 2015, 9:02 PM UTC

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…

Don't work for a company that won't give you all of the details necessary to value their equity.

I'm not surprised that people don't ask about the equity, because people are generally woefully uneducated about it.

Recruiters might be lazy and push back because people really don't ask. But if you press the issue and can't get a straight answer, pick another offer.

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

#95

Post by rmc » Wed, Mar 04, 2015, 9:04 PM UTC

ditonal wrote: post #25

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…

It's really unfortunate, because there are many engineers like me who would gladly take a pay cut if we were brought in as collaborators and offered real equity deals. Instead we are brought in as serfs to build their 'vision', with no input of our own or recourse if bad management runs our projects into the ground, and offered financial instruments that are obviously rigged against us. No engineer who understands pe…

Start your own company.

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

#96

Post by mcfunley » Wed, Mar 04, 2015, 9:06 PM UTC

mallyvai wrote: post #90

I highly, highly encourage all employees with options packages to go through our equity checklist and blog post here: http://offerletter.io/blog/201412-understanding-and-negotiat... Questions: > What is the number of shares outstanding on a fully-diluted basis? > What is the fair market value (FMV) of my shares? > What is the exercise price (aka strike price)? > Do you allow early-exercise of options? > Do you allow…

100% agreement. Startup equity is not only more complicated than you suppose, it's more complicated than you _can_ suppose.

Everyone working in this industry should get an appreciation for this. And I'm not saying this for altruistic reasons. I have to exist in the job marketplace with the folks taking pay cuts for equity that's not worth anything!

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

#97

Post by shanemhansen » Wed, Mar 04, 2015, 9:09 PM UTC

I've worked for some of the largest companies in the world as well as been employee number one at multiple startups (one of which was backed by google ventures), so I hope the following advice is good:

If you're going to found a company, go for it. I'd like to do the same myself someday. If you're going to work for a startup, make sure they pay you well. In dollars (or your local currency). I treat stock options as a lottery ticket, not a substitute for income.

Basically working for a startup is much like working for a big company. Neither really offers you long term stability. You have to deal with politics in both. The biggest difference in my opinion is that startups typically have really long hours and some pretty big egos.

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

#98

Post by danielweber » Wed, Mar 04, 2015, 9:09 PM UTC

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 100% believe that no one else has ever asked that question. Because lot of people have no clue at all.

I've bitched before about losing potential employees to other companies who, they said, were giving "more options," when we were offering them 0.5% of the company.

You should be asking, and if they aren't answering, realize they are offering you cereal boxtops. Whether you choose to value those at $0, or be insulted at walk away, if up to you.

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

#99

Post by danielweber » Wed, Mar 04, 2015, 9:13 PM UTC

grandalf wrote: post #15

If you work at a startup and options stuff is not transparent -- valuation, vesting schedule, terms, etc., you should be quite worried. Founders often end up in a situation where there is significant dilution and as the hockey stick changes into a slightly different shape they know that nobody's options are worth anything. Founders with integrity will acknowledge this and make adjustments. Those without integrity pre…

Founders often end up in a situation where there is significant dilution and as the hockey stick changes into a slightly different shape they know that nobody's options are worth anything

This is a very common occurrence, and unless you have a seat at the board, you are completely at the company's mercy when events like this happen.

Usually they will make current employees "whole," although the definition of that varies a lot. If you've left, though, you are completely shafted. The board will say "well you are no longer contributing to the company" but the same thing applies to the VC fund that invested last round and didn't this round.

There are an amazing number of hoops that you have to jump through for options in a start-up to pan out, and you have to hit essentially all of them, or else they are worthless.

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

#100

Post by ryanSrich » Wed, Mar 04, 2015, 9:14 PM UTC

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…

> If you have the spare cash, buy them as early as you can

Why would you want to do this? Wouldn't it be better to wait until the company is about to be acquired or IPO so you're not spending money on something of no value?