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Comment by sskates | Hacker News Reader

Equity has no intrinsic value and I'm glad you recognize you can't pay rent with it. Founders who try to claim otherwise are being deceptive and I wouldn't work for them either. Much worse if you get insulted and called an idiot for trying to negotiate.

However, equity is a significant form of compensation, not just at startups, but at large companies as well. You're missing out if you don't take some time to understand it in early stage startups.

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I understand it. Obviously, I want more equity. But it doesn't act as a replacement for salary, like some people seem to think. It's a bonus, like free snacks and ping pong tables. It might pay out, but it probably won't, and you shouldn't base your life around it.

This seems a clearer statement of your position. Absolutely, don't base 100% of your life on a 5% shot at an exit. That is indeed a common failure mode. But your reaction to this observation seems too extreme. It is possible to work these things out probabilistically. Treat your career as a portfolio, spend 80% say of it in relatively safe places, spend the remaining 20% in multiple places, don't stay too long if you stop believing in a place. Do all that, and the 5% probabilities add up. 5% here, 5% there can add up to real money.

It seems sub-optimal to assume that probabilistic money isn't money, it'll close you off to lots of opportunities for wealth.

I'm not disagreeing, but you can't just look at the odds of a successful exit when it comes to figuring out the probability that your equity will someday become valuable. There are several other factors that can effectively leave common employees' equity worthless, some of which the article describes. Rarely do companies seem to be willing to provide the information needed to weigh the risks.

Yes, absolutely. My % examples were sort of assuming that preliminary analysis. You have to do it for yourself and be comfortable with the conclusion. And avoid like the plague companies that won't give you enough information. Usually if I have to ask more than once that starts to seem like a red flag. I might lose interest really quickly at that point.

In your experience, how often do startups try to play these sorts of equity games? My feeling is that it's overwhelmingly common, but this is based only on interview experiences with 2 startups and on previous HN discussions.

Yeah that's hard to say since nobody has a global view and new companies hang a shingle everyday. The best places tend to know what they're doing, so this makes a good signal for startup quality. Even if it causes you to miss out on a good company it's unlikely you would have had much upside with them anyway. Life's too short, lots of fish in the sea.

On a related note, what is the legality around sharing liquidation preferences with (non-founder) employees?

Much equity does have intrinsic value. I think the lifelong work of both Benjamin Graham and Warren Buffet have been focused on acquiring equity (and other assets) with intrinsic value.

A lot of equity, especially with startups, lacks intrinsic value or it's hard to do accurate fundamental analysis on the total intrinsic value. (Berkshire does not buy high tech for this reason.) Moreover the utility value of the equity to you or the limitations on your ability to sell or transfer may make any existent intrinsic value negligible to you as an employee.

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