Ask HN: Why do engineers as a group allow opaque offer letters? | Hacker News Reader

Ask HN: Why do engineers as a group allow opaque offer letters?

6 points_9vpl6 comments

As a group, why do engineers allow opaque offer letters? What I mean by this, is that the standard practice for offer letters is to include the number of options being offered, without the number of fully-diluted shares also being given. FDS is a critical number. Employers are often even misleading in that instead of FDS, they use a smaller denominator to calculate your percentage: outstanding number of shares.

As a group, why do engineers allow this? Unfortunately, I believe it to be the lack of sophistication on the part of engineers. Investors wouldn't invest without some sort of documentation on FDS. Engineers will invest precious time and energy. Investors may or may not do the same, but they have the benefit that engineers do not: diversification.

Also, many offer letters request you sign 1 or more documents citing that you are signing on to at-will employment, etc., etc.

Often times these offer letters also cite a stock option plan that you are not yet given - that you will receive at some point in the future (probably within a month or so) that includes the actual terms of your options.

In all seriousness, how would you go about calculating FDS?

I assume the way to handle that would to have a constant set-aside of the company stock that is used for employees that is never diluted, but I'm not sure that that is the case.

The number of fully-diluted shares is not a constant over the lifetime of a company. It can be increased or decreased at the will of the board of a company. Knowing this number does not mean that more shares will not be issued.

Typically, companies will give you the number of shares outstanding, which is misleading and does not include any unexercised options. Fully-diluted shares is the best number to use when calculating outcomes, as it assumes that all existing convertible notes, preferred stock, and options will be converted into shares at some point in the future.

To many people in this industry, "as a group" sounds an awful lot like "collective action" which is anathema.

Engineers like to define best practices all the time. Often times this is informally, sometimes it's through organized groups like IEEE.

For what it's worth, most startup technology is not overly burdened or fettered with best practices. :)

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