That said, can anyone give me a compelling reason why Options/RSUs are better than getting the equivalent amount of straight cash (even with tax considerations) from an employees point of view?
NVCA (mentioned in a reply in the article) appears to be a lobbying firm for venture capitalists and appears to have been behind it according to their twitter page.
https://nvca.org/pressreleases/nvca-cheers-changes-senate-ta...
They don't say anything about the bill as a whole. Yes, the bill is pure unadulterated shite. But the NVCA is a trade group lobbying for changes (from pure unadulterated shite) in the narrow interests of their group.
I get this. But it doesn't mean the NVCA is signing up for ObamaCare repeal. Indeed every VC I've met loathes Trump (I haven't met Thiel.) I was in a startup forum at Berkeley when ObamaCare repeal was broached by a startup tax lawyer. That was met with a resentful utter stone silence from the crowd. Coulda heard a pin drop.
But I get how the NVCA could lobby for this narrow change in an otherwise piece of pure unadulterated shite.
At this point I feel like anyone who chooses stock options over cash is naive, delusional, or misled.
Ditto, but I’ve also had two good success stories in my career too.
> At this point I feel like anyone who chooses stock options over cash is naive, delusional, or misled.
Why does everyone think it’s an either / or scenario? I’ve negotiated to have both more than once, salary at where I feel I should be and options/RSU where it might be a very nice bonus at a future date. Don’t be afraid to say no and keep looking if a company is taking advantage of you. I realize it’s hard sometimes, but the folks on HN generally can have the upper hand negotiating as tech employees are in such demand.
But I worry that many new to the industry are selling themselves short with an "or" and not realizing that an "and" is possible.
There are a number of self-imposed mechanisms that put downward pressure on compensation for developers. Willingness to take what are effectively lottery tickets and rationalizing it as discounted or future potential earnings is one of them.
Your salary should ALWAYS be the highest possible salary the market can support.
Equity or options compensation at a startup should be used to defray the risk of the company failing in the near and midterm.
So if Google is offering you $100k, then you should be asking Startup X for $100k plus equity.
Anti-dilution is usually for A or B rounds against a possible later round. A cap (I hate caps) is a form of anti-dilution. None of this is available to employees at least that I've ever heard of. As a founder I'd never expect it from a VC nor would I ever give it to employees.
Founders can get something called Series FF that grants them a supermajority of voting which allows them to retain control even as they give up their majority. You have to do really well in the seed round to get it in A. I think Larry+Sergey got this.
That's what should be changed, especially if you're asking someone to take a below market salary for something that, statistically won't make it.
"As a founder I'd never expect it from a VC nor would I ever give it to employees."
Why? Why should the people who are actually doing the work not receive that protection? Why should the value of their compensation go down over time, while the value of what they're doing goes up?
About anti-dilution clauses, imagine yourself as a founder. You have a patent on a hyperistor which will make transistors look like warmed over MySpace. Awesome. You and a couple of grad school buddies raise a $3M Series Seed round and run through that. Damn! It works! You've proved your thesis and now you need to scale. For that you need more money, another funding round.
This is where everyone wants to be. This is a success scenario but it is not success. You need more money, say $20M to scale your technology.
Someone has to give you that $20M and they will want something. If the founders+employees all had anti-dilution clauses, the VC who wrote the Seed term sheet would have to suffer. A lot. A lot a lot. So they would never agree to this in the first place.
Instead, everyone, founders, employees and VC, all dilute but then the company also gets the $20M. Anti-dilution clauses show up when a startup really needs money and the VC can force them to accept it as a term. It's not a good sign.
Sharing dilution is in its way, very equitable. This is in fact, the way things work. Startups are about risk and anything structural which you attempt to engineer out that risk will come back and bite you.
And, quite frankly, if you're not willing to imagine yourself as an employee that is getting their hard earned equity diluted to hell and back, I'm not interested in what it's like for founders.
> At this point I feel like anyone who chooses stock options over cash is naive, delusional, or misled.
People consistently make irrational decisions with money all of the time. The reality for many people is taking the stock option route makes them emotionally more vested in the success in the company. Companies know this and regularly exploit it.
Lastly - it is OK to join a startup early on to "mint" yourself professionally (e.g. "I was employee #4 at Google" or "I was employee #4 at a company that was bought by Google"). People's eyes perk up (in the Valley especially) because they assume that because you were an early employee you were more likely to contribute to the successful exit of the company. Thus, "minting" yourself in the job market. Whether that's true or not in reality is another point...
>I have a drawer full of stock option paperwork from various start ups I’ve worked with over my career, all of which were “confident” in their growth prospects and none of which exist anymore.
>At this point I feel like anyone who chooses stock options over cash is naive, delusional, or misled.
First let's assume you're a 10,000x engineer who was also able to change the course of small startups through your personality. Then if this has happened once or twice it might be bad luck. But a drawerful of times, and we should perhaps revisit the assumption that you are a 10,000x engineer who is able to change the course of small startups. Maybe this is about you.
You conclude:
> I feel like anyone who chooses stock options over cash is naive, delusional, or misled.
But there is a hidden assumption there that if you are not a 10,000x engineer, then nobody is. Do you think this is a fair generalization for you to make? If the startups you picked and joined failed is it fair to say had anyone else been the one to pick and join startups (not necessarily the ones you picked and joined) they could fare no better? That you're the best there is, at the task of picking a startup to join and lighting its boosters on fire?
Basically it is like dating: if someone says every single person has left them severely disappointed, that says more about them than it does about dating. To stick with the analogy: we know people enter happy successful and long-lived relationships.
We know there are successful startups whose destinies early hires helped set.
If every one of the ones you've tried with have failed, a drawerful over the course of a career - could this be more about you than them? Are you not perhaps the "truly excellent" husband who has given up on marriage, after 5 divorces.
If so, then perhaps it is not fair for you to generalize and say that anyone who gets married is delusional. Because you've been married 5 times, you know how to pick 'em, you know how to make it work: and it just does not work.
I tried to be a bit polite but I hope you can see the analogy. I get that it doesn't work for you.
But is it really fair to generalize your experience?
>anyone who chooses stock options over cash is naive, delusional, or misled.
What you've written also applies to founders. Why not write: "any founder is delusional. Unless they succeed, in which case they're just lucky."
But if that is true, nobody should admit being a founder during the delusional phase. If they succeed, they should never give advice.
Except that 10,000x multipliers exist, and the reason I listen to successful founders is to learn from them.
The gp poster isn't a 10,000x-er. That says more about them and their career than it does about startups.
This is also ignoring the fact that most companies will dilute the hell out of your options, so even if the company does make it, odds are you'll just have broken even from working for a regular company.
Even boring big companies in the UK have returned 400% over 5 years with some of their share scheme's - a successful ipo where you have shares early on can produce life changing amounts of return.
One VC backed company I worked for back in 2000 everyone was at one point a $Millionaire if only the coop movement wasn't so stick in the mud :-)
Cynical view? Corporations and rich people rule the current US political landscape, and the legislation would’ve negatively impacted both’s interests.
The real issue was with ISOs, which are most common in early startups with no liquidation options. If you can’t liquidate your shares (and may never be able to), but you get taxed on the spread between 409A valuation / strike price, you could easily become bankrupt or go heavily into debt.
As for why anyone would prefer a lottery ticket over straight cash, that comes down to personal preference. If you’d rather take the cash, good for you. But consider that Silicon Valley was built on decades of employees becoming millionaires from early stock options. Clearly some people prefer to take the risk. And if they take that risk, they should be able to capitalize on its returns. Of course they should pay tax on those returns. The problem was the original bill (and the current status quo, to some degree) expected that tax before the employee saw any money, which they may never see.
As an aside, if you want cash over options, you’re probably better off just working at $BigCo for a higher salary and immediately liquidatable shares of one of the top companies in the world.
This is already the case.
What the bill would have changed: it would have taxed this at the point of vesting, rather than the point of exercise.
The stink was because the sorts of options executives and directors often receive (NSOs) had their tax treatment changed. This is about the rich getting richer.
I suspect coupling the tax bill with repeal of the healthcare mandate will mean it goes nowhere, though.
[Over 25% of the stock grants that we track are NSO, and most of those are not executives or directors. Disclaimer: I work at Carta, fka eShares, and we track a lot of grants.]
This bill would’t have changed my compensation at all of the startups where I’ve worked except for one aspect — the removal of AMT.
Honestly we have way bigger things to be worried about in this bill, even if you focus narrowly on issues startups have. For instance, removing the individual mandate likely means the ACA health care market will collapse. This will make it less likely that people who need healthcare coverage will be able to start companies. I’d love to see the startup community up in arms about THAT.