Let employees sell their equity
kevin.burke.dev
kevin.burke.dev
Unless you are an elite negotiator (and if you can hire a lawyer you are elite already), the complexity of any compensation package works in the company's favor.
For almost all of us, equity is a vehicle to get screwed over. Articles like this one only to serve to perpetuate startup mythology and inflate false hopes.
Theoretically, a startup that actually wants to compete on compensation by sharing in good fortune could craft an equity package which is simple and standardized enough to be comprehensible by ordinary humans. But so long as employees keep snapping at the vaporous bait of deceptive equity packages, there's not much incentive to do so.
One time, I received an offer from a small, struggling startup. But because it's equity structure was so simple (struggling has a way of simplifying things), I counter-proposed taking less salary for more equity, and they agreed.
With the typical equity opacity removed, I viewed the trade-off as more of a bet on myself: the impact that I could make and if I assessed the company correctly.
The payoff when we were acquired was just the equivalent of a nice extra bonus. The real satisfaction was having more skin in the game, having the expected impact, being correct on the assessment, etc.
But it wouldn't have happened if I felt lost in the complex equity structure and confidentiality barriers that seem to be present in many startups.
I'm a sucker for turnaround plays because a lot of BS gets beaten out of the organization, and they're more receptive to change.
> deceptive equity packages
What do you mean by "deceptive"? The standard for pre-IPO seems to me to be N number of options, at a particular strike price, 10-year expiration (or 90 days if you leave the company). That doesn't seem all that complicated to me, or deceptive.
What can get deceptive is if the company is trying to lowball you on salary and tell you that your equity will become worth millions some day as if it was a sure thing, which is of course a scummy practice. And the whole expiration after 90 days thing is garbage. But deceptive? Complicated? I don't think it is.
I really don't see what's not simple or standardized about what I described above. Granted, the last time I joined a startup (which is not a startup anymore) was 9 years ago, but I haven't read anything to suggest that this has changed drastically.
You are not even realizing what he's actually saying
HE's not talking about lowballing on salary
He is talking about what percentage of the company you are going to get, how soon you will get it, and other details
*
Most people won't get this. I will still try
A) What percentage of the company are you getting?
B) What dilution is going to happen?
C) When can you sell your stake in the company?
D) How soon and in what manner does it vest
* People fixate on things like 1,000 options without considering what it really means
Please consider what you wrote:
The standard for pre-IPO seems to me to be N number of options, at a particular strike price, 10-year expiration (or 90 days if you leave the company). That doesn't seem all that complicated to me, or deceptive.
NOWHERE in that is
What value do I bring the company
IN RETURN what percentage of the company am I getting
AT WHAT RATE will I be given that share of the company
Also during sale, investors might choose to execute their liquidation preferences, which means that your shares might become worthless. Employees who paid hundreds of thousands of USD annually in opportunity cost have no such clauses to get their money back.
Cloudflare's S-1 has a 180 day lockup for "Our executive officers, directors, and the holders of substantially all of our capital stock"
In One Medical's S-1 "We, our directors, executive officers and the holders of substantially all of our equity securities, have agreed" to 180 day lockup.
In the Unity S-1 they have "certain holders of our common stock": "All of our directors and executive officers and certain holders of our common stock and securities exercisable for or convertible into our common stock, are subject to lock-up agreements that restrict their ability to transfer such securities for a period of 180 days after the date of this prospectus", and apparently they allow selling of 30% of the stock within the first two days of trading. Couldn't find any reference on who those certain holders are.
1% would be quite a lot for an employee. Once the team is past the founders plus a few more, the only people getting more than 1% would be key executives.
You should be able to get the number of outstanding shares at the time you join in writing though and then the percentage is trivial to calculate (though as other commenters pointed out you might not be able to get information on any existing liquidation presences investors might have that make it hard to really know what you would get if the company were to sell for x amount...
Founders can have a different stock category, so they get something, otherwise they'd not agree to the buyout.
So often, as an employee, you are given what are essentially 'sucker shares' that will likely never amount to anything. By design.
If you join a startup, you should either do it for the experience (lots of responsibility, wearing many hats), or as a founder. Anything less is a recipe for disappointment.
What was valuable was the experience I gained, and rising to VP in one of them. I got a nice package from the (>$100B, SF-based, public) acquiring company. That was an instant 200% raise, and the experience I got has really helped find future higher paying jobs.
There are any number of terms that other investors and financiers can have that fundamentally change your own.
Participating preferences, option deals (i.e. if xyz happens, they get abc options in which case, they are not allocated yet, but are in a way 'pending'), option pools for other employees are often not counted in the % ownership, convertible debt, special cases, ratchet/anti-dilution clauses.
Effectively - you have to see every single contract the company has with other investors, financiers and executives to actually calculate the real value and risk.
Usually you are getting something minuscule initially, well below any founder or board member's share. The logic is that, if there is going to be money made, the company will need lots of headcount and that headcount all needs to think they own something significant in the entity, which they don't because of vesting, dilution, new CEOs, etc.
> B) What dilution is going to happen?
Unknown, and depends on the performance of the management and board, if they even bother to perform later when all the money is gone (because the company is actually not profitable, shocker) and they have to suck up to someone else who wants a higher dilution so they can get a good percent of the company. Don't forget the employees will be "the problem" if the company runs out (which means RIFs or worse). Unless it's going gang busters, in which cases that minuscule amount stays the same. Oh, don't forget preferred stock.
> C) When can you sell your stake in the company?
Probably never, or maybe when it sells, if you are lucky. Besides, calling it a "stake" is really a fantasy given the stake's value is tied to whatever the investors thought it was worth, which in their mind is always more than any sane person would agree to spend on the company to make it their own company's problem. If the company is even slightly profitable (unlikely) then everyone would lose their minds thinking it's worth half a billion or something. Think two 20 something year old founders thinking their company is worth 1B+ and refusing to take an offer from Facebook for half that while today they are gone and it's not worth diddly.
> D) How soon and in what manner does it vest
Usually to the advantage of the company. Most people never vest their full amount of shares because the company doesn't sell and over 4 years (typical vest scheduling) the chances are the company will re-up its coiffures, which means dilution and besides which you can't stand working for these idiots for more than 2 and a half years, tops.
B) is going to have a bigger impact on evaluating how valuable the offer is but as another poster said, it's almost impossible to know.
What's not knowable, generally, (ie, they won't tell you) is the waterfall, the pref stack, pro-rata rights, how much convertible debt there is (money already in, that you are essentially pre-diluted by but just don't know it yet) future unknowns like a carve-out and total other debt.
IMHO, yes it's deceptive, but no, it doesn't matter. If the company has a successful exit, you will do well enough. I'm talking about Series A or pre-Series A hires. In the 90% of cases where the company has a fire sale or just bombs out, you won't get anything, no matter the answers to the above.
For people fresh out of school or people who have spent many years in public companies and haven't had to think about how much the options are actually worth, there's likely to be a disconnect between what is written on paper and what is perceived.
The equity clauses in the typical employment contract, for example, won't tell you about AMT taxes, liquidation preferences, how hard it actually is to decide to exercise 90 days after you leave (you'll mostly likely leave before the cash-out), or how unlikely that equity is to be worth much. Those things aren't said or written but are important to understand. The recruiter won't tell you that either because they want you to join.
That last item is entirely about your ability to accurately assess the value of the company, which is usually a crapshoot even when you have complete information, which you don't. Plenty of people I know/knew, including a younger version of myself, think about it subjectively and don't have a cynical enough view on the chances of cashing out.
It might not be deceptive, but it certainly is complex, and you're probably not being told the most important parts of the deal. The saying "caveat emptor" comes to mind, which is definitely about surprises showing up after you commit.
A package which appears to the novice to be worth N dollars, but where statistically speaking many employees end up in the hole because they mishandle the tax implications, or where statistically speaking many employees end up in difficulty attempting to sell their shares because they miss some deadline or fail to meet some other condition, etc.
There is a need for simplification and standardization because the average employee offered options today does not have the qualifications to assess the value of an equity package — it's not like direct monetary compensation which is easy to understand.
Or at least there's such a need for reform from the perspective of the employee. From the perspective of an employer, if statistically speaking many employees mishandle their complex options packages, then the company ends up money ahead, having driven down labor costs by offloading hidden risk onto their employees.
How should you factor that into your expectations for the future of your equity package? I think that's complicated.
Does anyone ask for or receive a re-calculated salary based on the change in equity that results from dilution?
I find it much easier to reason about equity comp on a per share basis rather than a percentage ownership basis (and frankly don’t understand the constant advice to try and think about it on a percentage basis - though will always happily share that with job candidates).
Additional equity grants are what can make up for dilution, not additional cash comp. I also believe that cash and equity are fundamentally different types of compensation, given for different reasons, and are not particularly fungible. I always try to make equity as comprehensible as possible, but the reality is that it IS complicated - and worth spending time to actually understand because, while there are ways to get misled, it’s also the path to wealth creation.
If you're at a $10M company and you're thinking "I will own 0.1%, so in a few years I can look forward to a payday of $10,000" then you're right: getting diluted 10x to own 0.01% of a $100M company is the same value.
But if your thinking is "I will own 0.1%, and if I owned that much of WhatsApp when it sold to Facebook I'd have made $16M" then a 10x dilution would reduce that to $1.6M
Now, you might argue the second line of thinking is wrong and a fantasy valuation, but we all know no-one's getting hired away from FAANG by the promise of an uncertain, one-off $10k in a few years.
This is a non-obvious way that employees are often screwed on options.
Always. If by FMV you mean 409(A) valuation.
If you mean something else, the answer is 'never' because for privately held companies we don't know the "fair market value".
Your point about VCs seems irrelevant, because the valuation they hold shares at is not that of the "employee equity pool".
To take home a strike price equivalent per option requires only 2x (to cover taxes) increase over your strike price, and for the equity to be tradeable. This is not a simple calculation, as implied by your 3X/6X multiple.
If you only took home a strike price equivalent per option, you'd never, ever, ever take one of these jobs. Options are priced at 409(A) and for the type/stage of company we're talking about here, are typically 2%-10% of the preferred price. IOW, incredibly low-valued.
I don't think you're wrong. I think your comment is malformed.
On a 10-year liquidity horizon, the employee option pool can be pushed into the underwater state by subsequent issuance of preferenced shares.
In my Experience, this effect explains how startup employees who have stayed with a firm from 10 million dollar valuations to Billion+ valuations do not get anything better than a down payment for their trouble, and a 3x increase in a publicly traded companies stock can easily push an engineer's RSUs to 1.5x+ their salary per year.
> the slope of the employee gain once the preferenced shares have met their obligations will be substantially higher than in my math above.
Yes. This is all but required by "the rules".
> subsequent rounds increase the number of outstanding preference shares
Yes, but by lesser and lesser amounts of dilution, and at higher and higher valuations. Ignoring down rounds, which are much more common than up rounds. But here I think we are talking about a "successful" exit, which as rare as they are, in the majority still leave option holders high and dry anyway.
> your employee strike price could have been set at a time when all preferences would be satisfied, The math will then shift back to a 6x required gain (for a strike price equivalent).
True, however in these cases almost everyone (actually everyone, AFAIK) receives RSUs, not options. RSUs have an actual, current value, and do not require any appreciation in price at all. In fact, a loss in price is still valuable to the holder. You can't go underwater with RSUs. (And you can't face uncertain taxes; be forced to make awful decisions; etc.)
> On a 10-year liquidity horizon,
This is the real problem with equity compensation today. We've outgrown the system under which options were a great incentive. Golden handcuffs, that most exceedingly often, turn into fool's gold. Honestly, it's time for YC to insist on 10 year termination-exercise rights. The appeal of ISOs is still there for early stage companies, but AIUI one can convert from ISOs to NQ's after the 90 day legal requirement, without penalty. win-win.
With a 10 year rights, companies are forced to offer sufficient refreshers to keep staff. This is completely fair and will push companies to earlier exits. On the employee side, people need to insist on it as well ...
I don't see it happening because it destroys the VC business model.
The company and employees have a common interest in keeping that price low.
It's possible there was a mechanic at work that would have made the equity worth more at the ~6x valuation increase, however these companies were already worth ~200 million-1 billion. If the company wanted to incentivize extreme upside they should have increased the strike price, and increased the number of options granted. Spotify provides this option to employees where you can choose cash, RSUs, options, or "high-risk" options. You can get 8x options relative to RSUs with a strike price that's double the current stock price. If the company 4x'd in value over 4 years you'd make 4x on these compared to RSU's enabling a public company to offer "lottery" ticket equity packages.
Ultimately if a startup is trying to offer a lottery ticket to employees to lure them from top-tier companies, then they'll need to make real lottery tickets with real payouts at the end. That means that a startup with an expected 100 million dollar exit in 5 years will need to grant 2% of the company at exit to a top-tier engineer in the average case ( with appropriate vesting ).
Equity pricing is also nonsense for many private companies. I was offered 1 million dollars in equity in a company 4 years ago assuming a multi-billion dollar valuation. It's unclear if the company has even achieved that valuation now, four years on. And they're still private.
I will say though one trick I've seen (I should write about this) is multiplying your common stock through by the latest price of the preferred stock and presenting this as the "current value" of your equity offer. Your common stock is not worth as much as the preferred stock.
Doesn't totally solve AMT, as there are other reasons to want to exercise other than "because your options are about to expire", but it does fix the worst common issue.
> The number of households owing AMT rose from 200,000 in 1982 to 5.2 million in 2017, but was reduced back to 200,000 in 2018 https://en.wikipedia.org/wiki/Alternative_minimum_tax
If you have ISOs with a low strike price with a private company that is approaching IPO—especially considering the insanity in the stock market right now—you better take a long hard look at the numbers before exercising (or leaving your company and being forced to exercise)
- https://www.holloway.com/g/equity-compensation/sections/the-...
- https://thestartuplawblog.com/immediately-exercisable-isos-t...
If you are rich you can afford it. If you aren’t, you are forced to take zero.
1. Not disclosing the valuation details
2. Not disclosing who owns what and with what liquidation preference (this alone means you don't know what you're getting even in the unlikely event the startup succeeds)
3. Creating unrealistic expectations about the value of your "equity" package ("0.5% is a lot of money, man, we'll be a unicorn"). Quoted because if it's not equity if you can't sell it or can't get a dividend from it.
4. Requiring that you sell your _exercised_ shares back to the company at the price of board's choosing if you left voluntarily or otherwise. This is called the "clawback" clause.
5. Requiring that you forfeit your _vested_ but unexercised shares if you were terminated "for a cause", in addition to #4. A "cause" can easily be manufactured shortly before acquisition. There are precedents.
6. Abusive terms in case of acquisition
7. No acceleration in case of acquisition
8. Super short exercise window if you leave on your own volition.
With all of the above combined, you're at the complete mercy of the company in whether you get anything at all even if you work there for years.
Do I need to continue? I had all of these at one point or another and I only evaluated offers from 2 startups so far. My lawyer extensively redlined both of them. In one case the board agreed to the revised offer. In another it did not, so I did not join.
Such redlining only works if you're a very early employee and you're very senior. But regardless, I'd argue that if you're taking a pay cut, you should at least know what you're getting yourself into, and $500-700 for counsel is not too bad. If you don't like the underwater rocks your lawyer identified, demand more cash or walk away.
If you want to make money from a sale or an IPO, you need to be a co-founder or investor. As an employee of a startup your remuneration is your salary, and equity is a lottery ticket that maybe, if you're lucky, will end up in a nice one time bonus in the future.
Don't believe the stories of the employee raking in millions when the startup exits. It maybe happened for some employees at a few companies like Google but it's not happening to you.
Major investors could have 3x 'participating' in which case they get 3x their investment back before anyone else gets anything.
There are debtors: if the company has big debt - money goes to them first. Sometimes the debt is convertible - which could mean major dilution.
The number of outstanding options, not actually stocks, obviously makes a big difference.
Major cash bonuses to execs, IP holders etc. upon sale.
And that's the 'relatively normal stuff'.
The contracts can literally say anything. Like 'Investor ABC who put in $1 gets first rights to the first $100M in valuation' or something insane like that. Now - that would be very bad actually for the company obviously, so it's not likely to happen ... but it could theoretically be there.
So there's an immense amount of trust that has to be in place, which is why you need a very 'clean' situation, a credible team - and then of course a 'hot enough' company for it to even make sense.
Equity is a legit form of comp. but everything just has to be 'just right' and often it's not.
If there is any 'odour' at all in the situation, I would assume shenanigans, in which case, any form of equity is considerably more risky, and then probably not worth it.
to be honest, if the pay and rewards of such value you really should pay for a few hours of a lawyers advice to review the contracts offered you. if the prospective employer does not permit that then that should be a signal as clear as day what to do.
only you can state what level of compensation is worth the money spend on a lawyer to read it over for you and you should weigh the time you spend doing the research against someone who knows contract law.
I may be worlds worst negotiator; I'm not very good at representing myself and I tend to nod and smile a lot. I think my salary has tended between 1.2 and 1.5 times the male full-time median over my career.
So sure, there is a structural disadvantage there. If I were a great negotiator maybe I could be working with 1.4 to 1.7x. But that structural advantage is all about fiddling at the margins, and a union won't change that. Neither unions or companies can resist the underlying market that sets the bounds on what is possible. I'm much more worried about that, and I don't think a union would help. If anything, it is likely to hinder. If times get tough, I want a low-paid job, not no job.
Conversationally, I don't want my peers telling me what to do, it is bad enough when the boss does. If people want to share salaries that sounds helpful.
This is exactly why a common advice on compensation negotiation is: don't stop interviewing once you get a job.
It's really not all that difficult, but it just needs to get drummed into people's head that equity is not compensation! At best, it's like a free gym membership that you'll never use.
To the point where it is seen as immoral to do things 'for job security', whilst the company itself might do this to it's customers. I think this affects things more than negotiation.
Negotiations ain't so hard. It's mostly down to BATNA, ie best alternative to negotiated agreement. Why would you want a union?
Do your homework to figure out how much your skills are worth on the market; get multiple companies into the offer stage; then more or less just let them know your demands and let them know that you are more than prepared to walk away if they don't agree.
That's it.
If they decide to call your bluff, then you really just walk away. That's why you want to have multiple companies in the offer stage at the same time, and also want to start interviewing before your old job becomes unbearable.
Same reason anyone wants a union: to reduce structural asymmetry. In this case, the asymmetry in question is information. Think of the hypothetical union as you and your coworkers all pitching in to get a really good lawyer to review your employment contracts and vesting terms.
>figure out how much your skills are worth on the market
The problem is that there isn't a public orderline for compensation. Observing even a single bid takes significant effort, so figuring out where the fair price is with any degree of precision is hard. And it's fundamentally harder for workers than it is for employers.
More importantly, because of the issues with equity, even those scarce observations are fuzzy. Comparing two equity packages from non-public companies is hard, and it's ridiculous (or, depending on your interpretation, cunningly malicious) to put that burden on every single employee individually. You're paid to be an expert in software engineering and a partial domain expert in whatever the company does; having to also be an expert in finance and obscure tax law to even know how much you're getting paid is unreasonable.
That's fine for those other people. And a common fund for a lawyerly review might be an interesting idea. In general, I don't want to pool my negotiations with other people, though.
> More importantly, because of the issues with equity, even those scarce observations are fuzzy. Comparing two equity packages from non-public companies is hard, and it's ridiculous (or, depending on your interpretation, cunningly malicious) to put that burden on every single employee individually. You're paid to be an expert in software engineering and a partial domain expert in whatever the company does; having to also be an expert in finance and obscure tax law to even know how much you're getting paid is unreasonable.
I resolve that difficulty by valuing all equity (or options etc) of non-public companies at a huge discount when comparing offers.
I don't treat exactly as if they were worth zero, but pretty close.
Slightly more specialised: in tech it seems to be common to grant employees at-the-money call options. The put-call-parity is your friend here (https://en.wikipedia.org/wiki/Put%E2%80%93call_parity).
A special case for that parity equation is:
put option + equity = call option + cash (at current price of equity)
In our case with both put and call having a strike at the current price of the equity.
More or less it says that a call option is exactly as useful as the insurance against the company going bust, ie the put option.
There are basically two ways for the call option to be worth more than peanuts:
- Either, the founders were idiots and sold the last round of equity too cheap (ie the strike of the call option is too low)
- Or, the share price is fair, but the company has a very high risk of going belly up (ie the put is worth a lot)
Do you not believe that a hundred people can do more work than one person? That a hundred people have more buying power than one person? That a hundred processors can do more work than one?
“I have as much bargaining power as N people combined, no matter how big N is” is like believing that P=NP.
> Do you not believe that a hundred people can do more work than one person?
In total, yes. Per person, no.
> That a hundred people have more buying power than one person?
What do you mean by buying power? Googling for the term suggests that it's a synonym for amount of money available to buy stuff ('purchasing power'). But I don't think that's what you mean?
> That a hundred processors can do more work than one?
In total, yes. Per processor, no.
Basically, when I am negotiating as part of a large group a few things happen, amongst them:
(1) The negotiating won't be about anything that makes me special compared to those other people.
(2) The company needs to be much more careful about overpaying. Granting a single high compensation to an outstanding candidate is much easier to get through the bureaucracy than a single high salary.
For comparison, I usually convert everything into a common metric. So eg I might say that 3 dollars of sign-on bonus are worth as much as 1 dollar of base salary to me. Or that I value the stock options at X dollars each (taking into account that they are risky and not liquid).
But that's independent of the technique I outlined in the other comment.
In addition to getting the benefits of both working at a startup and working at FAANG, you also get the benefits of an investor! You are able to diversify your portfolio across several different startups and you are able to get liquidation preference in any startup you invest in.
There is also the Net Investment Income Tax of 0.9% that applies to all unearned income when you hit those same thresholds, including but not limited to income that qualifies as long-term capital gains.
if you worked for $300k a year (total compensation) for 5 years, you would have accumulated $1.5m dollars. But you would have an outflow due to cost of living. Let's say it's 50% of your income goes to cost of living. Then you would have only $750k left to invest after the end of your 5 year tenure.
Even if you managed to keep your stock based compensation (rather than selling it), or you picked some other stocks to purchase during your tenure, it's unlikely to have more than a 100% gain. Let's say you did, and end up with a $1.5m pot at the end due to lucky picks.
> You are able to diversify your portfolio across several different startups
A $1.5m is barely enough to invest in one early stage startup these days. And not to mention it's such a small amount that a private equity investment firms/VC firms would likely consider it not really worth the trouble to court you over. So it's likely you have to DIY everything yourself - from finding the startup, to hiring the lawyers and bankers to deal with, as well as learn the domain (which you may or may not already be an expert). Or you will have to take a much more unfavourable term with the PE/VC firms as a small client (you have no influence over the conditions of your investment).
I just raised a $1.5m seed round for my startup and can tell you this isn't true. We've published all the numbers on our raise so you can take a look for yourself[0]. The average check an angel wrote was $22k and we even had a check as low as $5k. In fact, the largest check in our round was only $200k.
[0] https://www.freshpaint.io/blog/anatomy-of-a-seed-round-durin...
I’ve never done the FAANG -> Angel thing, but I see nothing about it that isn’t viable for even a generally friendly and interested FAANG employee on the west coast.
Angel investors frequently invest at the level of thousands of dollars.
Also your math is way off as you seem to have forgot about taxes. At 300 total comp, your take home is 150-200 for that and then you have cost of living expenses. You also don’t start at 300 AFAIK - probably closer to 100-200k these days for a CS undergrad.
This used to work when companies IPO'd within a few years, but now that 10-15 years is common the system has broken down. As a personal example, neither of the two startups I've worked for (14 years and 9 years old) are anywhere close to an exit.
Letting employees sell their equity would definitely help, but typically the equity packages are too small for this to make them directly competitive. An offer at a $20M series A company might be 0.5% equity over 4 years, but a FAANG offer will be 10x that with little of the risk.
Removing the 90 day exercise window or granting employees money to early-exercise would help reduce this risk somewhat, but doesn't help with the limited upside.
Eventually, statups are going to have to realize that if they want to attract good employees they're going to have to either massively increase cash compensation (which means raising more) or give dramatically more equity (which limits how much they can grow pre-exit).
Personally, I think it's gotten so bad that the only way I would join a startup again is as a founder.
Startups can be a good deal for a founder though since VCs seem to be getting them in on the payout train too, but it just doesn't seem worthwhile enough for me otherwise to give up the gravy train for something that will likely pay less and be guaranteed to grind me to the bone.
FAANG (and every other similarly paying company) accounts for at most 5-10% of the engineering talent in the US. Using them as a benchmark for how all companies should compensate engineers seems silly. A startup that needs at best an 80th percentile engineer has no need to meet FAANG compensation to get one hired.
A lot of them don't actually know that.
Every time someone posts one of those developer salary articles here, from levels.fyi or similar sites, there a long line of naysayers who just can't believe the numbers are real -- but they are real.
The question really flips when you ask yourself, how much could someone pay me to only visit my family only once a year?
I agree that getting a job there is not very hard. Getting a senior role (which is what you originally mentioned) is. Anyone who is more than a few years out of school either needs to be really good or accept taking a significant step backwards in career progression (and probably a lowballed comp package).
FWIW, before I joined my company (a FAANG), I was an engineering manager/tech lead hybrid. I ended up as a high mid-level in pay band, but being paid at just below the average of the next band up from numbers I've seen around, and currently grew it to more than most at the senior level. I may have taken two steps back on the career ladder, but I've almost tripled my compensation (in large part due to stock performance) from my startup job 3 years ago (which was already pretty high for the market for my background), and I have even more freedom in most aspects with what I get to work on & a very strong management team that supports me.
Whether that's enough to justify paying such high salaries at an early phase, I don't know. If you aren't planning on some kind of hyper growth phase, it's probably not. Even if you are, you might do alright without. Reddit survived its stability issues (although I do think they pay fairly well, though not FAANG).
My company has a policy (that HR has made very, very clear can be changed at any time) where for RSUs that are vesting, the company will pay the income taxes for the employee in exchange for withholding/essentially buying back a portion of the vested shares (the exact mechanism by which this is done isn't something I really looked into).
This policy opens up a backdoor way of essentially liquidating my vesting shares: I can simply file a new withholding form just before the vesting date, claim way fewer tax exemptions, and the company will withhold a higher portion of the vesting shares/remit more cash to the tax authorities. Upon filing my tax returns at the end of the year, I can receive the excess cash remitted as a refund.
The fastest way to wealth is through equity.
Yes, it’s hard to value but that value is not zero. Spending effort trying to value it is worth it, and picking companies where you think the equity will be valuable is worth it.
Also worth considering the character of the founder and the other directors. There’s a lot of ways to get screwed out of equity, working with good people is important.
Far more information is available about those companies than any privately held ones.
Public markets for non-dividend paying stocks are also betting more on what other people think the stock price will be rather than the company value itself - it’s a bit of a different game.
I don't know. To me, wasting my time (AKA - my life) seems more risky than anything. On top of that - when you do exercise your options that you earn, you have to pay $$$ for them anyway. (Along with paying AMT - yay!) I'm pissing away a third of my net income on my options + tax right now. Who knows if I'll get jack shit. At least with the stock market I can usually get SOME of my money back unless you're doing something super risky like playing with options.
IMO - playing the market is less risky than playing the startup game. Especially if you're joining early startups or ones that haven't just been straight up rockets.
I'd take FAANG over most any startup and would've if they had given me an offer. I speak as someone who has been in 3 startups before they were 30 (seed stage to unicorn). I think startups (startups that have high chance of no exit - <$500 mil valuation, less than 100 employees, <50 engineers) are better suited for people who have significant experience. If you join a startup - it is frequently filled full to the brim of FAANG rejects, young people who don't realize what FAANG offers, and people from different industries trying to break into tech... which means it's almost always the blind leading the blind. You will not learn best practices, you will inevitably find it very hard to switch into a big company, and your resume will look like shit (meaning you will always get subpar offers/interviews) until that startup either becomes a rocket ship OR you join a big co.
Risking your 20's in hopes you get ultra rich is a fools errand when you could reliably get $350K+/yr by 30 when joining FAANG when you're in your early 20's. No startup is going to give you an offer that will even be good anyway! There's no way you're going to join a startup as a entry level engineer and get an option package that will be worth anything.
Only few companies make it to the much vaunted IPO/acquisition stage. Even in acquisitions, esop holders can end up getting a raw deal.
It is very hard for one to gauge companies which are going to succeed, I joined a newly Series B startup, a leader in its space with huge market opportunity with a very good product that went nowhere. While I love my initial days building stuff there, I do rue the missed opportunity of not just minting FAANG stocks.
Also, even public company equity appreciates. Among the already big FAANG, equity price has increased between 3-6x in the last five years; that is very good considering the amount of equity you get.
Except for a very small number of people who essentially exist to make the rest of us think that could be us soon.
The fastest way to wealth is actually through winning the lottery. Equity is kind of a lottery, but with you having an influence in the odds.
It's important and could definitely make you rich, but it shouldn't be counted on.
Just pretending it’s $0 is a mistake.
I live in Palo Alto and I’ve seen many people get rich through equity, people who just read HN outside of startups don’t think it’s possible, but it is.
I didn’t realize how possible until I moved out here. FAANG salaries have tempered that a bit since you can just get rich on that income, but even a lot of that comp is equity too (and most of the people I know got most of their wealth from that equity).
I’m just telling people reading this in college to take equity value seriously and not dismiss it as worthless because people on HN say to do that all the time.
The vast majority of those people who you are giving that advice to will be played for suckers. It is good advice only for a tiny fraction that have the capacity, the opportunity, and the resources to negotiate a non-exploitative equity package. It is terrible advice for all the rest.
The advice being dispensed is superficially applicable to everybody who gets offered an equity package, and it is terrible advice for most of those people.
It's like giving high school basketball players advice which assumes they'll make it to the NBA.
I think a lot of it just depends on intangible, hard to define things like how good of a candidate you are (are you going to a startup that competes with top tech companies for talent, or one that isn't) and what type of companies you want to work for (for example, a boring ecommerce or enterprise SAAS company with revenue very early on is probably more likely to pan out than a self driving car startup or anything long-time-prerevenue). So while it might be true that in general startup equity and options are going to end up being worth little to nothing, it might be the case that for you and the companies you're trying to work at, you have much better odds.
With RSUs in public companies, it's essentially (if not entirely) impossible to lose money. With RSUs in private companies, it's very much possible to be worse off than if you didn't have those RSUs to start with. Namely, if you pay the taxes out of pocket and the shares end up being worth less than what you paid in taxes (or are even completely worthless).
Options make the math even more complex regarding taxes/potential upside or downside.
The most important thing is that, with public equity, you can tell when it's happening. If you work for a public company and the stock price goes down, that's public information, and you can readjust your valuation of your future compensation and react accordingly. If you're getting paid in funny-money private options, that doesn't work for two reasons. First, the value of your future compensation can change without your knowledge (e.g., with the introduction of preferred investor classes). Second, the value of past compensation can effectively change post-facto if you're forced to hold options for a significant amount of time.
I doubt most people go to a company they expect will literally have no value. If you're going to a private company it's either because you think it will be valuable, you think the work is interesting which could possibly make it valuable, you get an insane salary offer or because you can't find another job.
In basically every case, you understand the company has possible value, which could translate into increased wealth.
The idea is simply that its not worth anything until it is. Once you're in the company and can feel out the actual trajectory and faith in the business, you can decide if you want to buy the shares.
Nearly everyone I've worked with across multiple companies have purchased up most or all their shares, even when they expressed how little faith they had in the company. If you're doing that, what does it matter if you sat down and crunched the numbers? You still got the lottery ticket.
https://dqydj.com/net-worth-by-age-calculator-united-states/
Living in a 5000 sq ft luxury apartment in Manhattan makes you rich whether you rent it, own it and regardless if you need to work to afford it.
For 14 months I lived on a $2,250/mo salary in downtown Boulder, CO. That meant trying to scrounge free meals from meetups or wherever else would feed me.
The idea of having a million dollars, or even making 200-300k a year is so insane to me. If that isn't rich maybe I missed a memo somewhere.
i'm not arguing these people aren't rich. just trying to help illuminate why they never feel rich (and therefore don't seem to acknowledge that very obvious fact about themselves).
I'd say it's more related to the imposter syndrome. IE if I got here and I'm just ok, clearly this wasn't too hard a level to reach.
That and "well I used to work with so-and-so, and we're about equal, but they're making $800k while I'm stuck making $400k, so I'm clearly failing". Or even $2M vs $10M, etc.
Again, it's crazy, because both people are clearly actually "rich", I'm just trying to explain the mechanics of why so few actually feel that way.
If you weren't born to one set of parents, you don't randomly start in a different set of parents, as far as I can see.
So the fastest way to wealth is to be the result of a long family tree spanning back to the prototypical creatures?
or as I call it my only investment portfolio...
There's a takeaway for hiring managers in this as well – you need to do a lot of education and trust-building to hire well if equity is a meaningful part of the compensation story (and you need to really show integrity in the long run because people talk).
That's a reason to value illiquid "equity" at $0.
Because with a higher cash salary one can invest in "diversified" liquid equity that has a much higher future value than the uncertainties in many startups.
Your $100k in diversified market returns (at best) won’t be much compared to a couple million in illiquid equity that becomes valuable.
If you were at Amazon, Facebook, or Google for part of the last ten years and held your equity comp you probably did very well even though the grants at the time were “only” 100-150k or something.
I started working in 2012, people I know that joined snap chat around then and the next year or so after made seven figures (some eight) easily in that IPO.
And snapchat is an extreme outlier. Even among unicorns it had a high valuation. There are currently 3 us software companies with similar pre ipo valuations: stripe, airbnb and palantir.
Which is to say, if your company is the next snapchat, you're break even. Anything less, and a large tech company is a better investment. Betting that your company is the next snapchat, even if it's already a unicorn, is probably a losing proposition, and it's almost certainly losing of you're not already a unicorn.
My entire point is that equity should be valued at something above $0 even though it’s hard to do so, it’s worth the effort.
Stripe, Airbnb, Snap - if you’re in the bay it’s obvious what the successful companies are and you meet people working for them.
I’m just pushing back on the “treat all equity as $0” advice.
Private company equity has risks, but huge reward and that payoff is real and it happens.
That's 8 years forced to stay at the same employer or your options are worth nothing.
And again, those companies were already unicorns. And the stock will still be worth $0 to many. Now imagine a non-unicorn where you don't even know if you'll go public eventually.
There are also companies that will help you exercise your options for a cut (you don't need to be independently wealthy).
I don't disagree though - this is part of the risk to factor into the price. I'm not saying it's easy I'm saying it's worth thinking about and not reflexively assigning a value of $0.
It should be a non-zero factor in evaluating a comp package and evaluating the company.
Can you though? Your thesis has been that the majority of your income will be due to equity + appreciation. If you are able to save half your after tax income, which is feasible but requires some frugality, you can't actually afford to exercise + taxes on a stock grant whose EV is equal to your base salary.
Many people complain about how difficult affording a house is in the bay. The tax cost on an equity event is larger than the down payment on an equivalently valued house, and you're casually suggesting to save for it, on a much lower income (since you can't use your equity).
> There are also companies that will help you exercise your options for a cut
As far as I can tell, the terms of these deals mean that unless the price of the stock increases well beyond the strike price when you exercise, you'll get nothing, and even then you're going to end up losing 50%+ of the returns.
I'm not saying that you can't ever come out ahead, obviously some people do. But if you sample startups at random, the median stock value is zero. If you sample private unicorns, the median payout is mich worse than amazon or microsoft.
> Many people complain about how difficult affording a house is in the bay.
Yeah bay area housing is stupid, most of us live with a few roommates in a shared house and rent. Most of us are not buying housing here.
> if you sample startups at random, the median stock value is zero. If you sample private unicorns, the median payout is mich worse than amazon or microsoft.
Sure, I was including Amazon/Microsoft in equity comp considerations and if you have a strong offer from them it's harder choice to make. In most cases FAANG (FAANMG?) is the safer option, but you're still valuing the equity it's just a lot lower risk than private company equity.
The initial point was that equity should be considered worthless. All I'm saying is that it's more complicated than that. I don't know why this is such a controversial position?
Is there risk? Yes. Does that mean you should simplify this to $0 equity value? No.
We should accept the complexity and factor that into the decision.
Even having joined a company like Snap then would've been a raw deal compared to working for the tech giants.
At my previous company I made a mint from the shares awarded as part of compensation. By selling and reinvesting. But some people actually lost money.
The fastest way to wealth might be through equity.
Also equity in a startup is a far different proposition compared with equity in a profitable company.
"The fastest way to wealth is a lottery ticket"
It's reasonable to indicate big wealth only comes with the leverage of equity, but it has to be put in the context of the risks involved, and especially the opportunity cost of forgoing a lower salary otherwise.
Then it's _excellent_ advice.
In Canada we have endless amounts of kids who bust their butts to get themselves into the NHL, and only a fraction of a fraction make it, and only a fraction of _those_ get a jaw-dropping contract. From your own admission, and from what seems to be generally accepted, this is also the case for winning the equity lottery in Tech Startups.
For those trying to make a living, buy a house, and have a family then valuing your equity at $0 is the only rational option.
That said, if you’re comparing FAANG and startups you’re already pretty selected which is not true of all the kids trying for NHL.
Can you elaborate on this a bit more? I thought that Canada only taxes half of the capital gains which is then added to your taxable income.[1] So the amount of tax paid on the capital gains might be 50% or more but only if your taxable income for that year places you in the highest tax bracket.
In the US, you're generally on the hook to pay tax on 100% of any capital gains, compared to Canada where you're only paying tax on half of any capital gains.
[1] https://turbotax.intuit.ca/tips/capital-gains-tax-in-ontario...
You’re probably right and I had a confused misunderstanding. I only looked briefly to see what it’d be like if the election goes south and things get worse in the US.
US long term capital gains is only 15% up to 400k and 20% after that which is really good.
[Edit] Reading that turbo tax article it seems like only 50% of the gain is taxed at all and of that gain the maximum tax is under 15%? Is this just Ontario tax and there’s more federal or something else?
That seems really good?
So I think most of the time it's probably a lot worse than the long term gains tax in the US.
It looks like it's a lot better than I thought, but probably still worse compared to US long term capital gains tax in most cases.
Thanks for pointing this out.
(I think tax incentives for growth are good for society, but that's somewhat of a tangential discussion).
Equity is worth $0 unless the company is fully transparent on this stuff. I've never run into one which was.
This is according to Marc Andreessen himself: https://youtu.be/JYYsXzt1VDc
It’s just not going to happen.
Does that actually work? (As in, have you tried it?) My understanding (and how my company does it) is that they withhold the statutory minimums and don't take into account my personal tax situation at all. I didn't think that there was wiggle room for companies to do it differently, but perhaps I'm wrong about that.
(Then again, my company is public, and the RSUs sold for tax withholding are sold on the open market, so I guess it is indeed a different situation, as it sounds like your company is private and the company itself buys the tax-withholding RSUs back?)
More information here: https://www.benkuhn.net/optopt/
For US federal income tax, withholding from equity is generally treated with the supplemental (bonus) withholding rates; there's an easy way and a hard way, the easy way is 22% for the first $1 million in supplemental wages per calendar year, and 37% after that. The hard way is mush it in with your regular payroll withholdings (until you reach $1M of supplemental wages, and then 37%).
For california, the employer can do the easy way and supplimental wages from equity are fixed at 10.23% or they can do the hard way like in federal.
Chances are, payroll is going to use the easy way, and your withholding changes aren't going to matter for supplimental wages.
Part two is that they have to get the money to pay the withholding from somewhere. Most companies will do net share withholding, so you just get about 2/3rds of the shares (assuming california), cause the other 1/3rd was bought by the company. But, if there's a market, they could do an automatic sale for withholding. Or they could ask you to pay the withholding, or they could give you a cash bonus, and take it for withholding (but they have to gross-up that bonus, because it also needs to have withholding paid).
Because it's not compensation, per se, it's the promise of potential future compensation.
More than likely between now and then there will be numerous financial events that reduce its value further and eventual deplete it to as minimal a possible compensation it could be in any realistic trigger event.
Equity is worth $0 until it's not. It is never worth more than $0 until someone is willing to hand you more than $0 for it.
Damn, what a terrible deal, particularly for Series-C. As one data point, my company's stock has 5x from my initial grant value, and that has been enough to push my compensation above an equivalent position in Google Sydney, which is probably the highest paying public tech company in the country. That is _if I can sell my equity though_. So yes, please let employees sell their equity. I don't want to have to wait for the dream IPO.
Edit: Actually, given Google's very strong YTD stock gains, maybe it's borderline whether I come out ahead.
There are other reasons to join a startup of course-- more autonomy, you believe in the product, etc... but they come at a cost (lower TC and usually much worse WLB).
The math starts breaking down if your opportunity cost gets high. However out of the people I've known who have worked at startups, a decent chunk of them made much more money than they would have at FAANG (and yes, for some of them, lifechanging amounts as just low/mid level engineers). So it makes sense to treat the equity/options as $0 for financial planning/budgeting purposes for sure, but from an expected value standpoint, I don't think it does.
In the beginning of your career, a startup that has solid senior eng talent means you get a good mentor and a big playground where you can really "get your feet wet" and learn a lot, fast. Frankly, in a way that I think is really difficult to do at most FAANGs nowadays where a large number of things are abstracted away.
L5 (and equivalents) are terminal levels at most FAANGs and most engineers don't make staff or above. I think it's pretty common for engineers that get the vibe their current team isn't going to let them reach L6+ to bounce to a startup. This is where typical startup offers (even for "staff" level eng) aren't going to include enough equity for it to be worthwhile. Here, the "non-monetary" factors really need to be huge for it to really make sense as a career move.
So I'm really not convinced as your "run of the mill" L5 engineer that going to a startup is ever going to monetarily be the rational choice. You really have to value something else.
Again, the math here is totally different when you're talking L6+ (or effectively performing/hireable at that level)
But where it really bites you is, as you mentioned, the opportunity cost. If you're getting 0.3%, you're a fairly early employee. A profitable (for you) acquisition or IPO is 5-10 years away, and that $165k salary is not going to dramatically increase in the meantime. In opportunity cost, you (and I'm being very general here) end up paying $2-5m for the chance of that equity being worth something (consider that your compensation will grow as you become more senior at the Big Tech Company, and that you can invest that money). If you are lucky and have good health, you can make that bet perhaps 4 or 5 times in your life, plus some false starts that fail or become obvious zombies within 3-5 years.
To come out on top, you need one of those companies to really knock it out of the park. 1 in 5 startups do not knock it out of the park. And when they do, it's mostly unrelated to the work you're doing - it has a lot more to do with strategy, market conditions, and luck.
I like the suggestion someone else referenced. You can angel invest your FAANG cash and get a pretty similar risk/reward to being an early engineer, but without leaving all that money on the table and without the added hours and stress of being an early startup engineer.
(Also you save several years of getting the company to that stage, which means you'll get many more rolls of the dice for the same number of years)
By that point, you can go several ways. You may see an exit on the horizon and decide to stick it out. The startup could recognize the market for your skills and give you a salary that's in the ballpark of FAANG, or they can provide other compensating benefits more tailored to your personal desires. You could have experience and network connections to create your own startup. Or you could "exit yourself" to a high-level FAANG role for a huge pay raise, while still holding onto that early startup equity.
Again, I'm talking about joining a startup at early stages here, like first half dozen engineers, first couple dozen employees overall. Of course, there's a lot more risk in that approach, but there are also unique benefits. You'll have a huge hand in helping to shape the culture to be the sort of place you like to work.
That's the real selling point of startups; they'll never compete with FAANGs on a monetary basis, even in rather successful exits. A "generous" 0.5% equity slice of even $1B is $5MM, and it will likely take at least 10 years to get there. Add that to maybe another $2MM in salary and bonuses earned over that time, and you're looking at $7MM in total compensation for 10 years at a successful startup.
If you start at about $250K in total comp at FAANG and progress roughly linearly to $800K by year 10, you're looking at $5.25MM in total comp, without having to bet on a startup having a $1B exit. But then again, it's not guaranteed that you'll climb to those lofty $800K positions at FAANG.
Ultimately it comes down to how competitive a startup can be right now.
Venture Capital isn't prepared to stretch valuations further in lower rounds so that they can compensate better in cash.
Sure everyone could also give out better percentages of equity, and VCs can have lower liquidity preferences.
But it really comes down to the tax treatment of common stock options, versus publicly traded common stock restricted units, and ability to compensate employees.
It's frustrating because it was my capital risk of additional salary to take those RSUs (which only pay infrequently, not like salary)... Taxed at same high rates as salary...
I get at one level a company might like this - it's a "good" way to keep people from leaving. In reality, this means you have people that really want to leave and can't - which does not make for a happy, good employee.
Let them sell at least a portion of the stock back to the company. Or sell some during a funding round, at least enough to cover their taxes so they can take their stock and go.
Of course eveyone thinks their company will be worth a cool billion but thats rarely the case. Plus founders and investors are incentivized for your options to expire; they go back into the pool.
Startup compensation needs a refactor pretty badly.
Like, I just work here. I know jacksh-t about how _you_ are running the company, how many stupid internal decisions _you_ are making everyday that's screwing all of us over like slow poison, what financial info _you_ have access to about the company that you would never share with me in a million years.
And then you want me to magically solve your problems, and I'm the one who's not thinking outside the box?
That’s what early stage startup equity is though. It’s specifically a high risk, high reward form of compensation.
It’s rarely going to double in worth. Either it’s worth a lot more or it is worth zero. And it’s almost always worth zero.
This really only applies to the first few employees, or maybe the first few hundred if you happen to be at the next Google (so the company has to 1,000x).
After that, it's very unlikely you'd come out ahead even if the company 20x'ed compared to joining FAANG. And the other thing to consider is that FAANG stocks aren't stationary. I know people whose relatively modest AMZN stock offerings have made them millionaires.
The fact of the matter is you don't join a startup to get rich (unless you're an idiot). You join a startup because of the many other benefits it provides - having a bigger impact, working on a smaller team, less bureaucracy, etc.
This. So much this. The exit is the lottery ticket. It'll likely fail.
But the real lure is getting to wear a ton of hats and fly by the seat of your pants. Any engineer in a < 20 person eng team is going to have a ton of exposure to how the business works, to making real-time decisions, and just generally being impactful. _THAT's_ why you go.
(And, that said, it's definitely not for everyone)
The reality of the situations is working at a startup is a great opportunity to prove oneself and have stories to tell when it comes time for interviews (or drinks with colleagues).
For most employees it gives those of us without the “perfect” education/gpa/etc an opportunity to work ourselves into positions to be making significant income at larger companies either through exit, acquisition or being hired somewhere else.
I think you're comparing apples to oranges and trying to make a quantitative conclusion.
In order for it to be high risk high reward, the option's paper value should closer to competing packages from public companies. Because in order to take advantage of options, you have to exercise them, and in order to exercise them, you need to do it before they expire, with real cash out of your own pocket.
Given the rate of startup failure, it's a good thing to allow earlier liquidity to those employees, so they don't get trapped into either staying for the 10 yrs till a real liquidity event, or bite the bullet and drop cash (forgoing other investment opportunities) when they decide to leave after some time (like a typical employee). In the end, the equity that group controls is very tiny.
It used to be that a company's fate was pretty clear within a few years. You joined a startup and it either IPOed in a few years or you guessed your stock was worthless (and that was usually right).
Today some of these "pre-IPO" companies are being kept alive on private capital life support for a decade-plus. Palantir is finally going public after 17 years. 17! Waiting a generation for a liquidity event is ridiculous.
I’ve seen equity turn out well. It obviously can. And being open to those opportunities that might change your life can be valuable. But most likely it won’t - be an investor, do due diligence and make sure it’s really a rocket
I’d love to find a company that actually goes above and beyond on 401k and uses it as a piece of salary rather than just a paltry little matching contribution. A company can legally contribute so much more money than an individual can, the overall limit is $57,000 but my individual limit is less than half that.
https://www.nerdwallet.com/blog/investing/mega-backdoor-roth...
I think you should expect income taxes to go up (likely substantially) over the next 40 years, making Roth attractive to those who will retire with substantial income streams in retirement.
The IRS rules for 401k plans allow for the employer to put in twice as much as the employee - that's the only way to hit the maximum. But employers didn't seem to get the memo.
My current employer advertised a 2-to-1 401k match, which was a big selling point until I learned that it was capped at $4800/year. And then even that went away because of COVID :(
I've considered going back to consulting a couple of times just to be able to give myself a proper 401k match.
With all that said, there's still heaps to be done to fix this issue and we'd love to get feedback from the community on some of our material:
1. Stock option starter guide: https://www.secfi.com/academy/stock-option-guide
2. Exercise guide: https://www.secfi.com/academy/exercise-guide
3. Exercise tax calculator: https://www.secfi.com/products/exercise-tax-calculator
My understanding is that a sufficient volume of equity sales can force new 409(a) valuations. These would require more payments to an external accounting firm, and 4x the work to do it quarterly, work that often consumes leadership cycles. Moreover, these valuations would likely have the effect of narrowing the gap between common and preferred share values, elevating the strike price and squeezing potential profits out of employee equity.
It’s probably different once a company is large enough that it’s granting RSUs. For companies at the ISO stage, I’m not sure the upsides outweigh the downsides.
Even through 50 and maybe even 100 employees, I'd think it's possible to have a meaningful impact on the company without having to destroy your work-life balance. But of course as the company grows, your influence gets smaller and smaller unless you become an executive.
On my last startup, we were about 100 people, and I lead the Data Science team (doing Machine learning models for risk evaluation of loans). One of my more Jr. data scientists (a guy who had came out of the Uni, constructed a variable for one the models that improved the separation a lot. IIRC He single-handedly decrease our default from 20% to something like 17% (with the same acceptance %). That was huge.
Actually, I think most C level officers in a startup would be quite happy to buy lower level employees shares.
Of course this would have to be possible considering the shareholder agreement, but I don't see any reason it would not.
When I left my last job at a series d startup, it was small enough that the CEO had a meeting with people leaving and thanked them for their work, so the CEO knew me by name. I later emailed the CEO about connecting me with buyers. Silence.
I also talked to a few companies who lend you money to buy your shares, and one of the private markets. They at least said there wasn't interest. The company was doing ok and wasn't a sinking ship, but with zero interest from anyone, my options were effectively underwater, and I let them expire.
If you're thinking about exercising, reach out to some of those companies who either lend you money or run a marketplace. They're better at due diligence than you, and if there's no interest, you can assume the options are worthless. Even better, talk to one of these companies before signing at a startup. Tell them you're thinking about signing with X, I might want to sell some shares in a few years, but what's the interest look like now?
Why would the CEO introduce more supply to the market when that would undermine their ability to generate more runway? Every $ an investor spends on existing shares is $ less they can spend on newly crafted ones for raises...
See for instance the graph Company Age (Years) shared by Meritech. There are 8 companies in the cohort that are 20+ years, only 1 (Salesforce) that IPOed with less than 10 years. In fact, from the entire comps (20+ public SaaS), only Salesforce IPOed at year 5.
https://www.meritechcapital.com/public-comparables/enterpris...
This looks like it's a very narrow set of companies. We should be looking back farther, and wider. Recall that, for example, Netscape IPO'ed after 18 months and Amazon IPO'ed after 3 years. For better or for worse, 90's companies generally IPO'ed much quicker than the SaaS cohorts mentioned in the data you linked to. Back then, 10+ year timespans until IPO were rare.
Netscale and Amazon are only anecdotes and pure exceptions of the dot.com era. The set of companies that went burst during this period because of bad management is composed of at least 15 publicly traded companies. If your compensation included shares of any of these quick IPOs (AOL, Yahoo, pets.com, Global Crossing, etc.) your shares would have ultimately be zero as well (compounding interest is what makes you wealthy with these long-term horizon packages and you wouldn't have sold all your shares at ipo).
And whether a company goes bust post IPO isn't really the issue here since liquidity is what we're discussing.
Live and learn I guess.
If the company fails to achieve a good exit, I don’t need any more exposure. It’s almost a lose-lose.
Reducing your exposure in the company is an employee mindset, not an entrepreneur one.
One of the very first question potential clients ask us, is "how much is the management committed?", and by that they mean, how much of their own money did they have invested in the company.
Much more of a red flag if the CEO has that kind of cash sitting around from taking something off the table early.
The institutionals passing on their ROFR would smell bad, but may still happen due to their Capital constraints.
Most companies will set away 5-10% of their stock value to be owned by employees. The only reason they'd buy it back from you is to give it to others.
This all happens after the company is serious about hiring me and I'm serious about joining them. It's nice to have a spreadsheet because it avoids appeals to emotion. I wouldn't share the formulas or numbers, but rather only the high level methodology and the conclusions you've drawn from it. It's your tool and confidential info, not theirs. If you feel like you've made a strategic error and asked for too much, you can easily backtrack and laugh it off with the negotiator by saying you had a typo somewhere. More likely, the negotiator will consult their own spreadsheets or board, and they will tell them that your counter offer is acceptable.
One time I simply mentioned to a recruiter that I might need to take out a loan to leave my current job due to AMT (since the options were actually worth something), but I was still trying to find a tax consultant to crunch the numbers. She came back right away with a pre-offer for a larger starting bonus pending approval. I later told her that the AMT worked out okay without it, but she still got me the starting bonus since it got approved. It never hurts to ask politely for something!
I wouldn’t be surprised if the recent wave of filings was partially driven by a sense that star employees were being poached by FAANGS that could effectively pay double, mostly on account of being public.
First starters, they granted RSU's instead of ISOs, so when you leave the company you just get to keep whatever stock you've earned without needing to write a big check and pay a bunch of taxes all at once.
Secondly, they did something like what the article suggested and every time the company raised fumding (about once a year), they allowed employees to participate and sell stock (with some restrictions.) In fact, the company has been profitable for a while, so I think allowing employees to sell stock is the primary reason they still do regular funding rounds.
I ended up leaving for other reasons, but I always felt like they treated me well in that regard.
When my department was made redundant and we were laid off, turns out I didn't actually have any stock. The account reverted to $0.
Though, true, I never needed to write a big check or pay a bunch of taxes.
at some point a company is clearly on the "will probably exit for non zero amount" track and the standard "its probably worth 0" advice does not apply. I'm not sure HN agrees with this.
Tax concerns aside, your essentially betting that the stock will do better than an alternative investment. That might be the case, but taking the money and then reinvesting it is also a valid “I don’t need this money right now” option.
There’s also the factor that you’re more “eggs in one basket” if you keep the stock.
I personally pulled mine out to donate it, as it is potentially life-changing money in other people’s hands.
yes, i do think this stock has potential to at least 2-4x in 2 years from where it is today, and if things go south will at least be acquired for current valuation. so its probably better than any alternative investment i can do.
One potential option is that you could enter into a contract with a third party to sell your shares to them after a liquidity event, but they'll give you cash right now. There's a risk to the buyer that the shares might end up being worthless (but that's the price you pay for a speculative play), and a risk to the seller that the shares might be worth quite a bit more at IPO/acquisition (but that's the price you pay for early liquidity).
Not sure if any equity comp contracts stipulate that you can't do that, but presumably they could prohibit you from doing that as well.