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.