That's normal and is why I count startup stock and options as $0.
Some recent threads:
https://news.ycombinator.com/item?id=25487130
https://news.ycombinator.com/item?id=25496166
Some recent threads:
https://news.ycombinator.com/item?id=25487130
https://news.ycombinator.com/item?id=25496166
Evaluate a startup equity offer as an investor would. Ask about the cap table (you don't need to know names, just numbers), ask about the company's financials. Ask about growth plans. Don't work there if they don't tell you these things.
Do some market analysis. Try to understand the motivations of different agents in the game (founders, VCs, potential acquirers). Watch some YC videos — they have great resources on youtube for both founders and angel investors.
Understand how stock options work, there're whole guides on this stuff nowadays. Exercise early if you have capital and conviction about the future of the company.
This stuff is complicated, might seem daunting, and will take a lot of time to really understand / master. But do this early in your career and it will pay off many times over.
this is not possible to do. Nth+ employee is almost nothing like an investor: no leverage, almost never access to the same amount of information and very last in line to cash out due to liquidation preferences. Basically, you have roughly 1/100th of leverage and information a typical company investor does so it's almost always a leap of faith, maybe based on some proxy observations. Sharing the cap table with an employee is something I've never heard of, unless maybe you're employee number 1 or so.
The game is rigged against you. You do have a lot less information. My point is more like, don't just give up and instead try to understand and learn the game, try to improve your chances. I see so many people (friends, acquaintances, coworkers) making poor decisions with these things simply because they don't learn about them, and that makes me sad. So many smart people who are able to build all these complex systems, but can't be bothered to learn about how stock options work.
Employment game is rigged from the beginning against employees. Recruiters do this stuff every day, they're way better negotiators than you. They talk to each other, they know all the tricks. They know what other companies pay in similar circumstances. Finding a good job is tough and can be pretty depressing honestly, but the worst thing you can do is give up.
Learn the system, find weaknesses. Find those gems where you do get an edge. Maybe try to get a job at a small startup where you will be that #1-10 employee. Maybe the founders will be just as inexperienced as you and so you'll be able to get all this information and get a better equity deal.
RE Cap table, you're right that no company will straight up tell you exact names and numbers. And that's fine. But you absolutely have to get at least a few of them:
* how many shares are outstanding
* what's the current fair market value for the shares
If they don't tell you these two things, you can't evaluate the equity offer. If they are more open, try to get some info about founding rounds & liquidation preferences. The smaller the company is the more willing they should be to share this information with you.
Last place I wasn’t confident of their market position so I negotiated a better salary instead of stock. On acquisition I would have made around 6 months salary which I’d earned 3x more than already with a better salary negotiation and invested it elsewhere.
YMMV but “fuck you money” stock and options payments are not the norm on startups.
Founders don't _want_ to screw over employees, but at the end of the day, they have a duty to their investors too and if the company is failing, the best thing can do is recoup something out of it.
I suspect some founders just never really get around to the up-front tasks that are necessary to take care of employees. It takes significant effort to put together an employee option plan. You also have to go to the mat for employee equity in funding negotiations, for example to top up early employees. It's easy to slight these in favor of tasks that contribute more directly to company success.
Theoretically the idea is that if the company becomes a unicorn and has a huge IPO and becomes a new tech giant then employees will do really well financially. OP's story isn't that. If investors got "some" money back then it was a failure of business. Probably an acquihire. So neither investors or employees got the big success payout they were hoping for because it wasn't a big success. Investors got some money back and employees got paid a salary for however many years to work on what is probably a useless product.
It's never a good idea to take a pay cut (salary-wise) to work at a startup. Moneywise, it makes even less sense to leave public company stock (esp. FAANG whose stock is growing at a healthy clip with much lower risk) and salary compensation to go work at an early stage startup (e.g., pre series-D, let's say).
It's a sucker's deal because point-zero-whatever percent of some nondescript startup is not likely to compensate for the lower wages and benefits relative to larger companies. And there certainly are jobs where you can trade lower pay for higher stability (i.e. govt). But no one in the US tech industry (big or small) ever claimed to be about lifetime employment in recent times (well maybe some crazy outlier firm somewhere does). Your long-term financial stability is your responsibility, not theirs. The tech giants will have their layoffs sooner or later too.
And if you're going to cite FAANG salaries and recent stock performance, then to be fair you need to compare it (also utilizing hindsight) to the fastest-growing startups with the best stock performance.
I'm not sure this is the case, since if you made an employment decision, say, 1 year ago (or whatever), FAANG was a known quantity back then, too.
You wouldn't know this year's FAANG performance, but you could arrive at reasonable-ish expectations based on previous years' performance, whereas a startup that was just getting off the ground at the time would be a total unknown even if it managed to make everybody rich in this past year.
As is common knowledge, though, the startups that make everyone rich (let's ignore the moderately successful ones for the moment because we're talking about taking reduced pay in the hope of future stock performance) are the unicorns, so statistically you should not be expecting that yours will (particularly if you're an employee who doesn't have the business-level decision-making power to significantly impact that probability).
Looking at some price curve and trusting it because of a trend in hindsight is just bad logic and dangerous investing. Those curves change quickly and unexpectedly, crashing right at the time when the most people become bullish believers due to being wrong so often otherwise. You can only trust fundamental reasons for investing, and those are way out of whack currently. I see the same story again every ten years and we are overdue.
My point isn't that the curves will stay steady or increase, but that you have historical data on them to draw an informed conclusion, bullish or bearish, which just isn't the case with startups.
Most count their FAANG stock with 0 growth. You still get 180k for junior, 250k for mid level and 350k for senior per year.
In terms of risk, they are completely different animals. FAANG are included in the S&P 500 index, which automatically triggers investments from many funds that have rules about this sort of thing. Many high-growth startups do not have that going for them. Further, they often fail to sustain their meteoric growth for sustained, long periods, adding further imponderables to the mix. Having been at many such companies myself, and having friends in FAANG for roughly the same period, I find that on the whole, they are doing much better money-wise, and surprisingly, in terms of career development.
In terms of salary compensation, again, growing small-mid size companies again fall short in comparison to the FAANGs. The reason is that FAANGs have good structures set for performance management, career paths, and compensation increases. The former, in contrast, are almost always lacking in having good structure in these areas. So for the average engineer who's mulling a choice between the two, the risk/reward ratio tilts towards the FAANGs.
Note that I'm mostly talking about money, and to a much smaller extent, about average career growth here. There are still plenty of other good reasons to work at small-mid size companies, but in terms of money, it is difficult to argue that going to the FAANGs leaves you worse off than the alternative.
Startups are a venture. Join them if you want to join a venture. Don't join a startup for if you want stability or predictable outcomes.
In the past 12 months, there has been probably 20 tech ipos or more. These IPOs have been in the range of $5B to $100B. Each of these outcomes might net early and late employees anything from few hundreds of thousands to several millions or tens of millions.
The very first employees (first 1-5 employees) might get ~1-2% of the company for their 4 year vesting. That diluted over multiple rounds over the years might still mean the ownership is at least 0.1-0.2% or more. Company hitting $100B market cap after listing means the employee’s position is now worth $100-200M. That’s amount of money you can never earn with salaries. You can only earn it by starting a company or joining a startup early on with a good equity package. Both cases it's rare to achieve that but it does happen. Probably each IPO you see has a few of those.
The reality is that VC funded businesses need to be massively successful with maybe 10-1000x the returns to be considered a success and return something to the employees.
It’s called an option, so it’s an option for employees to buy the shares with ~1/5 of the preferred share price where it was when you joined the company. Investors pay higher price for the preferred shares and one of the things they get is the liquidation preference, so they get their money back first. Good rounds and VCs do 1x liquidation preference. Bad rounds or bad VCs companies might force company to n-x liquidation preference. As a founder, you don't lose with the liquidation preferences like everyone else, so it's not in your or in the company interest to do them.
This is also where the valuation comes in. A hot startup might raise a lot of money and have a high valuation early on but won’t be able to execute and scale to the level to meet the expected valuation. Now everything below and level of that valuation is considered a failure. Then if the company cannot keep executing, raise more money or just generally lose steam, they might have to sell the company to get something. Honorable founders and management would try to help to employees to keep their jobs or even see if there is way to give any of the proceeds.
Exercising options is always risky since the startup outcomes are risky. You shouldn’t exercise with money can't afford to lose.
Savy companies and savy employees join companies with extended exercises where employees can keep their options up to 10 years without exercising. This avoids the downside risk for employee but unfortunately doesn’t help with taxes. Exercising early can start the clock for long term capital gains and some cases QSBS (tax free treatment up to $10M).
Summary: options are definitely worth it if you join the right company. When considering joining the company, think how an investor would. Would you believe in team and business and invest? Check their investors, are they reputable? Join companies with extended exercise windows, exercise early if you have the means and belief the company will succeed.
The biggest tech company IPO of 2020 was Snowflake, and that had a market cap of $75bn at peak. Most IPOs and direct listings ended up with market caps much lower. I strongly suspect there were no early hires walking away with 9 figure payouts in any of them.
It doesn’t really matter if it’s $100b or $50b. You would still make at least $50m as one of the first employees.
I know multiple _late_ stage employees that walked out with several millions. It’s not hard to believe early employees would walk with 10x or 100x that.
If can believe that angel investing can be worth it, I’m not sure why people don’t people don’t believe startup equity is not worth it. It’s the same thing, but instead of buying preferred share, you buy common shares with discounted price.
Jason Calacanis $25k angel investment in Uber was worth $100m after the ipo. As employee your equity grant would be likely 10x more than that.
Also btw, companies would love not to give out equity. You could sell it to investors at higher price and dilute the founders less as you don’t need option pools.
Unfortunately, that hasn't been true for years. VC firms stopped leaving that money on the table and have been taking those gains in the form of liquidation preferences or stock grants before IPOs that dilute employee shares.
Jason Calacanis $25k angel investment in Uber was worth $100m after the ipo. As employee your equity grant would be likely 10x more than that.
This is clearly not true; there was no "Uber Mafia" after its IPO. If anything, Uber employees were complaining about how little they saw of the IPO, on HN and reddit. And that was before Uber's stock price dropped like a sinking rock after its IPO.
This absolutely need to be conveyed to every present and future employee of startup. Unless you're founder or investor taking a risk - startup shares worth nothing.
I think startup hiring managers using worthless options as a negotiating tactic should be prosecuted for securities fraud.
Misleading employees is no less crime as misleading investors.