A bunch of early engineers i knew made less than 100k when their company got acquired for $320m cash.
Down rounds and preferential stocks are not fun
Down rounds and preferential stocks are not fun
I remember a conversation when we got new ISO grants, that they might be worth $X, based on blah-blah-blah, but they’ll be worth at least $2X soon because we’re growing, so really you’re getting $2X! Which doesn’t even make sense to me if we’re going to view today’s price as a discounted future cashflow. Anyways, we’re finally trading at $X today, years and years after IPO.
Moral of the story is that the people budgeting how much to pay you will engage with incredibly wishful thinking when deciding how much to pay you if they can. “Sure, Z shares seems super generous, right? We’re a rocket ship!” But when the market decides how much a share is really worth, they can’t screw you by pretending they’re paying out more.
I’m only working for public companies from here out. And none of those 1 year grants that seem to be popping up.
The company was sold to a large tech company for like 350mil but what happened first is the VCs/founders created a new company and sold the IP from old company to new company and sold the new company for the 350mil leaving the employees with a worthless company.
So also trusting the founders and the VCs they choose are in my opinion more important then any equity grant offer
This is basically legalized gambling with a house that's allowed to have a rigged table. If you want to do well, become a senior engineer at a FAANG.
Startups mint multi-millionaires. FAANG does it at scale day in and day out.
Startups exits sometimes make a handful of people mega-rich, but as this thread has revealed, making ordinary employees rich is quite rare. Not so rare are the people who hang out at FAANGs, collecting large amounts of equity, and riding the industry up. And yeah, the wealth in this case is typically not of the level to buy $10M homes, but $2M homes?
Once in a while you have a founder who strikes it rich, but that effect is overwhelmed by the more numerous folks just riding $GOOG, $AAPL, $FB, etc. to multi/deci-millionaire status.
Then one recent startup was championing transparent salaries but wouldnt share anything about the cap table which seemed odd to me.
My current company the CEO answers questions about the stock outlay but not specifics but also doesnt claim to be transparent.
I just assumed from my earliest experiences most small companies were happy to explain the cap table and walk folks through dilution events.
Cant make good decisions without full information.
A cap table is a representation of ownership. Saying a company doesn’t have one is like saying I don’t have a height.
What I meant is that the cap table was not disclosed and changed so often that nobody really knew what it was at a given moment in time.
I’ll stick to RSUs.
Saying you helped exit a company seems to go over well in interviews though.
If you join a company that just had a seed or Series A, the par value would be much higher, and if you were granted RSUs, you would need to buy the shares at whatever they’re valued at, which can be a lot if you’re buying 1% of a $10mm company (compared with a stock option which is simply the option to buy stock at a later date).
RSUs have voting rights and is usually the same stock founders have.
That’s said, an investor (or a founder for that matter) can come in at any time and rework the whole ownership structure by simply increasing the authorized share pool in a company from (let’s say) 10 million shares to 100 million shares, and then grant all of the newly created shares to other entities, thereby cutting the value of all other shares by 1/10.
A lot of it comes down to what investors force startups to do when they accept VC money, and also how ethically and morally the founders act from the perspective of employees with stock interest.
I’m a CEO and when I hire people, I’m very generous with stock options, but I tell people upfront they’re just lottery tickets. That’s really what they are.
One is that "just create a bunch of shares and only give them to the founder" is true, but has tax consequences. (In your example, you just gave ~90% of the company to the founder at valuation $XM. Whether as options or as Restricted Stock, there's going to be a tax consequence to that either at grant or during vesting). A dishonest founder might do that, but they'd have to believe it was going to work out in their favor beyond just "I already have 40%, let's increase the value of the company".
Second though is that the Founders, usually as CEO and Board Directors, have a fiduciary duty to their shareholders. Even if you have full control of the voting rights, reallocating all the equity is a violation of that fiduciary responsibility. The injured parties have to sue you for it, and that might make the company equity worthless, but just because a company is private doesn't mean "anything goes".
This is largely true at any smaller seed maturity or even Series A maturity.
As a sibling commenter mentioned, companies do have a fiduciary duty. But realistically, if the shareholders are composed of relatively unsophisticated investors/employees, you can do anything without being sued.
I obviously don’t subscribe to this kind of behavior at my own company, but being in the position it has opened my eyes the extent to which one could go if you were very greedy.
You can get RSUs in private startups which doesn’t mitigate the risks being discussed here. That said there are still benefits to having RSUs over options (i.e., 90 day exercise window).