What I Wish I'd Known About Equity Before Joining a Unicorn
IMO if you work for a startup company, you should only do so because you believe in it, and if you believe in it, you should exercise your option as fast as you can, perhaps with an 83b election if you can afford it. Otherwise what's the point of taking a job at a startup with a lower TC and higher risk outlook than a FAANG job?
Hence, I think:
- only join startups you strongly believe in,
- only join startups that offer good equity package, have raised good rounds, have healthy cap tables,
- get as many options as you can,
- exercise them as fast as you can,
- work hard to make it worth something,
- leave if it doesn't work out.
Another reason is more practical: it's much easier to exercise your options when the tax bill is lower and you just got a job/while you're employed (i.e. you're more plush with money), than when you're quitting/been fired and have 90 days to figure out where to get money from. Basically, it's better to be in control of when you buy, than being forced to buy or lose out.
2. If the company gets acquired there are several mechanisms founders and investors use to wipe out options holders. It is harder to wipe out common stock owners. If an acquisition event takes you by surprise you may not have time to exercise.
3. You may get laid off, decide to quit, or get fired, and have only a limited time (3 months, often) to exercise your options. That might be a bad time for you to spend the case, so you may want to do it now while you are in a better position to do so.
If you can exercise and immediately sell the shares, point 1 isn't relevant.
Pretty sure 99% of people actually would be better off working at FAANG, or at least the 99% number isn't far off. FAANG promote quickly so salaries will climb and you'll have millions in the bank by the time a start-up would go public, I doubt many start-ups beats that.
The main reason FAANG employees don't have those millions is that they consume them as they get them rather than invest it and then get all that money at once after 6 years.