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Comment by Swizec | Hacker News Reader

> The vast majority of cases stock options end up worthless

My fav manager had a great way of phrasing this: "There are more ways for your options to be worthless than to make you rich"

But I also personally know plenty of people who made off great with their startup equity. They're def not worthless.

Ultimately I think you should never take an uncomfortable pay-cut to join a company and you should maximize your stock compensation on top of that. Don't forget other types of equity – brand, exposure to good problems, network.

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I think the main thing to remember is that you should assume they are worthless.

There's probably something like a 99% chance they are worthless, a 0.9% chance they are worth a decent holiday, a 0.09% chance it'll let you retire early, and a 0.01% it'll make you somewhat rich. Worst of all, unless you're the CxO you have very little control over the outcome.

Equity is a nice bonus, but you might just as well treat it like the company giving you a lottery ticket for Christmas. Nobody is going to take a significant pay cut or work 80 hours a week for a lottery ticket, so don't do it solely for the stock options either.

I’m 0 for 3 on startup equity being worth anything and have since left the industry.

One of the startups I did some time at was as close to a sure thing as one can hope for (unicorn valuation at one point) but it still went to zero in a very public flame out. It’s still impossible not to get imaginative about what could have been as I was a very early employee… such is life.

The most lucrative stretch of my career was working for a big company that paid good base salaries.

Same. 1 startup is dead-dead. 1 startup is now a husk of itself used by the CEO for fractional CxO consulting, and 1 is down from unicorn status to limping along with 1/5th the staff.

The primary benefit of startups is getting to do more work to learn more faster and not deal with Process.

I've worked at 8 companies, 3 have resulted in value from equity (all granted pre-IPO), all of them in certainly much larger than "a decent holiday" level.

I think people have updated to be much too negative on the prospect of equity paying out. It's obviously much better than 1%, at least if you work at anything other than extremely early-stage companies.

How are the founding dates of the startups distributed? Are recent startups still exiting well?

Founding dates? I don't know. IPO dates were 2007, 2019, 2023.

Well statistics shows that it is best to value equity at 0. I will take equity in a non public company. But not in exchange for cash compensation at my market rate.

I assure you that statistics do not show it is best to value equity at 0.

"Statistics" on its own doesn't tell you anything; you have to consider your own risk aversion. Only VCs can afford to be risk-neutral and only consider expected value.

Care to show your source?

I'm honestly stunned that people here are performatively math-illiterate.

Some companies experience liquidity events. Therefor the value of equity in those companies is positive. Some companies go out of business. Therefor the value of equity in those companies is zero.

If N is the ante hoc chance that a company will experience a liquidity event, then:

N * X + (1 - N) * 0 = value of liquidity

X is positive. 0 < N < 1.

Therefor the value is positive.

People aren’t saying the chance is literally zero. They are saying it is low enough that they can’t consider it reliable comp for income purposes in their own personal situations. I can’t say my experience has been any different so I don’t blame them. People commenting aren’t math illiterate. I’m kinda amazed you are taking things so literally when it’s so obvious to anybody reading how to interpret the discussion.

They sure are insistent on it being literally zero for people who don't think it's literally zero.

If you like, I'm happy to update my claim to, "startup equity often has non-trivial value, say, >$1000 per year."

Add a few zeros and I think we’d be in the right ballpark. You have to make up for the haircut before you start counting positive net value.

And then take into account the risk/reward premium and alternatives.

I hoped you had some real data, but all you had was a joke.

Ok it's not zero. Is it 0.0000000000000000000000001?

Surely you're aware that obtaining 0.50$ is not going to have a large impact? Even if the sum is 3000$ the impact is extremely limited.

But you had to go and be a r/iamverysmart material because you actually have no more information than me.

Also learn to spell therefore please.

You played a stupid game, you won a stupid prize.

Something is different than nothing. When people repeatedly insist that something and nothing are the same, they get trivial answers.

And learn which side of the digits a dollar sign goes on please.

I've worked at 10 startups since 2006, with equity or options each time. Only one time did it turn out to be worth anything at all (~6 months salary), and that one time wasn't even a successful "exit". It was more of an aquihire, and they paid out the options for everyone they didn't want, ie everyone not living in the Bay. The other nine times my options have been worth precisely zero, either I get let go or quit because the company is circling the drain, or fizzles out, or gets rid of a bunch of people to goose the numbers before a fire sale.

Stock options are a lottery ticket, and I value them roughly the same.

Sounds like your startup equity has been worth about $3000-$5000 per year?

It really depends of the stage of the startup. I recall reading someone doing analysis on this (unfortunately I don't have a link) showing that joining a company that isnt public yet, but is already large-ish and showing some real product-market fit gets people better payouts. Yes, employees 1-40 of a future unicorn will to great (if they could afford to buy the shares, and AMT doesn't kill them which is another story), but it's relatively safe to get into a company that hasn't IPO'd yet.

Imagine say, that you joined Stripe in 2014. By then, probably 500-1000 employees and a a real name on the industry, yet private. It's perfectly reasonable to not consider the stock they might have offered at that time as straight out money, like you'd have treated Google RSUs. But discounting the shares to zero, or just "a nice bonus" is also silly. I bet anyone that got a year or two of stock in that era is well into the retire-early/somewhat rich cadre, and that wasn't all much of a risk.

> By then, probably 500-1000 employees and a a real name on the industry,

You're wildly exaggerating here (but unsurprisingly). I know someone who joined Stripe in 2015, and he said there were about 300 employees globally at the time.

But I do generally agree with the rest of your point, I'm just contextualising the information.

> you should assume they are worthless.

I had this mindset at a startup and decided not to risk any of my money exercising my stock options. They eventually expired. Years later the company IPO'd and I would have made a lot of money had I exercised.

Waiting for more certainty before exercising means the fair market value will likely be higher then and you'll have to pay AMT.

I now approach a job with the mindset that stock options are probably worthless, but I'll risk what I can afford to by exercising as soon as I can.

> But I also personally know plenty of people who made off great with their startup equity. They're def not worthless.

I personally view Stock Options in the same way as lottery tickets - sure they might pay out big sometimes, and people do win lotteries, but, for the most part, they're going to be losers.

There might be argument about the difference in how often stock options lose compared to lottery tickets, but that's missing the point.

Sorta. You could definitely go in on something worthless that never gets any traction and end up with less than zero, as in, you owe money after the experience. But for every Stripe or Airbnb there's 100 more lesser known names that still pay out, not in the millions, but a couple hundred thousand dollars range, which is still enough to change most people's situation.

Definitely look at them as worthless untill they're worth something, but the untold secret is the secondary and private market. SpaceX employees have gone that route and some are quite rich despite there not being an IPO. Again, the failure mode to be aware of is you could end up in debt and owe money which is worse than if you'd never played.

> Definitely look at them as worthless untill they're worth something

One (of numerous) problems with stock options is almost all stock option contracts require you to exercise within 90 days of leaving the company.

Often times employees leave a company, and then need to decide within 90 days whether they will spend anywhere from $5-50k+ to exercise the options to keep the stock, otherwise you forfeit the options after 90 days.

The stars really have to align for you to make money with options without risking/gambling your own capital by exercising them.

Unfortunately secondary markets only exist for very large companies like Stripe. I’m not aware of secondary markets for small < 100 person companies, which is where you see the most blatant hyping up of stock option value.

There are companies that will finance your options exercise in exchange for a cut of the earnings in the event of an exit. I haven't personally used one, but they do exist.

and the most important thing someone told me is that 100% of $0 is $0. x% of a big number > $0

Yeah, but you should try to shop for a deal where 100 - x is as big a number as you can negotiate.

Oh absolutely, the important bit is that 100% of $0 is $0.

There’s a much better option - simply offer nso conversion with much longer exercise window

I can't speak to their individual deals, but Hiiive, Forge, and ESO fund are all working with companies that aren't stripe sized.

But absolutely no one should read this and think anyone's paper valuation is worth actual dollars until the money hits your bank account.

> without risking/gambling your own capital by exercising them.

Many companies offer early exercise, so you can reduce the amount you gamble by a lot.

Also, you already "pay" in terms of opportunity costs by being at that startup vs something more established where you get RSUs of a public company. So using some of the money from the startup in order to exercise the shares is really useful. If the startup's cash compensation is just enough to pay your bills, then of course it's different.

> You could definitely go in on something worthless that never gets any traction and end up with less than zero

Absolutely agree

> Lesser known names that still pay out, not in the millions, but a couple hundred thousand dollars range

FTR This is the same for lottery tickets, they don't all win the top prize (or a share of it), most will win a few dollars, some tens of thousands, and so on.

The main difference is that people often think they share a fate as a startup. They all have the same lottery tickets (in varying amounts) that pay out under the same conditions. After all, that's how managers often motivate the early employees.

But since there are different classes of lottery tickets, the payouts can change arbitrarily at the last minute depending on the specifics of the deals.

So even after accounting for the fact that most lottery tickets don't pay out, you need to account for the fact that some within the same startup might pay out while yours don't. And there's no perfect way of knowing ahead of time.

Pre/post pandemic startup equity seem to have wildly different outcomes

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