Hacker News Reader

Comment by emmett | Hacker News Reader

You seem to be saying to contradictory things:

"Equity is worthless, never work for equity, always demand cash up front."

"Those darn investors and founders keep all the equity for themselves and get rich off your back!"

You can't have it both ways. Either the equity is worthless or it isn't. Are the investors, who get no salary and only equity, even bigger suckers than the employees? What about the founders who usually take big paycuts when they start the company?

It seems like the real message here is "Make sure you get a BUNCH of equity" not "Don't take any equity at all". Which I can totally get behind. If you're an early employee at a startup, working for equity, make sure you're being compensated appropriately!

View on HN

There's equity, and then there's "equity."

For example, a well-funded late stage startup recently offered me a salary that was $35k/year below the market rate, plus X hundred thousand stock options. These came with no strike price, and their grant was subject to final board approval after hiring. When I asked how I might possibly valuate these at anything other than zero dollars, they told me that this was just a standard bay area offer structure. When I persisted, they reminded me of the free lunches. When that wasn't convincing, they fell back on the old, "People don't work here for the money, they do because they want to change the world! You may just want to get rich, but we'll be happy if we can cure cancer someday."

Even better: A year or two goes by and the Controller and CFO ignore your emails trying to get a strike price and paperwork to exercise your options. cough Perimeter or whatever your name is now: https://www.silversky.com/ cough

Add that to the list of ways to get denied your options. How do you exercise if they just ignore you?

I've got a term for what you just experienced: psychological arbitrage.

If you don't have a seat in the board room, your equity can disappear in an instant.

Grants are always subject to board approval, due to corporate structure of literally every startup I've ever heard of. It's a rubber-stamp process (for normal-sized grants, anyway) and employees always get the options.

Similarly, they can't specify the strike price because for legal reasons the strike price is set when the options are issued.

Nonetheless, options of this kind are worth a potentially huge amount of money. X00,000s of google shares, given to you subject to board approval and with an unknown strike price, would have been fabulously valuable.

However, perfectly legitimate questions:

How many outstanding shares of stock do you have on a fully-diluted basis? X00,000s of stock options is meaningless, only percentages matter. You should always ask this question.

What was the last 409a valuation for common stock? When did you get your last 409a valuation? This will determine the strike price your options get, assuming that their 409a valuation is less than a year old.

So actually, their answers were perfectly legitimate. $35k under market is quite a bit, though depending on the percentage of the company you were getting it might be fair.

> Grants are always subject to board approval...and employees always get the options.

My sibling comment offers a counterexample [1].

> X00,000s of stock options is meaningless, only percentages matter. You should always ask this question.

Exactly right. They weren't willing to answer this question in writing.

> Similarly, they can't specify the strike price because for legal reasons the strike price is set when the options are issued.

I believe it's legal to set the strike price at X percent of the stock price, which seems to be what you'd really need to try to valuate private company stock options anyway.

[1] http://news.ycombinator.com/item?id=5258483

>How many outstanding shares of stock do you have on a fully-diluted basis? X00,000s of stock options is meaningless, only percentages matter. You should always ask this question.

Bingo. I have no idea why they routinely fail to give enough information to make the option grant even remotely meaningful.

Fortunately, where I work, the head of finance told me how many shares were outstanding, fully diluted, and in writing, when I asked.

> You seem to be saying to contradictory things:

No, they are not contradictory statements. Equity is one way to see upside in a startup, but that upside can be completely destroyed for employees. For example, common stock or when founders don't negotiate with investors on your behalf. An employee's relationship with equity can be very different from a founder's relationship with equity (and not just quantity). Situations aren't always this bleak, but the OP was asking for a dose of cynicism.

Very true. Options pool != stock the founders have. There are often many classes. It's never simple.

Startup employees get fraction of a percent of ownership whilst taking relatively similar risk profiles - as in pennies on the dollar and last I checked pennies are pretty worthless. Hence the heuristic. Yes - you need a bunch of equity to make it worth it - my point with that heuristic was that employees don't usually get a meaningful enough amount of stock. Furthermore - due to the various stock class structures - the stock may also be diluted away upon exit or subsequent investment rounds.

Reply on news.ycombinator.com