4 ms·

That startup's stock is not liquid, and that %0.5 is subject to a large amount dilution on top of it if it ever becomes liquid. For example, it's often not wo

by mahyarm 11y ago

That startup's stock is not liquid, and that %0.5 is subject to a large amount dilution on top of it if it ever becomes liquid. For example, it's often not worth it to work for a startup, even if you get that %0.5 equity at the $10mm valuation, since even if it gets to a $1 billion valuation, it doesn't mean you can sell it. Dilution would then make that $50k into $500k instead of the $5 million you would expect. $500k / 4 = $125k / yr (vesting), which is the same as working at google / apple if you could sell all of your stock. But you cannot so you probably will not get that money back. So a very good case scenario for startups can lead to getting the same money as working at google. With the current trend of 8+ years to liquidity if the company is successful, it will be a long time before you get your $50k back. Then you have to compare putting that held up $50k in to an index fund over the same 8 years. As a result, you should probably be demanding something like %5 of the company. Dividing your missing compensation by the probability that you would actually get that missing compensation will lead to a calculation like that. They will predictably balk at the %5 suggestion, so it's up to you to figure out if you can make more money working for someone else keeping your sales costs in consideration. If not, then go ahead and work with these people, and just treat the equity as the lottery ticket it is. http://techcrunch.com/2011/10/13/understanding-how-dilution-affects-you-at-a-startup/ http://techcrunch.com/2011/10/13/understanding-how-dilution-...

kohanz 11y ago
Thank you. This is a clear explanation of some of the considerations I need to be aware of (but was not).
HockeyPlayer 11y ago
This post is too pessimistic. If this startup gets to a $1b valuation, you will likely have some avenues towards liquidity. 10x dilution would be extreme.
- mahyarm 11y ago
  Not really. If your are a current employee, you usually can sell %10 of your vested stock during secondaries, which amounts to about $20k until you reach full vesting at the $1b valuation. The secondaries come up every one or two years. If your not working there anymore, you cannot enter the secondary. Most of your stock is still illiquid, and GooFaceSoft is still the better idea. Finding sellers outside of employer sponsored secondaries can be pretty hard and involves a lot of labor. Time better spent making money directly with new consulting clients. Usually the corporation wont be very helpful in selling your stock. ESO fund & others can be pretty picky and you have a good chance they might change their mind a few months later as you try after you have gotten all of your required documentation. As an employee / contractor, you won't have investor level access to financials, reporting or the resources to fully understand them. That dilution level does happen. It's happened to friends as they climbed from a $5m company to a $1b company. Also if you get options or equity of some sort, make sure that the options do not expire until at least 20 years later. You do not want the 90 days after termination problem a lot of people have. 20 years seems long, but there are stories of people's 7 year stock options expiring because the company hasn't gone public in those 7 years! And make sure you have easy access to these required documents, since they are often required to sell your equity when the company is private: http://www.slideshare.net/KeyvanFirouziCFACPA/equity-101-for-engineers-togo-v04 http://www.slideshare.net/KeyvanFirouziCFACPA/equity-101-for...

by mahyarm 11y ago

kohanz 11y ago

Thank you. This is a clear explanation of some of the considerations I need to be aware of (but was not).

HockeyPlayer 11y ago

This post is too pessimistic. If this startup gets to a $1b valuation, you will likely have some avenues towards liquidity. 10x dilution would be extreme.

mahyarm 11y ago
Not really. If your are a current employee, you usually can sell %10 of your vested stock during secondaries, which amounts to about $20k until you reach full vesting at the $1b valuation. The secondaries come up every one or two years. If your not working there anymore, you cannot enter the secondary. Most of your stock is still illiquid, and GooFaceSoft is still the better idea. Finding sellers outside of employer sponsored secondaries can be pretty hard and involves a lot of labor. Time better spent making money directly with new consulting clients. Usually the corporation wont be very helpful in selling your stock. ESO fund & others can be pretty picky and you have a good chance they might change their mind a few months later as you try after you have gotten all of your required documentation. As an employee / contractor, you won't have investor level access to financials, reporting or the resources to fully understand them. That dilution level does happen. It's happened to friends as they climbed from a $5m company to a $1b company. Also if you get options or equity of some sort, make sure that the options do not expire until at least 20 years later. You do not want the 90 days after termination problem a lot of people have. 20 years seems long, but there are stories of people's 7 year stock options expiring because the company hasn't gone public in those 7 years! And make sure you have easy access to these required documents, since they are often required to sell your equity when the company is private: http://www.slideshare.net/KeyvanFirouziCFACPA/equity-101-for-engineers-togo-v04 http://www.slideshare.net/KeyvanFirouziCFACPA/equity-101-for...