4 ms·

I agree 100% with this. Employees should be suspicious that they have access to an investment nobody else does - invest now! I've seen countless friends get bu

by nemo44x 11y ago

I agree 100% with this. Employees should be suspicious that they have access to an investment nobody else does - invest now! I've seen countless friends get burned in various ways believing they would be getting rich soon from their options and then fizzle. Either through the company just never having a liquidity event or being sold for less than previous valuation rounds. The worst is I've seen people reject job offers that were far superior in cash compensation because they had a recent big option grant. A friend of mine stayed on at a place even though he didn't get a cash raise but instead was given some options that vested over a few years in addition to the options he already had, some of which were vested. Did it not ring a bell that a company that can't give him cash but can instead offer compensation out of thin air in the form of options is in trouble? And then there are the golden handcuffs were an employee is scared to leave because their options have too high a fair market value and their tax costs would be considerable. Further limiting their career growth. I've seen the other side too where friends have taken home a really nice pay day after liquidity - but it is the exception and not the rule. I recommend joining young companies that are willing to pay you a lot of cash for your exceptional ability and experience (execution is critical at this stage across the entire company from engineering to sales) and maybe take it easy on the option grants. Some stock is fun but don't count on getting rich on it.

MichaelGG 11y ago
In the exceptional cases where they got a nice pay day, was the company unable to pay cash? If not then there's the answer why no bells ring.
- nemo44x 11y ago
  It's true, the media loves the story of the regular folks who struck gold when their company went public and that resonates with typical employees who don't understand the financial constructs that make up many VC deals.
wdewind 11y ago
> Did it not ring a bell that a company that can't give him cash but can instead offer compensation out of thin air in the form of options is in trouble? This is not an accurate heuristic for "how good is a company doing." There are many legitimate reasons you'd want to pay someone in stock instead of cash. > And then there are the golden handcuffs were an employee is scared to leave because their options have too high a fair market value and their tax costs would be considerable. This is definitely something to consider. If your options agreement allows you to early exercise you can avoid all of the tax penalty and remove the golden handcuffs if you exercise immediately (before you have realized a gain) and file your 83-b with the IRS. If it doesn't allow early exercise you probably don't want anything to do with it. > I recommend joining young companies that are willing to pay you a lot of cash for your exceptional ability and experience (execution is critical at this stage across the entire company from engineering to sales) and maybe take it easy on the option grants. Some stock is fun but don't count on getting rich on it. I'd recommend learning as much about business as possible, and consider working at a startup an investment, and you an investor. If you aren't comfortable investing then you shouldn't be working in startups. There is basically no reason to work at a startup if you aren't favoring the equity ($, work-life balance, perks etc. are all going to be better at BigCo).
nostrademons 11y ago
Employees do have access to an investment to an investment nobody else does. It's just that they need to do due diligence on par with or better than an investor to avoid getting taken advantage of. I've turned down more startup jobs than I can count. When I interview at a startup, I thoroughly research their market, their competitors, their product, and their business model. I ask questions about how they came up with the idea, and how they know other people want it, and what questions they asked when they did their market research, and how the idea has evolved in response to new information. How did the team meet? What's the company culture like, and what do they value? I ask about financials - are they profitable? What's their runway? What's their revenue and revenue growth rate? Is it recurring revenue or revenue for one-off contracts? What's their churn rate? I ask about funding - who is their VC? How many rounds have they taken, what's the preference overhang, how many more do they anticipate taking? (And then in my head, I'm running over the financials to see if this squares with their growth & revenue plans.) If they're cagey about this, I walk. Some companies are, and that's their right, and I'm not going to work for them. Others are very impressed that I'm doing this level of due diligence, because it shows that I view my time there as an investment, and will invest the same level of diligence and effort into the job itself. Equity compensation itself is not the problem. Equity itself is great for employees - they have an information advantage over every other shareholder of the company (including the VCs), and if they're an early hire, they can have a meaningful effect on the value of that equity. But to take advantage of this, they need to do due diligence as if they were an investor - they are, after all, they're investing their time, which is far more valuable than a VC's money. Equity is much more highly levered than salary - its value depends on how events play out, not just on what you've agreed beforehand - and so you should make sure you have enough information to make a reasonable guess at its value before accepting it.
- gkop 11y ago
  In the context of parent and grandparent, what do you look for when doing your due diligence to evaluate the risk of the employees getting screwed on common shares when every other stakeholder makes money?
  - 11y ago

by nemo44x 11y ago

MichaelGG 11y ago

In the exceptional cases where they got a nice pay day, was the company unable to pay cash? If not then there's the answer why no bells ring.

nemo44x 11y ago
It's true, the media loves the story of the regular folks who struck gold when their company went public and that resonates with typical employees who don't understand the financial constructs that make up many VC deals.

wdewind 11y ago

> Did it not ring a bell that a company that can't give him cash but can instead offer compensation out of thin air in the form of options is in trouble? This is not an accurate heuristic for "how good is a company doing." There are many legitimate reasons you'd want to pay someone in stock instead of cash. > And then there are the golden handcuffs were an employee is scared to leave because their options have too high a fair market value and their tax costs would be considerable. This is definitely something to consider. If your options agreement allows you to early exercise you can avoid all of the tax penalty and remove the golden handcuffs if you exercise immediately (before you have realized a gain) and file your 83-b with the IRS. If it doesn't allow early exercise you probably don't want anything to do with it. > I recommend joining young companies that are willing to pay you a lot of cash for your exceptional ability and experience (execution is critical at this stage across the entire company from engineering to sales) and maybe take it easy on the option grants. Some stock is fun but don't count on getting rich on it. I'd recommend learning as much about business as possible, and consider working at a startup an investment, and you an investor. If you aren't comfortable investing then you shouldn't be working in startups. There is basically no reason to work at a startup if you aren't favoring the equity ($, work-life balance, perks etc. are all going to be better at BigCo).

nostrademons 11y ago

Employees do have access to an investment to an investment nobody else does. It's just that they need to do due diligence on par with or better than an investor to avoid getting taken advantage of. I've turned down more startup jobs than I can count. When I interview at a startup, I thoroughly research their market, their competitors, their product, and their business model. I ask questions about how they came up with the idea, and how they know other people want it, and what questions they asked when they did their market research, and how the idea has evolved in response to new information. How did the team meet? What's the company culture like, and what do they value? I ask about financials - are they profitable? What's their runway? What's their revenue and revenue growth rate? Is it recurring revenue or revenue for one-off contracts? What's their churn rate? I ask about funding - who is their VC? How many rounds have they taken, what's the preference overhang, how many more do they anticipate taking? (And then in my head, I'm running over the financials to see if this squares with their growth & revenue plans.) If they're cagey about this, I walk. Some companies are, and that's their right, and I'm not going to work for them. Others are very impressed that I'm doing this level of due diligence, because it shows that I view my time there as an investment, and will invest the same level of diligence and effort into the job itself. Equity compensation itself is not the problem. Equity itself is great for employees - they have an information advantage over every other shareholder of the company (including the VCs), and if they're an early hire, they can have a meaningful effect on the value of that equity. But to take advantage of this, they need to do due diligence as if they were an investor - they are, after all, they're investing their time, which is far more valuable than a VC's money. Equity is much more highly levered than salary - its value depends on how events play out, not just on what you've agreed beforehand - and so you should make sure you have enough information to make a reasonable guess at its value before accepting it.

gkop 11y ago
In the context of parent and grandparent, what do you look for when doing your due diligence to evaluate the risk of the employees getting screwed on common shares when every other stakeholder makes money?
- 11y ago