7 ms·

It's really quite simple: you assume it's all worthless, because that's how it starts and that's how it generally ends. Even if it were going to be worth someth

It's really quite simple: you assume it's all worthless, because that's how it starts and that's how it generally ends. Even if it were going to be worth something, you'd have been better off taking the money up front and investing it however you wanted in the meantime. But it doesn't really matter, because you have no control over this anyway. All you have to do is decide whether the salary is high enough; the rest is irrelevant. Some people really enjoy playing the lottery. If that's you, well, knock yourself out getting into the details of the options package! Just don't kid yourself or make any serious life plans based on your hopes about that stuff.

cloudjacker 10y ago
> All you have to do is decide whether the salary is high enough; the rest is irrelevant. You mean feign interest in the company for two years longer than every VC that passed them over? I'm being cynical, but I am baffled how Silicon Valley companies think they are going to be privileged enough to hire engineers that are actually interested in their company's ambiguous mission, amongst the subset of engineers randomly on the market at any given time How many VCs weren't interested again?
YuriNiyazov 10y ago
This is really wrong. You can very well assume that it's worthless. If you do, chances are you will not do your research on things like early exercise and 83(b) filing (whether, for example, you work at a company that even allows things like that). Then, in the very small chance that your equity is actually worth something, you will be kicking yourself really hard because if you'd only prepared, you could've been paying LTCG on the whole spread, rather than dealing with AMT and trying to find a private buyer for your illiquid stock to pay off the IRS and the CA FTB.
- vacri 10y ago
  That all sounds like a fancy way of saying "playing the lottery".
  - aub3bhat 10y ago
    Thats like saying programming is fancy way of saying "banging fingers on keyboard".
    - signa11 10y ago
      > Thats like saying programming is fancy way of saying "banging fingers on keyboard". perhaps you were referring to the 'infinite monkey theorem' ? i would rather believe programming to be nothing like that.
      - collyw 10y ago
        test driven development seems to encourage that. Bang away until it turns green.
        hardlianotion 10y ago
        You should try precisely that - much harder to do than it seems.
    - vacri 10y ago
      Let me paraphrase the parent: "fiscal gibberish, fiscal gibberish, Then, in the very small chance that your equity is actually worth something [sic], fiscal gibberish, fiscal gibberish" Sounds almost like the definition of a lottery to me.
  - mcherm 10y ago
    No, it really isn't. I agree roughly with the claim that you should plan your life based on the assumption that your stock options are quite likely to be worthless, but the comment you replied to is making specific and highly meaningful points that anyone receiving options really needs to understand.
  - bbcbasic 10y ago
    The odds aren't THAT short.
- etatoby 10y ago
  > you will be kicking yourself really hard because if you'd only prepared, you could've been paying LTCG... AMT... illiquid stock... IRS... CA FTB... ACME... Road Runner... Look, I won't be kicking myself neither hard not soft, because I made a conscious decision to study and become proficient in another field. You finance people work under the assumption that everybody cares—or should care—about the underlying concepts of your field, not to mention the details such as jargon and acronyms, just because we have to use money to conduct our daily life. That's demonstrably false. It would be like assuming everybody who uses a smartphone should care and become proficient on TCP, signals, sockets, PIDs, scheduler priorities, and what not. In a word, foolish. Considering the stock options you're given basically worthless, unless fortuitously proven otherwise, and making your employment decisions based on salary alone (and other non-monetary factors) is a valid strategy, because it allows you to avoid having to invest time into studying and understanding all those foreign concepts. Since time is a finite resource, choosing how to spend it while still having your butt covered is great advice. On the other hand, if you are a founder of have otherwise invested a considerable amount of time and energy into those shares, it would be foolish not to seek professional advice on their management, as the article rightly points out.
  - gaius 10y ago
    You finance people work under the assumption that everybody cares—or should care—about the underlying concepts of your field Those aren't finance terms, they are taxpayer terms! Long term capital gains, alternative minimum tax, everyone knows who the IRS are...
    - hifumi 10y ago
      But those acronyms are vague and I had no idea what they were until you spelled them out.
      - 1812Overture 10y ago
        That's the point of the article.
  - 10y ago
20yrs_no_equity 10y ago
If it's worthless, and you're taking below a market salary, and you're working much harder than you would have to at a company paying you that market salary... then you're getting a raw deal. Better to get the market salary for a 50 hour a week job and do your own startup on the side as a side project. The thing is, early employees (first 1-4 years) put in as much effort and take as much risk as founders, and take a lot more risk than investors (who can spread their bets over a dozen other investments) yet generally get poor terms in their options packages. Options do have a calculable value, if you can determine the risk of failure for the company. I think they correct answer is to get RSUs that vest and have the same terms as the investors do. That's a lot more fair- investors still get to spread their bets around and have less risk, but employees have reasonable participation in all outcomes in that case (and the RSUs vest like options would.)
- developer2 10y ago
  >> Options do have a calculable value, if you can determine the risk of failure for the company. Yes, because every company that has ever failed was predetermined to be a failure long before they went out of business. Give me a break. I've watched companies of varying sizes do extremely well for several years, which then fall apart into ashes in a matter of a month or two. You can't assign value to options unless you are in the process of cashing them out.
  - 20yrs_no_equity 10y ago
    There are multiple types of value. Some of which that you often see in startups is calculable. For instance if the strike price is X and the last funding was at Y then there's an intrinsic value to the options of Y-X. If that's positive you can make an estimate of the likelihood of the company being viable long enough to realize that value and then discount that value by that amount. EVERYTHING involves risk. A risk adjusted calculation isn't a guarantee but it's also not irrelevant simply because there's risk. If I will pay you $1 for every number that comes up on the dice, unless its a 1 in which case I pay you nothing, would you ante up $0.50? You seem to be arguing that because there's a chance a 1 could come up, that a ticket for that game isn't worth $0.50.
xiphias 10y ago
The default should be working for a big public company that offers a big salary package. Anyone can code some cool stuff in his/her free time anyways. The startups don't generally compensate for the risks, just try to keep the best-case scenario better than multiple promotions at a big company (which is still hard)
- disc 10y ago
  Absolutely this. All comp evaluations should start from what you could reasonably expect (salary + annualized stock) at a public company. Startup comp is a little different; salary + the value of equity at (a reasonable) exit (but derated by a healthy 80%, because 80% of all startups fail, right?) It might also be wise to discount for any difference in preferred shares vs. common stock. This might just be my personal experience, but I feel like a lot of people don't derate startup equity for (the statistically expected) failure correctly.
xiphias 10y ago
The default should be working for a big public company that offers a big salary package. Anyone can code some cool stuff in his/her free time anyways. The startups don't generally compensate for the risks, just try to keep the best-case scenario better than multiple promotions at a big company (which is still hard)
aub3bhat 10y ago
This can be applied to everything why bother making an informed decision about choice of University or Spouse or anything else. Your explanation is a self fullfiling prophecy disguised as if it was some wise advice. In reality employees can and should make informed decisions, this advice is equivalent of covering ears and screaming bla bla bla. Power is given to those who demand it. If you start with assumption of being treated like meek, you are simply setting yourself up for a defeat.
- lmm 10y ago
  If you walk into a casino you're going to lose money. I don't even know the rules of any of the games and I can tell you that. Some situations are so tilted in favour of one side or the other that it's not worth trying to compete on that playing field. Valuing the options at zero and demanding adequate salary without them is the opposite of meekness.
  - aub3bhat 10y ago
    Rather than loudly proclaiming your ignorance about casions and options, you should introspect. I know several people who successfully negotiated better terms. Demanding "adequate" salary and valueing options at "zero" are two seperate tasks. You assume latter (options not valued at 0) implies former (salary not adequate) its a statement about your risk averse world view, not a statememt of fact. As far as meekness, loudly proclaiming that you are valuing options at zero is great way of letting your co workers and others know of your level of interest in the success of company. At which point if not meek you would surely come across as contemptuous, lest the company suceed and your coworkers end up better off than you.
    - throwaway729 10y ago
      > I know several people... And for every person you know there are dozens of stories about people who didn't even come close to recouping their salary differential. And those are just the "successful" startups that had some sort of exit. So the risk is (obviously) real. > its a statement about your risk averse world view, not a statememt of fact. No, it's a (true) statistical statement that you're misrepresenting as a categorical one. > loudly proclaiming that you are valuing options at zero is great way of letting your co workers and others know of your level of interest in the success of company Does the VC who's investing in a profile of N other companies also not have much interest in the success of the company? I mean, if they REALLY believed in the success of the company, then why aren't they just throwing all N at the company? The only difference between the VC and the employee is that the employee is providing a limited resource (time) that can't be split among N bets, while the VC has enough cash to afford to make risky bets. So it's entirely possible that the company has an negative expected value for an employee and also a positive expected value for the VC (and founder, but for different reasons).
jerguismi 10y ago
As an employee you can also have a positive effect on the outcome of the company.
- logfromblammo 10y ago
  So as a non-owner, I am in a great position to give charity to the owners. No way. I have been screwed often enough by companies that I am no longer going to put in uncompensated additional effort more than once per employer. If I want to do charitable work, there is no shortage of open-source projects out there that would pay in gratitude or reputation. When I am "at will" in a company with zero actual ownership, I have no interest whatsoever in seeing the company succeed or fail. It makes no difference to me whether the job disappears because the company goes under, or because the CEO doesn't like my face, or because the owners sell out and the new bosses clean house. Any non-cash incentives will have no effect on me until they are actually in my possession. A promise that can be broken without consequence at any moment before the expected delivery date is no promise at all. As an employee-owner, I can have a positive effect on the outcome of the company. But not once has any of my employers fully upheld any promise related to ownership made at or before hiring. So now all my accounting is by what I have in hand. If what I have is a load of tissue-thin promises that I have no means to enforce, that's great for wiping my backside with. I believe it was put more delicately some time ago as "don't count your chickens before they're hatched," and "a bird in the hand is worth two in the bush." If you can't meaningfully enforce the promise, it is worth nothing. If you have a vesting schedule, and the employer can change it by firing you without cause, it is worth nothing. Analyze your proposed compensation defensively; pretend that the company is out to screw you without you even noticing it, because sometimes they are.

cloudjacker 10y ago

> All you have to do is decide whether the salary is high enough; the rest is irrelevant. You mean feign interest in the company for two years longer than every VC that passed them over? I'm being cynical, but I am baffled how Silicon Valley companies think they are going to be privileged enough to hire engineers that are actually interested in their company's ambiguous mission, amongst the subset of engineers randomly on the market at any given time How many VCs weren't interested again?

YuriNiyazov 10y ago

This is really wrong. You can very well assume that it's worthless. If you do, chances are you will not do your research on things like early exercise and 83(b) filing (whether, for example, you work at a company that even allows things like that). Then, in the very small chance that your equity is actually worth something, you will be kicking yourself really hard because if you'd only prepared, you could've been paying LTCG on the whole spread, rather than dealing with AMT and trying to find a private buyer for your illiquid stock to pay off the IRS and the CA FTB.

vacri 10y ago
That all sounds like a fancy way of saying "playing the lottery".
- aub3bhat 10y ago
  Thats like saying programming is fancy way of saying "banging fingers on keyboard".
  - signa11 10y ago
    > Thats like saying programming is fancy way of saying "banging fingers on keyboard". perhaps you were referring to the 'infinite monkey theorem' ? i would rather believe programming to be nothing like that.
    - collyw 10y ago
      test driven development seems to encourage that. Bang away until it turns green.
      - hardlianotion 10y ago
        You should try precisely that - much harder to do than it seems.
  - vacri 10y ago
    Let me paraphrase the parent: "fiscal gibberish, fiscal gibberish, Then, in the very small chance that your equity is actually worth something [sic], fiscal gibberish, fiscal gibberish" Sounds almost like the definition of a lottery to me.
- mcherm 10y ago
  No, it really isn't. I agree roughly with the claim that you should plan your life based on the assumption that your stock options are quite likely to be worthless, but the comment you replied to is making specific and highly meaningful points that anyone receiving options really needs to understand.
- bbcbasic 10y ago
  The odds aren't THAT short.
etatoby 10y ago
> you will be kicking yourself really hard because if you'd only prepared, you could've been paying LTCG... AMT... illiquid stock... IRS... CA FTB... ACME... Road Runner... Look, I won't be kicking myself neither hard not soft, because I made a conscious decision to study and become proficient in another field. You finance people work under the assumption that everybody cares—or should care—about the underlying concepts of your field, not to mention the details such as jargon and acronyms, just because we have to use money to conduct our daily life. That's demonstrably false. It would be like assuming everybody who uses a smartphone should care and become proficient on TCP, signals, sockets, PIDs, scheduler priorities, and what not. In a word, foolish. Considering the stock options you're given basically worthless, unless fortuitously proven otherwise, and making your employment decisions based on salary alone (and other non-monetary factors) is a valid strategy, because it allows you to avoid having to invest time into studying and understanding all those foreign concepts. Since time is a finite resource, choosing how to spend it while still having your butt covered is great advice. On the other hand, if you are a founder of have otherwise invested a considerable amount of time and energy into those shares, it would be foolish not to seek professional advice on their management, as the article rightly points out.
- gaius 10y ago
  You finance people work under the assumption that everybody cares—or should care—about the underlying concepts of your field Those aren't finance terms, they are taxpayer terms! Long term capital gains, alternative minimum tax, everyone knows who the IRS are...
  - hifumi 10y ago
    But those acronyms are vague and I had no idea what they were until you spelled them out.
    - 1812Overture 10y ago
      That's the point of the article.
- 10y ago

20yrs_no_equity 10y ago

If it's worthless, and you're taking below a market salary, and you're working much harder than you would have to at a company paying you that market salary... then you're getting a raw deal. Better to get the market salary for a 50 hour a week job and do your own startup on the side as a side project. The thing is, early employees (first 1-4 years) put in as much effort and take as much risk as founders, and take a lot more risk than investors (who can spread their bets over a dozen other investments) yet generally get poor terms in their options packages. Options do have a calculable value, if you can determine the risk of failure for the company. I think they correct answer is to get RSUs that vest and have the same terms as the investors do. That's a lot more fair- investors still get to spread their bets around and have less risk, but employees have reasonable participation in all outcomes in that case (and the RSUs vest like options would.)

developer2 10y ago
>> Options do have a calculable value, if you can determine the risk of failure for the company. Yes, because every company that has ever failed was predetermined to be a failure long before they went out of business. Give me a break. I've watched companies of varying sizes do extremely well for several years, which then fall apart into ashes in a matter of a month or two. You can't assign value to options unless you are in the process of cashing them out.
- 20yrs_no_equity 10y ago
  There are multiple types of value. Some of which that you often see in startups is calculable. For instance if the strike price is X and the last funding was at Y then there's an intrinsic value to the options of Y-X. If that's positive you can make an estimate of the likelihood of the company being viable long enough to realize that value and then discount that value by that amount. EVERYTHING involves risk. A risk adjusted calculation isn't a guarantee but it's also not irrelevant simply because there's risk. If I will pay you $1 for every number that comes up on the dice, unless its a 1 in which case I pay you nothing, would you ante up $0.50? You seem to be arguing that because there's a chance a 1 could come up, that a ticket for that game isn't worth $0.50.

xiphias 10y ago

The default should be working for a big public company that offers a big salary package. Anyone can code some cool stuff in his/her free time anyways. The startups don't generally compensate for the risks, just try to keep the best-case scenario better than multiple promotions at a big company (which is still hard)

disc 10y ago
Absolutely this. All comp evaluations should start from what you could reasonably expect (salary + annualized stock) at a public company. Startup comp is a little different; salary + the value of equity at (a reasonable) exit (but derated by a healthy 80%, because 80% of all startups fail, right?) It might also be wise to discount for any difference in preferred shares vs. common stock. This might just be my personal experience, but I feel like a lot of people don't derate startup equity for (the statistically expected) failure correctly.

xiphias 10y ago

aub3bhat 10y ago

This can be applied to everything why bother making an informed decision about choice of University or Spouse or anything else. Your explanation is a self fullfiling prophecy disguised as if it was some wise advice. In reality employees can and should make informed decisions, this advice is equivalent of covering ears and screaming bla bla bla. Power is given to those who demand it. If you start with assumption of being treated like meek, you are simply setting yourself up for a defeat.

lmm 10y ago
If you walk into a casino you're going to lose money. I don't even know the rules of any of the games and I can tell you that. Some situations are so tilted in favour of one side or the other that it's not worth trying to compete on that playing field. Valuing the options at zero and demanding adequate salary without them is the opposite of meekness.
- aub3bhat 10y ago
  Rather than loudly proclaiming your ignorance about casions and options, you should introspect. I know several people who successfully negotiated better terms. Demanding "adequate" salary and valueing options at "zero" are two seperate tasks. You assume latter (options not valued at 0) implies former (salary not adequate) its a statement about your risk averse world view, not a statememt of fact. As far as meekness, loudly proclaiming that you are valuing options at zero is great way of letting your co workers and others know of your level of interest in the success of company. At which point if not meek you would surely come across as contemptuous, lest the company suceed and your coworkers end up better off than you.
  - throwaway729 10y ago
    > I know several people... And for every person you know there are dozens of stories about people who didn't even come close to recouping their salary differential. And those are just the "successful" startups that had some sort of exit. So the risk is (obviously) real. > its a statement about your risk averse world view, not a statememt of fact. No, it's a (true) statistical statement that you're misrepresenting as a categorical one. > loudly proclaiming that you are valuing options at zero is great way of letting your co workers and others know of your level of interest in the success of company Does the VC who's investing in a profile of N other companies also not have much interest in the success of the company? I mean, if they REALLY believed in the success of the company, then why aren't they just throwing all N at the company? The only difference between the VC and the employee is that the employee is providing a limited resource (time) that can't be split among N bets, while the VC has enough cash to afford to make risky bets. So it's entirely possible that the company has an negative expected value for an employee and also a positive expected value for the VC (and founder, but for different reasons).

jerguismi 10y ago

As an employee you can also have a positive effect on the outcome of the company.

logfromblammo 10y ago
So as a non-owner, I am in a great position to give charity to the owners. No way. I have been screwed often enough by companies that I am no longer going to put in uncompensated additional effort more than once per employer. If I want to do charitable work, there is no shortage of open-source projects out there that would pay in gratitude or reputation. When I am "at will" in a company with zero actual ownership, I have no interest whatsoever in seeing the company succeed or fail. It makes no difference to me whether the job disappears because the company goes under, or because the CEO doesn't like my face, or because the owners sell out and the new bosses clean house. Any non-cash incentives will have no effect on me until they are actually in my possession. A promise that can be broken without consequence at any moment before the expected delivery date is no promise at all. As an employee-owner, I can have a positive effect on the outcome of the company. But not once has any of my employers fully upheld any promise related to ownership made at or before hiring. So now all my accounting is by what I have in hand. If what I have is a load of tissue-thin promises that I have no means to enforce, that's great for wiping my backside with. I believe it was put more delicately some time ago as "don't count your chickens before they're hatched," and "a bird in the hand is worth two in the bush." If you can't meaningfully enforce the promise, it is worth nothing. If you have a vesting schedule, and the employer can change it by firing you without cause, it is worth nothing. Analyze your proposed compensation defensively; pretend that the company is out to screw you without you even noticing it, because sometimes they are.