5 ms·

i think options do a couple of things: 1) they let employees invest in startups using their time instead of their money, which is handy when you aren't rich and

i think options do a couple of things: 1) they let employees invest in startups using their time instead of their money, which is handy when you aren't rich and 2) they allow the company to have a legal framework around an IOU: take less salary now, bigger payout later maybe. thought experiment: knowing everything you know about e.g. stripe right now, would you buy $100k worth of stripe back in ~2012? in 2012 it was a risky proposition to do so, but many people at the time understood why stripe was likely to be big and successful and invested money in it. i'd rather live in the world where there is a mechanism to invest in such a company besides being an accredited investor with access. many people go wrong when thinking about options in that they don't try to consider the fundamentals of the investment. working at an early-stage startup isn't just a job, it is a way to do risky investments using your time. all that said, what Dan proposes at the beginning makes a lot of sense: the startup should be willing to give you cash instead of options (provided they have the cash).

SonicSoul 9y ago
knowing everything you know about e.g. stripe right now, would you buy $100k worth of stripe back in ~2012? sure but for every stripe there are 10 startups that either failed or didn't amount to a great payout. I think the point this post is making that the value of options is statistically not greater than higher salary at a competitor, given the risk an employee takes since he can't diversify his time. that said if you believe in an idea it is absolutely great to have the option to "go long" on that idea with your time
- babuskov 9y ago
  > for every stripe there are 10 startups "10" is an understatement.
- rguzman 9y ago
  > sure but for every stripe there are 10 startups that either failed or didn't amount to a great payout. yep. it's probably more like 100:1 don't go work at the other 99! :) i agree that the value of options is statistically not greater than the compensation package at GOOGBOOK. that said, you don't get to live 1000 lives in parallel. so, either you have to think very carefully about this one (or ~5) investments you are going to make OR you can go work at a bigger company with higher salary if that isn't for you.
  - deleted 9y ago
    [deleted]
lostcolony 9y ago
Given what you know about Bitcoin now, would you buy $100k worth of bitcoin in 2010? Of course you would. Except...I didn't tell you that your investment would be held by Mt. Gox. You lost your investment. There is always risk. Always. 97% of startups fail. They are extremely high risk. The earlier you buy in, the higher the potential payout, but the more likely you are to be backing one that will fail. Even the successful ones, after dilution, may or may not be worth more than the cash over how long it took to IPO/be bought out. You say you get to make risky investments with time; yes...but that's even worse than money. Money is fungible. Time isn't. You have a set amount in life. Having a 97% chance you're wasting it (actually, higher, since dilution + etc means even a 'success' may mean you made less than the equivalent cash over how long you worked at the place, the extra hours you put in compared to working on side projects, etc) are some pretty long odds.
- rguzman 9y ago
  > You say you get to make risky investments with time; yes...but that's even worse than money. Money is fungible. Time isn't. You have a set amount in life. that isn't an argument against startups offering options. that only says that you value your time in such a way that precludes you from investing it in startups.
  - lostcolony 9y ago
    Sure, and I wasn't arguing against startups offering options. Just against startups valuing them over cash, and expecting employees to do the same. Really, I'd say the whole thing is a red herring; either way you're working. Your time is being used. So the question is do you want to trade that time for a guaranteed amount of money, or a -possible- amount of money (but, high risk). The only way taking the options makes sense is if the salary is -still- high enough to not get in the way of what you want to do, and you could walk away having netted zero from your options and not feel cheated.
- GFischer 9y ago
  I think that 97% number is misleading. Sure, maybe 97% fail, but most have already failed before taking on an employee on equity. A more appropriate number would be the number of startups that fail after that milestone. For instance, I calculated the numbers for my country, 40% of startups that get accepted into an incubator succeed, 40% fail and close, and 20% stagnate (mine is currently in the 20%). So, you're buying a 40% ticket, not a 3% ticket. Still losing odds, but not so much so, and if you're an early employee, you can really help tilt the odds (5%? 10%? I don't know).
deleted 9y ago
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metaphorm 9y ago
this breaks down quickly because most employment offers at startups don't use option compensation, er, optionally. it is a mandatory substitution for base salary.

SonicSoul 9y ago

knowing everything you know about e.g. stripe right now, would you buy $100k worth of stripe back in ~2012? sure but for every stripe there are 10 startups that either failed or didn't amount to a great payout. I think the point this post is making that the value of options is statistically not greater than higher salary at a competitor, given the risk an employee takes since he can't diversify his time. that said if you believe in an idea it is absolutely great to have the option to "go long" on that idea with your time

babuskov 9y ago
> for every stripe there are 10 startups "10" is an understatement.
rguzman 9y ago
> sure but for every stripe there are 10 startups that either failed or didn't amount to a great payout. yep. it's probably more like 100:1 don't go work at the other 99! :) i agree that the value of options is statistically not greater than the compensation package at GOOGBOOK. that said, you don't get to live 1000 lives in parallel. so, either you have to think very carefully about this one (or ~5) investments you are going to make OR you can go work at a bigger company with higher salary if that isn't for you.
- deleted 9y ago
  [deleted]

lostcolony 9y ago

Given what you know about Bitcoin now, would you buy $100k worth of bitcoin in 2010? Of course you would. Except...I didn't tell you that your investment would be held by Mt. Gox. You lost your investment. There is always risk. Always. 97% of startups fail. They are extremely high risk. The earlier you buy in, the higher the potential payout, but the more likely you are to be backing one that will fail. Even the successful ones, after dilution, may or may not be worth more than the cash over how long it took to IPO/be bought out. You say you get to make risky investments with time; yes...but that's even worse than money. Money is fungible. Time isn't. You have a set amount in life. Having a 97% chance you're wasting it (actually, higher, since dilution + etc means even a 'success' may mean you made less than the equivalent cash over how long you worked at the place, the extra hours you put in compared to working on side projects, etc) are some pretty long odds.

rguzman 9y ago
> You say you get to make risky investments with time; yes...but that's even worse than money. Money is fungible. Time isn't. You have a set amount in life. that isn't an argument against startups offering options. that only says that you value your time in such a way that precludes you from investing it in startups.
- lostcolony 9y ago
  Sure, and I wasn't arguing against startups offering options. Just against startups valuing them over cash, and expecting employees to do the same. Really, I'd say the whole thing is a red herring; either way you're working. Your time is being used. So the question is do you want to trade that time for a guaranteed amount of money, or a -possible- amount of money (but, high risk). The only way taking the options makes sense is if the salary is -still- high enough to not get in the way of what you want to do, and you could walk away having netted zero from your options and not feel cheated.
GFischer 9y ago
I think that 97% number is misleading. Sure, maybe 97% fail, but most have already failed before taking on an employee on equity. A more appropriate number would be the number of startups that fail after that milestone. For instance, I calculated the numbers for my country, 40% of startups that get accepted into an incubator succeed, 40% fail and close, and 20% stagnate (mine is currently in the 20%). So, you're buying a 40% ticket, not a 3% ticket. Still losing odds, but not so much so, and if you're an early employee, you can really help tilt the odds (5%? 10%? I don't know).

deleted 9y ago

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metaphorm 9y ago

this breaks down quickly because most employment offers at startups don't use option compensation, er, optionally. it is a mandatory substitution for base salary.