5 ms·

One other problem this creates, which the article doesn't touch on, is that many employees in the R&D economy are offered stock options in lieu of 401(k)s or a

by jawns 9y ago

One other problem this creates, which the article doesn't touch on, is that many employees in the R&D economy are offered stock options in lieu of 401(k)s or a more liquid equivalent compensation. And an IPO is the most straightforward way to cash out. Yes, it's possible to cash out during an acquisition, but anecdotally, it seems as if more people holding stock options have gotten screwed during an acquisition than during an IPO.

olliej 9y ago
Yeah if I ever went to a non public “paid in stock” I would pay a lawyer to ensure my contract let me cash out whenever I wanted, and couldn’t be diluted, and didn’t have lower payout priority.
- kelnos 9y ago
  I doubt any company would accept those terms. Unfortunately the power dynamic is on their side during these sorts of negotiations. Even if you're amazing in your field, special terms like that wouldn't fly.
  - olliej 9y ago
    I'll happily take payment in cash if you don't think that I'm worth paying in actual stock with actual value. If you're paying in stock with the argument that I'm buying into the company, then I should be able to realize that income. If you're paying in stock without actually saying I can cash out that stock why would I accept being underpaid. If you are an engineer that takes a salary+stock comp where the company gets to choose the value of "stock" -- is it salable, is it zero-value until we've repaid our creditors is being foolish. If a company is not willing to guarantee your ability to cash out they are /explicitly/ stating that the stock part of your salary is worth zero. If that's their claim I would expect a salary >200k to compensate.
    - kelnos 9y ago
      For better or worse, your expectations do not match reality in some (many?) cases. I'm sympathetic to the idea that many early employees get screwed over by promises of riches through equity, but the solution to that is education. Sometimes these big bets pay off; most of the time they do not. If you're unwilling to place one of those bets, that's fine: there are plenty of more mature (or better capitalized) companies that you can choose to work for instead. Some people are willing to make that bet, or have at least decided that the work is interesting enough to take a lower salary. You're free to look down on them for their decision, but I suppose that says more about you than about them.
- seattle_spring 9y ago
  Are you C-level? Otherwise, those terms would be laughed out of the room.
  - olliej 9y ago
    I'll happily take an actual competitive salary instead of stock if you're not willing to grant me an ability to sell or exchange stock.
- jacquesm 9y ago
  Your lawyer can write that contract but the other side needs to sign it. And unless you are a resident magician somewhere I really don't see how you would get that done, I have never seen a company agree to terms that would begin to approach that. Even management and early investors regularly get diluted and if they don't want to dilute in later rounds they have to pay up. As for the 'payout priority' (you probably mean 'liquidation preferences'): later investors tend to have a pretty powerful hand to play when it comes to establishing their priority: if they don't get their liquidation priority over and above the bulk of those already in the company they simply won't do the deal. And your 0.01% of the stock certainly isn't going to be allowed to block future rounds. So I really don't see any of this happening in a realistic setting.
  - olliej 9y ago
    You mistake what I'm saying -- I'm not saying "my lawyer writes the contract" I'm saying that for a non-public startup I would want to have a lawyer ensure that my contract allowed me to exercise the stock grants the company claims to be offering. I am following that with the simple "if they aren't willing to sign such a contract, neither am I". I have no expectation of forcing a company into a contract they disagree with, I'm saying that if I sign a contract with such a startup it's going to give me a reasonably predictable income. That means either a real and competitive salary, or an ability to exercise the "stock compensation". I'm not going to subsidize someone else.
    - jacquesm 9y ago
      Well, then you won't be working for any startups unless it is as a founder, and then that particular startup will have a hard time finding funding.
kelnos 9y ago
I already discount equity grants in early-stage startups because they're so risky, but if management's stated goal is acquisition and not going public, I discount that equity even more. I see acquisition as a big question mark when it comes to a private company's common stock, but regular employees tend to be treated much more fairly during an IPO. I'd also like to see regular employees given the option to cash out some of their equity during private funding rounds. Usually this route is only given to founders, but if it were common that employees could do so as well, that would reduce risk and make the uncertainty of an IPO or acquisition more tolerable.
- ajmurmann 9y ago
  My cynical view is that that's not gonna happen because it makes it more likely important staff will leave early.
- ryandrake 9y ago
  I just value illiquid stock options at $0 when it comes to comparing compensation. It’s sumple and sufficient. A modestly successful liquidity event multiplied by a tniy probability of success is essentially zero.
  - kelnos 9y ago
    Eh, I've read the "value at $0" thing and don't really agree with it. Admittedly it's very hard for a rank-and-file employee to put a reasonable value on an equity offer, but I think valuing at $0 is potentially leaving money on the table. In the end, though, I'm going to pick a company that I'll be happy working at, regardless of the compensation package, so maybe it doesn't matter that much.
    - sk5t 9y ago
      Would you agree that the median and mode of outcomes is $0, with the mean being somewhat higher? As a "financial vehicle" options have nonzero value, but that doesn't imply one should expect a payoff, especially given very limited bites at the apple.
s2g 9y ago
Meh, founders still got theirs. What do employees matter? They should working for you in order to change the world achieve enlightenment basking in the glow of your genius.
mljoe 9y ago
IPOs tend to be a lot more valuable. It’s more an implication of a successful exit. In either case, you have to pay off your debt and preferred stockholders before you see a dime from a liquidation event. A low value liquidation can leave zero on the table for common stock holders.

by jawns 9y ago

olliej 9y ago

Yeah if I ever went to a non public “paid in stock” I would pay a lawyer to ensure my contract let me cash out whenever I wanted, and couldn’t be diluted, and didn’t have lower payout priority.

kelnos 9y ago
I doubt any company would accept those terms. Unfortunately the power dynamic is on their side during these sorts of negotiations. Even if you're amazing in your field, special terms like that wouldn't fly.
- olliej 9y ago
  I'll happily take payment in cash if you don't think that I'm worth paying in actual stock with actual value. If you're paying in stock with the argument that I'm buying into the company, then I should be able to realize that income. If you're paying in stock without actually saying I can cash out that stock why would I accept being underpaid. If you are an engineer that takes a salary+stock comp where the company gets to choose the value of "stock" -- is it salable, is it zero-value until we've repaid our creditors is being foolish. If a company is not willing to guarantee your ability to cash out they are /explicitly/ stating that the stock part of your salary is worth zero. If that's their claim I would expect a salary >200k to compensate.
  - kelnos 9y ago
    For better or worse, your expectations do not match reality in some (many?) cases. I'm sympathetic to the idea that many early employees get screwed over by promises of riches through equity, but the solution to that is education. Sometimes these big bets pay off; most of the time they do not. If you're unwilling to place one of those bets, that's fine: there are plenty of more mature (or better capitalized) companies that you can choose to work for instead. Some people are willing to make that bet, or have at least decided that the work is interesting enough to take a lower salary. You're free to look down on them for their decision, but I suppose that says more about you than about them.
seattle_spring 9y ago
Are you C-level? Otherwise, those terms would be laughed out of the room.
- olliej 9y ago
  I'll happily take an actual competitive salary instead of stock if you're not willing to grant me an ability to sell or exchange stock.
jacquesm 9y ago
Your lawyer can write that contract but the other side needs to sign it. And unless you are a resident magician somewhere I really don't see how you would get that done, I have never seen a company agree to terms that would begin to approach that. Even management and early investors regularly get diluted and if they don't want to dilute in later rounds they have to pay up. As for the 'payout priority' (you probably mean 'liquidation preferences'): later investors tend to have a pretty powerful hand to play when it comes to establishing their priority: if they don't get their liquidation priority over and above the bulk of those already in the company they simply won't do the deal. And your 0.01% of the stock certainly isn't going to be allowed to block future rounds. So I really don't see any of this happening in a realistic setting.
- olliej 9y ago
  You mistake what I'm saying -- I'm not saying "my lawyer writes the contract" I'm saying that for a non-public startup I would want to have a lawyer ensure that my contract allowed me to exercise the stock grants the company claims to be offering. I am following that with the simple "if they aren't willing to sign such a contract, neither am I". I have no expectation of forcing a company into a contract they disagree with, I'm saying that if I sign a contract with such a startup it's going to give me a reasonably predictable income. That means either a real and competitive salary, or an ability to exercise the "stock compensation". I'm not going to subsidize someone else.
  - jacquesm 9y ago
    Well, then you won't be working for any startups unless it is as a founder, and then that particular startup will have a hard time finding funding.

kelnos 9y ago

I already discount equity grants in early-stage startups because they're so risky, but if management's stated goal is acquisition and not going public, I discount that equity even more. I see acquisition as a big question mark when it comes to a private company's common stock, but regular employees tend to be treated much more fairly during an IPO. I'd also like to see regular employees given the option to cash out some of their equity during private funding rounds. Usually this route is only given to founders, but if it were common that employees could do so as well, that would reduce risk and make the uncertainty of an IPO or acquisition more tolerable.

ajmurmann 9y ago
My cynical view is that that's not gonna happen because it makes it more likely important staff will leave early.
ryandrake 9y ago
I just value illiquid stock options at $0 when it comes to comparing compensation. It’s sumple and sufficient. A modestly successful liquidity event multiplied by a tniy probability of success is essentially zero.
- kelnos 9y ago
  Eh, I've read the "value at $0" thing and don't really agree with it. Admittedly it's very hard for a rank-and-file employee to put a reasonable value on an equity offer, but I think valuing at $0 is potentially leaving money on the table. In the end, though, I'm going to pick a company that I'll be happy working at, regardless of the compensation package, so maybe it doesn't matter that much.
  - sk5t 9y ago
    Would you agree that the median and mode of outcomes is $0, with the mean being somewhat higher? As a "financial vehicle" options have nonzero value, but that doesn't imply one should expect a payoff, especially given very limited bites at the apple.

s2g 9y ago

Meh, founders still got theirs. What do employees matter? They should working for you in order to change the world achieve enlightenment basking in the glow of your genius.

mljoe 9y ago

IPOs tend to be a lot more valuable. It’s more an implication of a successful exit. In either case, you have to pay off your debt and preferred stockholders before you see a dime from a liquidation event. A low value liquidation can leave zero on the table for common stock holders.