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This is such a great area to work on. The equity side is pretty rough. Founders are very sensitive about disclosing important information about company perform
by joshe 8y ago
This is such a great area to work on.
The equity side is pretty rough. Founders are very sensitive about disclosing important information about company performance. They are sensitive about disclosing the cap table. Some will share info with investors that they don't share with employees. And they are sometimes trying to pitch optimistically and leaving out items that don't fit the narrative. So you end up with a very vague sense of where the company actually is when you are interviewing. A much better stance is "awesome opportunity, and these are our problems, come help us fix them". Standardization on more disclosure would push hiring toward a higher local maximum.
Something like Geoff's https://blog.ycombinator.com/transparency-in-startup-investing/ https://blog.ycombinator.com/transparency-in-startup-investi... for hiring companies. For workatastartup.com, you could say "if we make an offer, we'll show you this critical info". It's probably a bit much to expect companies to disclose this in public job postings.
Sam's thoughts on equity at https://blog.samaltman.com/employee-equity https://blog.samaltman.com/employee-equity are spot on. Especially the 10 year exercise period.
Scenario one. You leave a company after 5 years. You think they will be successful but best case is 5 years before liquidity and 10 years is very possible. It will take most of your savings to buy the stock and pay taxes. You helped with the $20 million to $800 million valuation growth. Now you have no savings, and the money is still at risk because $800 million dollar startups die all the time. You get to bet all your savings that a die rolls 1-2 for 10 times your savings. Roll 3-6 and you lose it all. The expected value is great, but it's a pretty hard bet to take.
Scenario two. Your coworkers realize this and hang on at the company long after they want to move on. Now 20% of your team is just showing up and the company culture is dying. Everyone worries about retention, we should worry about over retention too. It's better for the golden handcuffs be "if I stay, I'll vest these options" rather than "I must stay to preserve the options I vested 4 years ago".
These and 10 other bad scenarios like them are definitely on the con side.
And so easily fixed!
- snowmaker 8y agoThose are two great concrete suggestions. I agree with both of them - a standard of transparency and 10 year exercise periods.
- swyx 8y ago> $800 million dollar startups die all the time is this the case? i actually don't know that it is.
- DogOnTheWeb 8y ago(Sample size of one) I worked at a unicorn startup five years ago in the bay which no longer exists. Anyone who bought the options -- and the company was very cagey on providing cap table info -- was left with nothing.
- wolco 8y agoThis... Even if the company is sold at a high value chances are the payout will not be worth the risk. Unless your shares come with a board seat never buy the options in a private company because the shares are worth literally zero unless a secondary market exists.
- ibz 8y ago> in the bay which no longer exists :)
- aaron_m04 8y agoThat happens sometimes -- lava filled a bay in Hawaii just last week :P
- icedchai 8y agoWorthless, or nearly worthless, options are very, very common. The last options I exercised and did get paid out... but in the end, I didn't even make back enough to make up for the pay cut I took. Financially, I would've been better off taking a different job. At least I "had fun' and "got something" though.
- aaron_m04 8y agoWhy the quotes? Did you not have any fun?
- GoatOfAplomb 8y agoAgreed re: transparency. I've had startups refuse to share what even the current valuation was (edit: even when actually presenting an offer!), let alone who has preferences and convertible notes and such. If I'm taking a substantial cut in liquid comp compared to BigCorp, I can't just treat equity as a happy little upside. I need to understand exactly what terms it is subject to. As for equity amounts - if I have to assume your startup will grow at least 10X, without any further dilution, in order to break even on comp with a public corp, it's not a very compelling offer.
- webmaven 8y agoI've interviewed at places that wouldn't even disclose how long their runway was. I've even gone to work at one company that claimed a six-month runway and then ran out of money after six weeks.
- wannabenerd 8y agoThe 10-year exercise is such a no-brainer. Just ask yourself, startup founders & investors: when you issue stock options to your employees, do you want them to exercise them or not? If not, then what you're really doing is offering something you hope doesn't cost you anything and is therefore worth nothing. Good luck to you. If so, then do everything you can to help them do it. Holding an employee hostage because in order to leave they have to write a check for a significant part of their life savings won't be productive. They're taking up a salary from someone who will actually be engaged and motivated. In my experience, this definitely plays into individuals' job offer decisionmaking. At least the most sophisticated ones, which are usually the ones you're most interested in recruiting.
- maconic 8y agoI don't agree with that... I would want all the early employees to be rewarded for taking a chance on that. I would want to go the other direction and give restricted stock (which can be early exercised) when the valuation is low and with less than 10 year vesting (such as the standard 4-year vesting with 1-year cliff), it's in the employees' best interests and costs the company nothing. Of course, down the road after later rounds the common stock valuation becomes prohibitively expensive and then it probably makes sense for stock options. But at least back in my day it seemed the common thing was to give restricted stock to founders and stock options to employees. Not sure if that's still a common thing or not?