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As someone that doesn't really understand any of that, where should I begin to inform myself? I get the basics of equity, but don't really know how funding rou

As someone that doesn't really understand any of that, where should I begin to inform myself? I get the basics of equity, but don't really know how funding rounds affects it, dilution or even what a cap table is.

dunpeal 8y ago
There's multiple resources if you good "equity guide engineers". Here's one: https://github.com/jlevy/og-equity-compensation https://github.com/jlevy/og-equity-compensation The bottom lines: 1. The valuation you will get from the founders before being hired ("your equity will be worth $X millions when we IPO") is unrealistically optimistic. Even on the remote chance your startup becomes a huge success, you'll see a small fraction of that at best. 2. Unless you have a lot of influence on the board and majority shareholders (you won't), you can't really protect yourself from losing all the value of your stock.
- ikornaselur 8y ago
  Thank you for that link, it seems really informative! I'm going to give it a read, since this is something I've recently become interested in learning more about.
- wdewind 8y ago
  > 1. The valuation you will get from the founders before being hired ("your equity will be worth $X millions when we IPO") is unrealistically optimistic. Even on the remote chance your startup becomes a huge success, you'll see a small fraction of that at best. If a founder is selling you on anything but a very sober view of the stock that's a great signal to not join the company. Even so, it is not too difficult to model a few reasonable dilution, acquisition etc. scenarios and get a feel for how you'd do in each. > 2. Unless you have a lot of influence on the board and majority shareholders (you won't), you can't really protect yourself from losing all the value of your stock. Sort of. The reason this doesn't really happen much in practice is that it destroys the company's talent pool and ability to hire in the future. Most companies that are succeeding don't tend to screw employees, it's only when they've entered the "squeezing blood from a stone" phase that these things start happening, and at that point the stock's not worth much anyway.
  - dunpeal 8y ago
    > If a founder is selling you on anything but a very sober view of the stock that's a great signal to not join the company. Have you interviewed in many startups? "Sober view" is not what you'd get from a founder hard-selling you on any role. Try "wildly optimistic, unrealistically so". > Even so, it is not too difficult to model a few reasonable dilution, acquisition etc. scenarios and get a feel for how you'd do in each. Eh. Unless it's a late-stage startups (which is not the typical scenario), it's very hard to know what will happen. You can model some events, but the key question remains unanswered: how successful is this going to be? Absent this crucial detail, any talk of future outcomes represents, at best, some good intentions. Even the most generous founder can't do much for you when his startup fails to make any money and runs out of funding. > Most companies that are succeeding don't tend to screw employees, it's only when they've entered the "squeezing blood from a stone" phase that these things start happening, and at that point the stock's not worth much anyway. It's true that companies tend to be more generous when they are successful, and most of the nastiness and screwing people over happens when things are going south. Still, you overestimate how much damage screwing people will do, and underestimate how greedy various decision makers can get. There are unfortunately many cases in which the startup had a good exit, yet everyone below the top saw little or no money. There are even cases where the startup had an incredible exit, and still went out of its way to suck all potential earnings out of its employees pockets. For example, Skype exited for $8.5bn, yet made sure to claw-back any potential gains from multiple employees, using an obscure small-print clause that essentially made even vested stock worthless: https://techcrunch.com/2011/06/26/skypes-worthless-employee-stock-option-plan-heres-why-they-did-it/ https://techcrunch.com/2011/06/26/skypes-worthless-employee-... Apparently, they weren't too concerned about "poisoning the talent pool", which seems like good judgment, given how nobody seems to even remember this incident anymore.
    - wdewind 8y ago
      > Have you interviewed in many startups? "Sober view" is not what you'd get from a founder hard-selling you on any role. Try "wildly optimistic, unrealistically so". Don't join those companies. I've spent over a decade in the startup industry, I've interviewed at a ton of startups. Most startups are not worth working at. > Eh. Unless it's a late-stage startups (which is not the typical scenario), it's very hard to know what will happen. You can model some events, but the key question remains unanswered: how successful is this going to be? Right, that's exactly what I said...in the case that it's not successful it's not like anyone is getting rich, so in that case it's not like employees have been "screwed out" of options. In reference to Skype: they did absolutely poison the talent pool look at you remembering and posting this article. Are you or anyone reading this thread ever going to consider working for Skype? Why else would TechCrunch cover it? Not only that, the agreement that Skype offered did not change, so a bunch of people signed a shitty agreement and are then upset that it didn't work out well. This is not the rug being pulled out from underneath engineers, this is engineers not understanding what they are signing. You're right that most startup options are worthless, but not all are, and that doesn't mean you can't reason about which are worthless and which are not.

dunpeal 8y ago

There's multiple resources if you good "equity guide engineers". Here's one: https://github.com/jlevy/og-equity-compensation https://github.com/jlevy/og-equity-compensation The bottom lines: 1. The valuation you will get from the founders before being hired ("your equity will be worth $X millions when we IPO") is unrealistically optimistic. Even on the remote chance your startup becomes a huge success, you'll see a small fraction of that at best. 2. Unless you have a lot of influence on the board and majority shareholders (you won't), you can't really protect yourself from losing all the value of your stock.

ikornaselur 8y ago
Thank you for that link, it seems really informative! I'm going to give it a read, since this is something I've recently become interested in learning more about.
wdewind 8y ago
> 1. The valuation you will get from the founders before being hired ("your equity will be worth $X millions when we IPO") is unrealistically optimistic. Even on the remote chance your startup becomes a huge success, you'll see a small fraction of that at best. If a founder is selling you on anything but a very sober view of the stock that's a great signal to not join the company. Even so, it is not too difficult to model a few reasonable dilution, acquisition etc. scenarios and get a feel for how you'd do in each. > 2. Unless you have a lot of influence on the board and majority shareholders (you won't), you can't really protect yourself from losing all the value of your stock. Sort of. The reason this doesn't really happen much in practice is that it destroys the company's talent pool and ability to hire in the future. Most companies that are succeeding don't tend to screw employees, it's only when they've entered the "squeezing blood from a stone" phase that these things start happening, and at that point the stock's not worth much anyway.
- dunpeal 8y ago
  > If a founder is selling you on anything but a very sober view of the stock that's a great signal to not join the company. Have you interviewed in many startups? "Sober view" is not what you'd get from a founder hard-selling you on any role. Try "wildly optimistic, unrealistically so". > Even so, it is not too difficult to model a few reasonable dilution, acquisition etc. scenarios and get a feel for how you'd do in each. Eh. Unless it's a late-stage startups (which is not the typical scenario), it's very hard to know what will happen. You can model some events, but the key question remains unanswered: how successful is this going to be? Absent this crucial detail, any talk of future outcomes represents, at best, some good intentions. Even the most generous founder can't do much for you when his startup fails to make any money and runs out of funding. > Most companies that are succeeding don't tend to screw employees, it's only when they've entered the "squeezing blood from a stone" phase that these things start happening, and at that point the stock's not worth much anyway. It's true that companies tend to be more generous when they are successful, and most of the nastiness and screwing people over happens when things are going south. Still, you overestimate how much damage screwing people will do, and underestimate how greedy various decision makers can get. There are unfortunately many cases in which the startup had a good exit, yet everyone below the top saw little or no money. There are even cases where the startup had an incredible exit, and still went out of its way to suck all potential earnings out of its employees pockets. For example, Skype exited for $8.5bn, yet made sure to claw-back any potential gains from multiple employees, using an obscure small-print clause that essentially made even vested stock worthless: https://techcrunch.com/2011/06/26/skypes-worthless-employee-stock-option-plan-heres-why-they-did-it/ https://techcrunch.com/2011/06/26/skypes-worthless-employee-... Apparently, they weren't too concerned about "poisoning the talent pool", which seems like good judgment, given how nobody seems to even remember this incident anymore.
  - wdewind 8y ago
    > Have you interviewed in many startups? "Sober view" is not what you'd get from a founder hard-selling you on any role. Try "wildly optimistic, unrealistically so". Don't join those companies. I've spent over a decade in the startup industry, I've interviewed at a ton of startups. Most startups are not worth working at. > Eh. Unless it's a late-stage startups (which is not the typical scenario), it's very hard to know what will happen. You can model some events, but the key question remains unanswered: how successful is this going to be? Right, that's exactly what I said...in the case that it's not successful it's not like anyone is getting rich, so in that case it's not like employees have been "screwed out" of options. In reference to Skype: they did absolutely poison the talent pool look at you remembering and posting this article. Are you or anyone reading this thread ever going to consider working for Skype? Why else would TechCrunch cover it? Not only that, the agreement that Skype offered did not change, so a bunch of people signed a shitty agreement and are then upset that it didn't work out well. This is not the rug being pulled out from underneath engineers, this is engineers not understanding what they are signing. You're right that most startup options are worthless, but not all are, and that doesn't mean you can't reason about which are worthless and which are not.