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IMO there's only two paths that really makes sense now when considering a private co. Either a) join super early (e.g. penny strike price) with a meaningful % o

IMO there's only two paths that really makes sense now when considering a private co. Either a) join super early (e.g. penny strike price) with a meaningful % of total company (at least 10 bps) OR b) join late stage growth co that offers RSUs over options (e.g. "Softbank" stage cos). Joining a "middle" stage co where you are offered expensive options is the worst, since you've missed out on the early upside and you take on a ton of risk due to cost of exercising.

joshe 8y ago
Sorry have to delete these, not comfortable with these comments sitting on the internet forever.
- dawhizkid 8y ago
  That is not true. You keep whatever you vest (i.e. typically stay at a company at least 1 year). That is the same for stock options. Typically companies that offer RSUs have achieved scale (your Ubers and Stripes of the world), so yes the upside is lower, but the "pros" are that it's more obvious to you what the value of the grants are and you don't have any cost to exercise them like with options. These companies know that because they are less liquid vs public cos that candidates are right to discount them, which is why they usually offer more than what you'd otherwise receive from a Google or FB.
  - joshe 8y ago
    Sorry have to delete these, not comfortable with these comments sitting on the internet forever.
    - dragonwriter 8y ago
      > Nope, the "stock units" that you "vest" will expire after a few years. When they vest, you either get (1) actual shares, (2) the cash equivalent (I think that option may only be available for publicly traded stock), or (3) at your option, retain the RSU for conversion at a later date. Unconverted deferred vested RSUs might expire (and vested stock options definitely expire), but—unlike options—there’s almost never a reason not to convert an RSU (deferring for later conversion may make sense, but it's essentially always better to convert before expiration.)
      - joshe 8y ago
        Sorry have to delete these, not comfortable with these comments sitting on the internet forever.
- ryandrake 8y ago
  But public company RSUs are as good as cash because you usually can sell them the day they vest. Rule of thumb I think is to favor options from private companies and RSUs from public companies.
  - sulam 8y ago
    There _is_ a "neither fish nor fowl" moment where private companies start giving out RSUs. It has to do with the overall value of the company and the size of the offer package, and rules around how much you can vest in ISOs in a given calendar year. It also has to do with the exposure to employees (and ex-employees) as shareholders pushing you above the cap that requires you to report as a public company. At any rate, it is fairly common to get RSUs in a late-stage private company. Uber was giving out RSUs 4 years ago, I believe, and has reportedly filed for a confidential IPO as of last month.
- techslave 8y ago
  Either your explanation is unclear, or you do not understand RSUs. > RSUs [...] evaporate if you leave or are fired from the company. You can not purchase them like stock options. RSUs do not evaporate. Vested RSUs are yours outright. You cannot purchase them because they are already "purchased". > So you have to stick around until the company becomes public. In both cases, the RSU or the stock underlying an option, it is equally worthless until there is a liquidity event. > Oh they also expire in five years Companies don't even offer RSUs until they are close to being public. Once you reach a certain threshold of stockholders, you have to report financials. Since this is typically undesirable for private companies, they don't want to jump the gun on issuing RSUs instead of options. If the 5 years does pass without IPO, companies re-issue new grants. (Please: name one company that has actually expired RSUs and what happened) OTOH most stock option grants expire in 90 days upon termination. This is a real expiry, and actual money out of your pocket (and tax liability) to exercies them, and usually a difficult decision. There are some places doing 10-year expiry but those are still the exception. > The odds of stock options working out is low, but for RSU's they are much, much lower. It's the opposite. For a private company, RSUs are much much closer to money in the bank than are options.
  - joshe 8y ago
    Sorry have to delete these, not comfortable with these comments sitting on the internet forever.
- joshe 8y ago
  Sorry have to delete these, not comfortable with these sitting on the internet forever.
  - freedomben 8y ago
    dude, please don't participate if you're gonna do this. It wrecks the conversation for everybody else reading later.
ryandrake 8y ago
And really, only a) offers a meaningful shot at “getting rich”. A late stage growth company is not going to 100X its equity value in 5 years. No rank and file employees are getting f-you money there. If there’s one thing I’ve learned after two decades in the industry it’s if you care about earning good money, you can either 1) gamble on the 0.01% chance that you picked the right startup or 2) get on to the Senior Executive track as early as possible. Then it doesn’t matter what company you join because they all pay their executives f-you money.
- dawhizkid 8y ago
  Even with (a) it's tough. If you're employee 1-13 you're getting maybe 10-20bps. At a unicorn valuation that is $1-$2m before you take into account dilution, liquidation preferences, taxes, etc etc etc.
  - ryandrake 8y ago
    I totally agree, which is why I have not worked for a startup or small business for close to a decade. And I’m by nature a gambler! It’s just they in the current climate the %unicorn x %share x valuation expected value calculation is not favorable to employees. Even for employee 1-10. All it would take i think is for companies to start offering larger stakes to employees, with the other two factors remaining the same, and the math might make it worthwhile. But they won’t do it.
  - sulam 8y ago
    If you're employee 1, you should be getting 1% or north of that. If you're employee 13 you're probably getting 25-50 bps if you negotiate.
    - dawhizkid 8y ago
      Outside of a very senior employee #1, I think the point is that even achieving a unicorn valuation does not guarantee extremely early employees much wealth, at least more than you'd get going down a more traditional big co path.
icedchai 8y ago
I wouldn't consider 10 bps (0.1%) meaningful. Early stage is very, very risky.
- dawhizkid 8y ago
  unless you are a founding engineer, that is not out of the norm even for the earliest employees (unfortunately) nothing is "very very risky" unless you are taking your entire salary in equity. if you are making a competitive base I think you'll survive any misstep choosing the wrong early stage co in the long run.
  - icedchai 8y ago
    I was employee #5 at a startup and I got 0.5%. Another startup offered me 0.1% and a mediocre salary. I had to put the phone on mute while I laughed.
    - dawhizkid 8y ago
      I wouldn't pick an early stage co to join just based on the % of the company they offered. 0.5% in something worthless is still 0.
      - icedchai 8y ago
        I wouldn't either... The team was good and the product was technically interesting. (The startup that offered me the 0.1% didn't have either of these qualities.)
- sulam 8y ago
  Agreed. 10bps is considered low for me to get for as an advisor (I've been told that directly). The "founding engineering team" (ie, up to 8 people) is getting more than that.
- nostrademons 8y ago
  Depends if it's pre- or post-product/market fit. Joining a startup that's overwhelmed with demand for its product - particularly if you can see the usefulness of this product yourself - is usually a good move even at 0.1%. Joining a startup that's still iterating on the product (and maybe has a couple customers but just lost a big one and they have to work really hard to sign the next one) may be a bad move even at 10%, because there's a good chance that equity will be worthless. The article doesn't really mention it, but a great question to ask any potential employer is "What are your biggest problems right now?" Scaling is a great problem to have, because it indicates lots of demand and has solutions that are relatively well-known in the industry. Customer service is a pretty good one - it shows that the company has customers who care enough to want service, and if the CEO is willing to admit this is a problem it'll probably get fixed. Hiring, code quality, internationalization, testing, service outages, brain-dead tech stack, anything that's specific to the problem domain itself - these are also pretty decent problems to have as long as the CEO is attentive to them. Unhappy customers or staff turnover is a caution - you should dig into this further to see why they're leaving, and if it looks like the problem is solvable. Same with financing - many hot companies run low on cash at various points, and you only need to make sure the company isn't going to die, but if the company loses more money than it makes on each transaction that's a huge red flag. The biggest problems (particularly for an engineer) are anything to do with sales, marketing, partnerships, or "growing the business", because the root cause of this is often that customers don't really want what you're making, and nothing short of a major pivot fixes that. As a side bonus, asking this question is often a big positive signal for the hiring manager, because it shows you're serious about solving problems rather than just collecting a paycheck.
docker_up 8y ago
This sounds like someone who hasn't actually worked at a startup that made it or has a lot of experience with the issues involved.

joshe 8y ago

Sorry have to delete these, not comfortable with these comments sitting on the internet forever.

dawhizkid 8y ago
That is not true. You keep whatever you vest (i.e. typically stay at a company at least 1 year). That is the same for stock options. Typically companies that offer RSUs have achieved scale (your Ubers and Stripes of the world), so yes the upside is lower, but the "pros" are that it's more obvious to you what the value of the grants are and you don't have any cost to exercise them like with options. These companies know that because they are less liquid vs public cos that candidates are right to discount them, which is why they usually offer more than what you'd otherwise receive from a Google or FB.
- joshe 8y ago
  Sorry have to delete these, not comfortable with these comments sitting on the internet forever.
  - dragonwriter 8y ago
    > Nope, the "stock units" that you "vest" will expire after a few years. When they vest, you either get (1) actual shares, (2) the cash equivalent (I think that option may only be available for publicly traded stock), or (3) at your option, retain the RSU for conversion at a later date. Unconverted deferred vested RSUs might expire (and vested stock options definitely expire), but—unlike options—there’s almost never a reason not to convert an RSU (deferring for later conversion may make sense, but it's essentially always better to convert before expiration.)
    - joshe 8y ago
      Sorry have to delete these, not comfortable with these comments sitting on the internet forever.
ryandrake 8y ago
But public company RSUs are as good as cash because you usually can sell them the day they vest. Rule of thumb I think is to favor options from private companies and RSUs from public companies.
- sulam 8y ago
  There _is_ a "neither fish nor fowl" moment where private companies start giving out RSUs. It has to do with the overall value of the company and the size of the offer package, and rules around how much you can vest in ISOs in a given calendar year. It also has to do with the exposure to employees (and ex-employees) as shareholders pushing you above the cap that requires you to report as a public company. At any rate, it is fairly common to get RSUs in a late-stage private company. Uber was giving out RSUs 4 years ago, I believe, and has reportedly filed for a confidential IPO as of last month.
techslave 8y ago
Either your explanation is unclear, or you do not understand RSUs. > RSUs [...] evaporate if you leave or are fired from the company. You can not purchase them like stock options. RSUs do not evaporate. Vested RSUs are yours outright. You cannot purchase them because they are already "purchased". > So you have to stick around until the company becomes public. In both cases, the RSU or the stock underlying an option, it is equally worthless until there is a liquidity event. > Oh they also expire in five years Companies don't even offer RSUs until they are close to being public. Once you reach a certain threshold of stockholders, you have to report financials. Since this is typically undesirable for private companies, they don't want to jump the gun on issuing RSUs instead of options. If the 5 years does pass without IPO, companies re-issue new grants. (Please: name one company that has actually expired RSUs and what happened) OTOH most stock option grants expire in 90 days upon termination. This is a real expiry, and actual money out of your pocket (and tax liability) to exercies them, and usually a difficult decision. There are some places doing 10-year expiry but those are still the exception. > The odds of stock options working out is low, but for RSU's they are much, much lower. It's the opposite. For a private company, RSUs are much much closer to money in the bank than are options.
- joshe 8y ago
  Sorry have to delete these, not comfortable with these comments sitting on the internet forever.
joshe 8y ago
Sorry have to delete these, not comfortable with these sitting on the internet forever.
- freedomben 8y ago
  dude, please don't participate if you're gonna do this. It wrecks the conversation for everybody else reading later.

ryandrake 8y ago

And really, only a) offers a meaningful shot at “getting rich”. A late stage growth company is not going to 100X its equity value in 5 years. No rank and file employees are getting f-you money there. If there’s one thing I’ve learned after two decades in the industry it’s if you care about earning good money, you can either 1) gamble on the 0.01% chance that you picked the right startup or 2) get on to the Senior Executive track as early as possible. Then it doesn’t matter what company you join because they all pay their executives f-you money.

dawhizkid 8y ago
Even with (a) it's tough. If you're employee 1-13 you're getting maybe 10-20bps. At a unicorn valuation that is $1-$2m before you take into account dilution, liquidation preferences, taxes, etc etc etc.
- ryandrake 8y ago
  I totally agree, which is why I have not worked for a startup or small business for close to a decade. And I’m by nature a gambler! It’s just they in the current climate the %unicorn x %share x valuation expected value calculation is not favorable to employees. Even for employee 1-10. All it would take i think is for companies to start offering larger stakes to employees, with the other two factors remaining the same, and the math might make it worthwhile. But they won’t do it.
- sulam 8y ago
  If you're employee 1, you should be getting 1% or north of that. If you're employee 13 you're probably getting 25-50 bps if you negotiate.
  - dawhizkid 8y ago
    Outside of a very senior employee #1, I think the point is that even achieving a unicorn valuation does not guarantee extremely early employees much wealth, at least more than you'd get going down a more traditional big co path.

icedchai 8y ago

I wouldn't consider 10 bps (0.1%) meaningful. Early stage is very, very risky.

dawhizkid 8y ago
unless you are a founding engineer, that is not out of the norm even for the earliest employees (unfortunately) nothing is "very very risky" unless you are taking your entire salary in equity. if you are making a competitive base I think you'll survive any misstep choosing the wrong early stage co in the long run.
- icedchai 8y ago
  I was employee #5 at a startup and I got 0.5%. Another startup offered me 0.1% and a mediocre salary. I had to put the phone on mute while I laughed.
  - dawhizkid 8y ago
    I wouldn't pick an early stage co to join just based on the % of the company they offered. 0.5% in something worthless is still 0.
    - icedchai 8y ago
      I wouldn't either... The team was good and the product was technically interesting. (The startup that offered me the 0.1% didn't have either of these qualities.)
sulam 8y ago
Agreed. 10bps is considered low for me to get for as an advisor (I've been told that directly). The "founding engineering team" (ie, up to 8 people) is getting more than that.
nostrademons 8y ago
Depends if it's pre- or post-product/market fit. Joining a startup that's overwhelmed with demand for its product - particularly if you can see the usefulness of this product yourself - is usually a good move even at 0.1%. Joining a startup that's still iterating on the product (and maybe has a couple customers but just lost a big one and they have to work really hard to sign the next one) may be a bad move even at 10%, because there's a good chance that equity will be worthless. The article doesn't really mention it, but a great question to ask any potential employer is "What are your biggest problems right now?" Scaling is a great problem to have, because it indicates lots of demand and has solutions that are relatively well-known in the industry. Customer service is a pretty good one - it shows that the company has customers who care enough to want service, and if the CEO is willing to admit this is a problem it'll probably get fixed. Hiring, code quality, internationalization, testing, service outages, brain-dead tech stack, anything that's specific to the problem domain itself - these are also pretty decent problems to have as long as the CEO is attentive to them. Unhappy customers or staff turnover is a caution - you should dig into this further to see why they're leaving, and if it looks like the problem is solvable. Same with financing - many hot companies run low on cash at various points, and you only need to make sure the company isn't going to die, but if the company loses more money than it makes on each transaction that's a huge red flag. The biggest problems (particularly for an engineer) are anything to do with sales, marketing, partnerships, or "growing the business", because the root cause of this is often that customers don't really want what you're making, and nothing short of a major pivot fixes that. As a side bonus, asking this question is often a big positive signal for the hiring manager, because it shows you're serious about solving problems rather than just collecting a paycheck.

docker_up 8y ago

This sounds like someone who hasn't actually worked at a startup that made it or has a lot of experience with the issues involved.