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It’s not just that the structure of option grants has worsened (also, expiration practices still are pretty bad for employees), but also that the valuation of t
by mlthoughts2018 8y ago
It’s not just that the structure of option grants has worsened (also, expiration practices still are pretty bad for employees), but also that the valuation of the option grants is often way too low.
If, as in the article, a start-up is effectively offering a low salary + a lottery ticket and expecting candidates to see it as at least equally as valuable as a high total comp figure from a competitor, then the lottery ticket has to be priced very highly, to drag up the expected value after accounting for all the high likelihood outcomes that have poor payoffs.
Add to this the fact that, despite false promises, you won’t get more freedom, career opportunities, cutting edge work, etc., at most start-ups than you would at even average-case public companies, and it’s a bleak picture. No aspects of the work experience will create additional forms of “payoff” that help offset the low salary and poor lottery ticket equity, and in many cases the work environment will be toxic, full of immature behavior, unprofessional, etc., and candidates should really be requiring higher compensation than at a big company, to deal with the start-up dysfunction.
When the option valuation (even assuming a hilariously unlikely high value exit or IPO) is eventually diluted and spread out across ~10 years that you have to delay getting that money you earned (or even lose it all because of a layoff + poor expiration policy), and at best it turns out to be the annualized equivalent of a pretty modest bonus, it’s just deeply not worth it.
You will not have gotten anything else out of it (specialized experience, leadership or business skills, networking, oddball perks) that offsets the income you could have been earning almost anywhere else.
- commandlinefan 8y agoI was awarded RSU's at my last company (a perpetual startup) - not millions, but maybe tens of thousands of dollars. I had a signed contract that guaranteed them. But then the company merged/consolidated/de-consolidated/re-merged and shuffled around so that when they finally got rid of all of us, they said that those stock options were worth nothing, too bad, so sad. And what am I going to do, spend $100K on a lawyer to maybe recover a quarter of that ten years from now? And they know we won't, that's why they get away with what they get away with.
- CalChris 8y agoI don't know but you may have been the victim of 'liquidation preference' (and participation). Your perpetual startup never went public. Each of the investors, seed, A, ... has a preference in case of a liquidity event (exit) over earlier investors and a participation (multiple) as well. Your RSU was just at the bottom of the heap and there was nothing left. The founders would have had something equivalent to your RSUs but ... they were doing the negotiation. For example, IIRC, Anthony Levandowski cut his employees out when he sold 510 to Google. (So it shouldn't have surprised anyone at Google when he later screwed them as well.) https://www.invigorlaw.com/key-term-sheet-provisions-liquidation-preference/ https://www.invigorlaw.com/key-term-sheet-provisions-liquida... Edit: the article even says it: Today, if you’re an employee you’re now are at the bottom of the stock preference pile. In this case, I'd only work for a startup if my preference seniority was equal to that of the founders. And the article says that too: If you’re one of the early senior hires, there’s no downside of asking for the same Restricted Stock Agreements (RSAs) as the founders.
- achillesheels 8y agoAnd poetically I just read a HN post touting the imperative of capital efficiency. This is the best way to do it!