7 ms·

Is there an equity component in addition to the base salary?

by asaph 7y ago

evancox100 7y ago
Yes, from the interview on the topic of compensation negotiations: "My current company couldn't give me more in signing bonus but gave me more in equity."
ilikehurdles 7y ago
Yes, it’s 4500 stock options worth $0 each. Pretty generous. Other startups of that size are lucky to get you 1500 stock options at $0 each.
- TuringNYC 7y ago
  It really doesnt matter whether the startup gives you 4500, 1500, or 45000, or a million. You are being given the numerator without knowing the denominator, so it is all worth zero until you get to see the Cap Table. Most startups wont let you see the Cap Table. Even if you saw the Cap Table, there is still a lot of uncertainty, tons of illiquidity, and a long horizon. Options are nice, but they are not cash and do not belong in the same conversation as salary.
  - lostcolony 7y ago
    I feel like you didn't actually read/understand his comment. He stated they were worth $0, implying that it doesn't matter how many they give; they're still worth $0. It was cheekily pointing out how worthless stock options in a pre-IPO startup are.
    - askafriend 7y ago
      Why would stock options be worthless just because a company is pre-IPO?
      - cortesoft 7y ago
        I assume it is a joke about how almost all startup stock options end up being worthless.
      - TuringNYC 7y ago
        Specifically what I said was that they are worthless until you get to see the cap table (which most startups will not show you.) Stocks are shares in a company. Imagine you have a box with money in it. And I tell you you get 4500 parts of this box. But I dont tell you how many parts there are total -- you see the numerator but not the denominator. In that situation it is impossible to discern the value of your 4500 parts since you dont know how many ways the money gets split. It gets trickier, because cap tables also have liquidity preferences. So you can have 4500 parts of the box. And another person can have 4500 parts, but their 4500 might be worth a whole lot more than your 4500 because there are different classes of stocks. It isn't uncommon to have one class paid first, in whole or 1.x greater than whole before the next class gets paid. https://en.wikipedia.org/wiki/Liquidation_preference https://en.wikipedia.org/wiki/Liquidation_preference Oh, then there is the actual business -- there is tons of business risk. Even if the business does well, it may be in the red and the future of the company (and worth of your shares) are dependent on successive rounds of funding and their implied valuation. You get a down-round and you might be wiped out. https://www.investopedia.com/terms/d/downround.asp https://www.investopedia.com/terms/d/downround.asp Even if everything gets well, depending on the classes of shares of decision-makers, you can end up in a situation where the founders/board might have an incentive to sell at just an amount where they make out well but employees get wiped out. Case: https://www.nytimes.com/2015/12/27/technology/when-a-unicorn-start-up-stumbles-its-employees-get-hurt.html https://www.nytimes.com/2015/12/27/technology/when-a-unicorn... Or Levandowski's side startup where the company got sold for just enough for Levandowski to make out golden https://www.wired.com/story/god-is-a-bot-and-anthony-levandowski-is-his-messenger/ https://www.wired.com/story/god-is-a-bot-and-anthony-levando... The Net-Net of all this is: stock options are not worthless, their worth is based on a formula with a dozen+ variables, almost none of which you know the values/ranges/distributions for -- and a formula where many combinations of theoretical inputs result in zero value.
    - John23832 7y ago
      They're worthless pre-IPO because of the allocations in the cap table...
    - TuringNYC 7y ago
      He was also differentiating between 1500 and 4500 options, which suggested he didnt value them at zero.
  - asaph 7y ago
    Certainly startup equity is a) a risk and b) sometimes hard to quantify in real dollar terms. But if the startup is successful, equity value is very real and should not be ignored or swept aside. My advice: Don't join a startup unless you believe in its growth potential and your compensation package includes equity. Without the equity and the potential that comes with it, there is little reason to join a startup. You might as well just go with an established company instead.
    - jdavis703 7y ago
      Your financial advice is solid. However I hate Big Co politics (it’s caused me mental health issues in the past) and I enjoy being able to be a generalist. Of course some people thrive in highly politicized environments or enjoy being specialists, so in that case, a Big Co makes perfect sense.
      - arcticbull 7y ago
        Politics exist no matter where you are; it's the art of convincing other people that they also want to do the thing you want to do. Improving your political skills will make you a better engineer because an engineer without influence isn't getting much done. For what it's worth "show don't tell" is one of the basic tenets of politics.
  - askafriend 7y ago
    > You are being given the numerator without knowing the denominator, so it is all worth zero until you get to see the Cap Table. Most startups wont let you see the Cap Table. Every single time I've accepted a job at a startup that offered ISO stock options, I knew # of shares outstanding (the denominator), terms of all funding rounds, strike price, exit strategy, total amount of money raised, who the major investors are on the cap table, etc. The jobs were at startups funded by the best investors in the world and high caliber founders who valued transparency. One went on to become a unicorn, and the other is an extremely early seed stage company where I work now. If a startup isn't willing to give you information beyond # of options granted, then that is a red flag in my book. Not all startups are like that.
  - jdavis703 7y ago
    Why would you join taking compensation not knowing it’s value? In my experience companies will always tell you some mix of shares outstanding, current fair market value and sometimes even the valuation for the next venture stage (I don’t see why as an employee you need to see the cap table). While predicting the future is impossible, this information helps to assign a non-zero value to the options.
  - cure 7y ago
    > Options are nice, but they are not cash and do not belong in the same conversation as salary. Also, options are usually tied to continued employment. If you leave the company, you will need to exercise your options within a certain amount of time (often, 3 months). This can easily be an outlay of (tens of) thousands of dollars. It depends on the number of options and the exercise price, which is set at time of the option grant based on the then-current 409b valuation of company shares. So at that point you are left with a choice: spend a lot of money to exercise your options and buy a bunch of illiquid common stock, which may or may not be worth something someday. Or, just walk away from the options then and there.

Is there an equity component in addition to the base salary?

by asaph 7y ago

Is there an equity component in addition to the base salary?

Yes, from the interview on the topic of compensation negotiations: "My current company couldn't give me more in signing bonus but gave me more in equity."

ilikehurdles 7y ago

Yes, it’s 4500 stock options worth $0 each. Pretty generous. Other startups of that size are lucky to get you 1500 stock options at $0 each.

TuringNYC 7y ago
It really doesnt matter whether the startup gives you 4500, 1500, or 45000, or a million. You are being given the numerator without knowing the denominator, so it is all worth zero until you get to see the Cap Table. Most startups wont let you see the Cap Table. Even if you saw the Cap Table, there is still a lot of uncertainty, tons of illiquidity, and a long horizon. Options are nice, but they are not cash and do not belong in the same conversation as salary.
- lostcolony 7y ago
  I feel like you didn't actually read/understand his comment. He stated they were worth $0, implying that it doesn't matter how many they give; they're still worth $0. It was cheekily pointing out how worthless stock options in a pre-IPO startup are.
  - askafriend 7y ago
    Why would stock options be worthless just because a company is pre-IPO?
    - cortesoft 7y ago
      I assume it is a joke about how almost all startup stock options end up being worthless.
    - TuringNYC 7y ago
      Specifically what I said was that they are worthless until you get to see the cap table (which most startups will not show you.) Stocks are shares in a company. Imagine you have a box with money in it. And I tell you you get 4500 parts of this box. But I dont tell you how many parts there are total -- you see the numerator but not the denominator. In that situation it is impossible to discern the value of your 4500 parts since you dont know how many ways the money gets split. It gets trickier, because cap tables also have liquidity preferences. So you can have 4500 parts of the box. And another person can have 4500 parts, but their 4500 might be worth a whole lot more than your 4500 because there are different classes of stocks. It isn't uncommon to have one class paid first, in whole or 1.x greater than whole before the next class gets paid. https://en.wikipedia.org/wiki/Liquidation_preference https://en.wikipedia.org/wiki/Liquidation_preference Oh, then there is the actual business -- there is tons of business risk. Even if the business does well, it may be in the red and the future of the company (and worth of your shares) are dependent on successive rounds of funding and their implied valuation. You get a down-round and you might be wiped out. https://www.investopedia.com/terms/d/downround.asp https://www.investopedia.com/terms/d/downround.asp Even if everything gets well, depending on the classes of shares of decision-makers, you can end up in a situation where the founders/board might have an incentive to sell at just an amount where they make out well but employees get wiped out. Case: https://www.nytimes.com/2015/12/27/technology/when-a-unicorn-start-up-stumbles-its-employees-get-hurt.html https://www.nytimes.com/2015/12/27/technology/when-a-unicorn... Or Levandowski's side startup where the company got sold for just enough for Levandowski to make out golden https://www.wired.com/story/god-is-a-bot-and-anthony-levandowski-is-his-messenger/ https://www.wired.com/story/god-is-a-bot-and-anthony-levando... The Net-Net of all this is: stock options are not worthless, their worth is based on a formula with a dozen+ variables, almost none of which you know the values/ranges/distributions for -- and a formula where many combinations of theoretical inputs result in zero value.
  - John23832 7y ago
    They're worthless pre-IPO because of the allocations in the cap table...
  - TuringNYC 7y ago
    He was also differentiating between 1500 and 4500 options, which suggested he didnt value them at zero.
- asaph 7y ago
  Certainly startup equity is a) a risk and b) sometimes hard to quantify in real dollar terms. But if the startup is successful, equity value is very real and should not be ignored or swept aside. My advice: Don't join a startup unless you believe in its growth potential and your compensation package includes equity. Without the equity and the potential that comes with it, there is little reason to join a startup. You might as well just go with an established company instead.
  - jdavis703 7y ago
    Your financial advice is solid. However I hate Big Co politics (it’s caused me mental health issues in the past) and I enjoy being able to be a generalist. Of course some people thrive in highly politicized environments or enjoy being specialists, so in that case, a Big Co makes perfect sense.
    - arcticbull 7y ago
      Politics exist no matter where you are; it's the art of convincing other people that they also want to do the thing you want to do. Improving your political skills will make you a better engineer because an engineer without influence isn't getting much done. For what it's worth "show don't tell" is one of the basic tenets of politics.
- askafriend 7y ago
  > You are being given the numerator without knowing the denominator, so it is all worth zero until you get to see the Cap Table. Most startups wont let you see the Cap Table. Every single time I've accepted a job at a startup that offered ISO stock options, I knew # of shares outstanding (the denominator), terms of all funding rounds, strike price, exit strategy, total amount of money raised, who the major investors are on the cap table, etc. The jobs were at startups funded by the best investors in the world and high caliber founders who valued transparency. One went on to become a unicorn, and the other is an extremely early seed stage company where I work now. If a startup isn't willing to give you information beyond # of options granted, then that is a red flag in my book. Not all startups are like that.
- jdavis703 7y ago
  Why would you join taking compensation not knowing it’s value? In my experience companies will always tell you some mix of shares outstanding, current fair market value and sometimes even the valuation for the next venture stage (I don’t see why as an employee you need to see the cap table). While predicting the future is impossible, this information helps to assign a non-zero value to the options.
- cure 7y ago
  > Options are nice, but they are not cash and do not belong in the same conversation as salary. Also, options are usually tied to continued employment. If you leave the company, you will need to exercise your options within a certain amount of time (often, 3 months). This can easily be an outlay of (tens of) thousands of dollars. It depends on the number of options and the exercise price, which is set at time of the option grant based on the then-current 409b valuation of company shares. So at that point you are left with a choice: spend a lot of money to exercise your options and buy a bunch of illiquid common stock, which may or may not be worth something someday. Or, just walk away from the options then and there.