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This is a cool analysis with a bunch of giant caveats. The author lays them out at the end. The most important seem to be that it assumes people are risk-neutr

This is a cool analysis with a bunch of giant caveats. The author lays them out at the end. The most important seem to be that it assumes people are risk-neutral and optimizing their expected wealth, instead of trying to reach goals like maximizing the probability you'll be able to buy a house in SF. If that were the goal, I think early stage startups would fare incredibly worse in this analysis. The next most important seems to be that there's no way for a company to fail in this model. The companies that become worth less can't become worthless. Since these early private companies' stock aren't liquid, you can't cash out before they fail. You get zero dollars from those, which is a huge difference from the model. And the whole crazy tax thing. If you quit as this model suggests, you almost always have to exercise within 90 days (spending a bunch of your money for an uncertain future). Then the IRS sends you a huge bill if you left a successful company where you might get more than zero dollars. But you still haven't earned any cash from the stock.

zenlikethat 7y ago
FWIW, re: taxes - TrumpTax raised the AMT thresholds so aggressively that the % of folks to whom this applies is probably a lot smaller than it used to be.
- delinka 7y ago
  And even if you are pushed over the AMT threshold, and if the only reason you went over was due to purchase of ISOs, and if you don't go over the threshold in the following year, you can get credit in future years for that extra tax you had to pay.
  - zenlikethat 7y ago
    Correct. You can claw back a chunk every year until you have that AMT paid back so depending on your inflation and investment opportunity cost expectations you are not actually risking that much money, just the cost of the shares. I think that really speaks volumes to how relevant it is to join early stage if you want to play the options game - later stage companies _seem_ safer but may not actually be that much safer if you consider everyone already in the investment aggressively driving the price of the shares up and forcing you to risk more on exercise.

zenlikethat 7y ago

FWIW, re: taxes - TrumpTax raised the AMT thresholds so aggressively that the % of folks to whom this applies is probably a lot smaller than it used to be.

delinka 7y ago
And even if you are pushed over the AMT threshold, and if the only reason you went over was due to purchase of ISOs, and if you don't go over the threshold in the following year, you can get credit in future years for that extra tax you had to pay.
- zenlikethat 7y ago
  Correct. You can claw back a chunk every year until you have that AMT paid back so depending on your inflation and investment opportunity cost expectations you are not actually risking that much money, just the cost of the shares. I think that really speaks volumes to how relevant it is to join early stage if you want to play the options game - later stage companies _seem_ safer but may not actually be that much safer if you consider everyone already in the investment aggressively driving the price of the shares up and forcing you to risk more on exercise.