5 ms·

I’m glad someone said it. So tired of the advice I constantly hear on HN to assume your grant is worthless. I forward exercised my stock options when I started

I’m glad someone said it. So tired of the advice I constantly hear on HN to assume your grant is worthless. I forward exercised my stock options when I started a job for $7k in 2013. Last December I was able to sell some that valued my initial grant at $1.3m (still private but probably will raise at higher value or go public soon). Because I forward exercised I paid taxes at the 2013 value of the company, which was basically nothing. And I only pay long term capital gains when I sell, which is less than the earned income tax rate. Of course there is a certain element of luck involved, but to say that the mathematical probability of building wealth from your share of equity in a startup is the same probability as winning the lottery is completely disingenuous.

lostdog 7y ago
I don't think you understand how rare your situation is. All these things are unusual: 1. You joined early enough that you can early exercise for such a low price ($7k) 2. Your company allowed early exercise (still unusual these days). 3. The startup 20x-ed in value (my conservative estimate) 4. You stayed in the job for 6 years! 5. Your startup let you sell some of your shares before exit (This is extremely unusual still). Still, even with those assumptions this turned out only ok. Assuming you sold everything in December, you made $1.3 million over 6 years, so $217k per year. Considering that for a typical senior software engineer, the equity portion needs to make up about at least $150k of compensation (conservative estimate of a Google L5 from levels.fyi), I would say you did roughly ok, making an extra $67k per year. That's pretty good, but not amazing. Getting promoted to L6 would be more than twice as good. Sorry for being so negative about your good situation, but I really think current equity compensation is far too low and tricky, and that workers, and especially new workers, should not be optimistic about the benefits.
- Agebor 7y ago
  > current equity compensation is far too low and tricky Of course, we can imagine various ways in which the situation can be improved, like getting equity directly instead of options, increasing the amount of equity, etc. But that's beyond the main point of stocks. The point of them is to align employees with founders more, get them excited and motivated about the future. > workers, and especially new workers, should not be optimistic about the benefits. But the same argument can be made about founders and starting new companies. Of course most startups do not succeed, but should that discourage people from creating them? I think there is a bit of confusion in that generally it's believed that these aspects of startup industry are much different - one is a 'unavoidable state of the world' and the other is 'unwillingness of certain people to make the situation better'. But perhaps both of them are in fact state of the world... There are many variables that go into selecting the values for employee stock grants and could be just as much hard to change. Maybe they ultimately end with 'smarter people are able to control those less smart', but that's another discussion.
  - lostdog 7y ago
    A founder's situation is very different from an employee's situation. The founder will immediately purchase their stock for peanuts, where employees usually face all the hazards of the 90-day exercise window. The founder starts out with 40%ish of the startup, which is tremendously more upside than the <1%ish of even early employees. Founders typically have a board seat and negotiating leverage over all future equity rounds, where employees are powerless and need to hope that their founders are ethical enough to protect their interests in future raises. I'm not against founders getting these benefits. I think VC's are the ones getting too good of a deal here. Roughly, if they pay $10 million for 10% of a company, and an employee gets 1% to offset $1 million of their reduced compensation (over 4 years, vs working at Google), looks fair, right? But oh wait, we forget the many many downsides of the employee's position (not preferred shares, had to ALSO pay to exercise them, risk of AMT, 90-day exercise window, etc). Seems to me that the VC got somewhere between a 5x and 20x better deal here.
    - zenlikethat 7y ago
      But the VCs pony up the cash up front and they are likely to lose it in most cases. The VCs and LPs have an opportunity cost too, they could be investing in other things, including a public market with a great track record for large caps. There’s no easy answer but founder equity seems over weighted to me. If the founders want to align the interests of the company with the interests of the employees what’s wrong with having 15% instead of 30% and doling our dramatically more options to everyone else? No doubt founders take more risk and work harder but do they work 300x harder? (Usually by employee 10 or so grants are at 0.1% or less)
      - lostdog 7y ago
        As an employee, giving a startup a discount on your compensation is pretty similar to a VC giving the startup cash.
- undefined3840 7y ago
  I didn’t stay for 6 years. I don’t work there anymore. And like I said, the company will likely raise soon, potentially at a much higher valuation. There is a comparable company that is already public that is trading at a much higher valuation. I also didn’t say my experience is/was common, but it certainly was not the same as winning the lottery. That is my point.
  - lostdog 7y ago
    Got it. Sounds like you did pretty well then! Congrats! It is still rare to be given such good terms on equity, and also rare to be knowledgeable enough to take advantage of the opportunity.
  - Judgmentality 7y ago
    > but it certainly was not the same as winning the lottery I am happy that things worked out so well for you, but you're not sharing any data to back up this claim. I mean someone could literally win the lottery and say how great things worked out - it's anecdotal evidence. https://xkcd.com/1827/ https://xkcd.com/1827/ For many people, and I strongly suspect most, startup options are a losing bet. The worst part is you have to wait years before you know whether or not they're worth anything.
    - undefined3840 7y ago
      The odds of winning the CA lottery is 1 in 42 million. There are fewer than a million residents in SF. I don’t know the exact number of startup winners (both founders and employees who made more than $1m) living in SF at this moment but I would conservatively estimate something in the 5k range.
      - Judgmentality 7y ago
        The odds of winning the minimum $38 MM payout in California are 1 in 42 million. The odds of a smaller payout are orders of magnitude higher. And you can play twice a week, instead of having to wait a minimum of 1 year between potential payouts. You're also allowed to buy other lottery tickets in that period of time. To put things in perspective, of the dozens of people I know who joined startups, almost all of them felt the stock wasn't worth it.
- lonelappde 7y ago
  Getting promoted to L6 at Google is a winning lottery ticket! Most people at Google never reach level 6. I got options priced at 12c that were valued at 35c by the time they vested, $1.50 when I quit and exercised and paid AMT, and $5 at IPO. This transpired over a span of about 5 years. This company was successful but not clearly profitable when I joined. Maybe I got lucky picking a winner, but I'm not a famous (or highly talented) engineer and I didn't cast a wide net when job hunting. OTOH, I got another job offer years earlier where the employer tried to match a $15/yr gap in salary with an offer to buy $15k strike price options! The clear deception in how the VP presented the economic interpretation of the options was a factor in my decision to decline.
6gvONxR4sf7o 7y ago
Nobody's saying it's literally worthless nor are they saying it's literally the same odds as winning the lottery. They're saying that using those as mental models is good enough. "Treat the options as a lottery ticket" isn't supposed to be a mathematically precise statement. I'm happy for you that you did so well, but most people doing what you did in 2013 didn't get those same outcomes, and that's the point.
- undefined3840 7y ago
  I see it on HN all the time. People are literally telling others to assume their equity grant is $0. People are even saying this of private late stage startups that issue RSUs. If you want to make a gambling analogy, I’d say making money off your equity grant at an early stage company is more like playing Roulette (with a better payout) than buying a lottery ticket. Sure, it’s uncommon to win (in this case hit your number) but it happens with decent frequency.
  - bryanrasmussen 7y ago
    For some reason changing the analogy from a lottery ticket to a roulette game does not actually make me think it is reasonable to take equity instead of cold hard cash. Perhaps it was my gambling addicted stepfather who died broke that keeps from seeing the appeal.
    - undefined3840 7y ago
      If you’re joining an early stage venture backed startup and demanding only a salary and no equity, you’ll feel much worse if your startup finds any reasonable level of success because you demanded 20k more a year in salary over something that could be much more than that. You’re not risking your life savings by joining a venture backed startup as an employee. In the worst case you write off a few thousand dollars you spent exercising some options while making a market rate salary (because you negotiated).
      - loeg 7y ago
robot 7y ago
Can you forward-exercise like that, before they are vested? Or did you need to wait for them to vest?
- undefined3840 7y ago
  The point is you forward exercise when you are granted when you start your job, so no you wouldn’t have vested anything at that point.
- zenlikethat 7y ago
  You can if you get “early exercise” privileges which should be something you look for when evaluating an offer.
wolco 7y ago
How much were you able to sell? Could you do it again at a different company or do you feel lucky?

lostdog 7y ago

I don't think you understand how rare your situation is. All these things are unusual: 1. You joined early enough that you can early exercise for such a low price ($7k) 2. Your company allowed early exercise (still unusual these days). 3. The startup 20x-ed in value (my conservative estimate) 4. You stayed in the job for 6 years! 5. Your startup let you sell some of your shares before exit (This is extremely unusual still). Still, even with those assumptions this turned out only ok. Assuming you sold everything in December, you made $1.3 million over 6 years, so $217k per year. Considering that for a typical senior software engineer, the equity portion needs to make up about at least $150k of compensation (conservative estimate of a Google L5 from levels.fyi), I would say you did roughly ok, making an extra $67k per year. That's pretty good, but not amazing. Getting promoted to L6 would be more than twice as good. Sorry for being so negative about your good situation, but I really think current equity compensation is far too low and tricky, and that workers, and especially new workers, should not be optimistic about the benefits.

Agebor 7y ago
> current equity compensation is far too low and tricky Of course, we can imagine various ways in which the situation can be improved, like getting equity directly instead of options, increasing the amount of equity, etc. But that's beyond the main point of stocks. The point of them is to align employees with founders more, get them excited and motivated about the future. > workers, and especially new workers, should not be optimistic about the benefits. But the same argument can be made about founders and starting new companies. Of course most startups do not succeed, but should that discourage people from creating them? I think there is a bit of confusion in that generally it's believed that these aspects of startup industry are much different - one is a 'unavoidable state of the world' and the other is 'unwillingness of certain people to make the situation better'. But perhaps both of them are in fact state of the world... There are many variables that go into selecting the values for employee stock grants and could be just as much hard to change. Maybe they ultimately end with 'smarter people are able to control those less smart', but that's another discussion.
- lostdog 7y ago
  A founder's situation is very different from an employee's situation. The founder will immediately purchase their stock for peanuts, where employees usually face all the hazards of the 90-day exercise window. The founder starts out with 40%ish of the startup, which is tremendously more upside than the <1%ish of even early employees. Founders typically have a board seat and negotiating leverage over all future equity rounds, where employees are powerless and need to hope that their founders are ethical enough to protect their interests in future raises. I'm not against founders getting these benefits. I think VC's are the ones getting too good of a deal here. Roughly, if they pay $10 million for 10% of a company, and an employee gets 1% to offset $1 million of their reduced compensation (over 4 years, vs working at Google), looks fair, right? But oh wait, we forget the many many downsides of the employee's position (not preferred shares, had to ALSO pay to exercise them, risk of AMT, 90-day exercise window, etc). Seems to me that the VC got somewhere between a 5x and 20x better deal here.
  - zenlikethat 7y ago
    But the VCs pony up the cash up front and they are likely to lose it in most cases. The VCs and LPs have an opportunity cost too, they could be investing in other things, including a public market with a great track record for large caps. There’s no easy answer but founder equity seems over weighted to me. If the founders want to align the interests of the company with the interests of the employees what’s wrong with having 15% instead of 30% and doling our dramatically more options to everyone else? No doubt founders take more risk and work harder but do they work 300x harder? (Usually by employee 10 or so grants are at 0.1% or less)
    - lostdog 7y ago
      As an employee, giving a startup a discount on your compensation is pretty similar to a VC giving the startup cash.
undefined3840 7y ago
I didn’t stay for 6 years. I don’t work there anymore. And like I said, the company will likely raise soon, potentially at a much higher valuation. There is a comparable company that is already public that is trading at a much higher valuation. I also didn’t say my experience is/was common, but it certainly was not the same as winning the lottery. That is my point.
- lostdog 7y ago
  Got it. Sounds like you did pretty well then! Congrats! It is still rare to be given such good terms on equity, and also rare to be knowledgeable enough to take advantage of the opportunity.
- Judgmentality 7y ago
  > but it certainly was not the same as winning the lottery I am happy that things worked out so well for you, but you're not sharing any data to back up this claim. I mean someone could literally win the lottery and say how great things worked out - it's anecdotal evidence. https://xkcd.com/1827/ https://xkcd.com/1827/ For many people, and I strongly suspect most, startup options are a losing bet. The worst part is you have to wait years before you know whether or not they're worth anything.
  - undefined3840 7y ago
    The odds of winning the CA lottery is 1 in 42 million. There are fewer than a million residents in SF. I don’t know the exact number of startup winners (both founders and employees who made more than $1m) living in SF at this moment but I would conservatively estimate something in the 5k range.
    - Judgmentality 7y ago
      The odds of winning the minimum $38 MM payout in California are 1 in 42 million. The odds of a smaller payout are orders of magnitude higher. And you can play twice a week, instead of having to wait a minimum of 1 year between potential payouts. You're also allowed to buy other lottery tickets in that period of time. To put things in perspective, of the dozens of people I know who joined startups, almost all of them felt the stock wasn't worth it.
lonelappde 7y ago
Getting promoted to L6 at Google is a winning lottery ticket! Most people at Google never reach level 6. I got options priced at 12c that were valued at 35c by the time they vested, $1.50 when I quit and exercised and paid AMT, and $5 at IPO. This transpired over a span of about 5 years. This company was successful but not clearly profitable when I joined. Maybe I got lucky picking a winner, but I'm not a famous (or highly talented) engineer and I didn't cast a wide net when job hunting. OTOH, I got another job offer years earlier where the employer tried to match a $15/yr gap in salary with an offer to buy $15k strike price options! The clear deception in how the VP presented the economic interpretation of the options was a factor in my decision to decline.

6gvONxR4sf7o 7y ago

Nobody's saying it's literally worthless nor are they saying it's literally the same odds as winning the lottery. They're saying that using those as mental models is good enough. "Treat the options as a lottery ticket" isn't supposed to be a mathematically precise statement. I'm happy for you that you did so well, but most people doing what you did in 2013 didn't get those same outcomes, and that's the point.

undefined3840 7y ago
I see it on HN all the time. People are literally telling others to assume their equity grant is $0. People are even saying this of private late stage startups that issue RSUs. If you want to make a gambling analogy, I’d say making money off your equity grant at an early stage company is more like playing Roulette (with a better payout) than buying a lottery ticket. Sure, it’s uncommon to win (in this case hit your number) but it happens with decent frequency.
- bryanrasmussen 7y ago
  For some reason changing the analogy from a lottery ticket to a roulette game does not actually make me think it is reasonable to take equity instead of cold hard cash. Perhaps it was my gambling addicted stepfather who died broke that keeps from seeing the appeal.
  - undefined3840 7y ago
    If you’re joining an early stage venture backed startup and demanding only a salary and no equity, you’ll feel much worse if your startup finds any reasonable level of success because you demanded 20k more a year in salary over something that could be much more than that. You’re not risking your life savings by joining a venture backed startup as an employee. In the worst case you write off a few thousand dollars you spent exercising some options while making a market rate salary (because you negotiated).
    - loeg 7y ago

robot 7y ago

Can you forward-exercise like that, before they are vested? Or did you need to wait for them to vest?

undefined3840 7y ago
The point is you forward exercise when you are granted when you start your job, so no you wouldn’t have vested anything at that point.
zenlikethat 7y ago
You can if you get “early exercise” privileges which should be something you look for when evaluating an offer.

wolco 7y ago

How much were you able to sell? Could you do it again at a different company or do you feel lucky?