2 ms·

> I think employees generally under-value equity, Do you mean by this that they attache a low value to the early stage equity they are given, or that they shou

by ska 7y ago

> I think employees generally under-value equity, Do you mean by this that they attache a low value to the early stage equity they are given, or that they should push for a bigger part of the cap table early? The former I think is really hard to support. After all, it's a common trope (for good reason) that people accept salaries well below market value at a startup on the basis of being convinced to over value the equity they are being offered.

tptacek 7y ago
They attach a low value and do tend to think in terms of their percentage of the cap table, which is irrational. Ultimately, I agree: developers should be paid cash.
- ska 7y ago
  We agree on the latter, certainly. Overthinking the cap table evolution isn't very useful, but ignoring it entirely is irrational.
  - tptacek 7y ago
    Weighing your relative percentage ownership of the company against anchoring points and folkloric benchmarks is irrational. You need to evaluate the story that gives your shares value, have some clear idea of the numbers the company has to hit to get there, figure out what you'll make according to that story if things go well, risk-weight that, and see if the offer is competitive. Most employees don't do this, even when they're empowered to do so by management. Shares are undervalued by employees; many more of them should just be paid cash.
    - ska 7y ago
      Cap table evolution is part of that story. I'm not talking about folkloric benchmarks, I'm talking about understanding who holds what now, what the overall capital needs are going to look like, what that is liable to look like. This is very different at different points in the evolution and and employees should understand that. I don't think we are far apart on this actually, I agree you have to do this sort of evaluation, and that it is fundamentally imperfect. I'm not sure ton how many employees do this or don't, I've know many who do. Many of them fail on the risk-weighting part, and more of them have overvalued their state, ime, than under. If you are really early stage, I also think along with a clear and vetted idea of the numbers the company is going to need to hit is a plan on what to do when that doesn't occur. The more time goes by, the more information you have, the more accurate your EV estimates should be. If they are dropping sharply there is nothing wrong with going back to management and saying this isn't making sense anymore to me, we need to reconsider my comp.
chii 7y ago
the equity being offered needs to be discounted to make it comparable to the cash salary. If the employee over-values the equity, it is to their own detriment.
- ska 7y ago
  Right, but many people actively encourage them to do this, so I think it happens a lot.

by ska 7y ago

tptacek 7y ago

They attach a low value and do tend to think in terms of their percentage of the cap table, which is irrational. Ultimately, I agree: developers should be paid cash.

ska 7y ago
We agree on the latter, certainly. Overthinking the cap table evolution isn't very useful, but ignoring it entirely is irrational.
- tptacek 7y ago
  Weighing your relative percentage ownership of the company against anchoring points and folkloric benchmarks is irrational. You need to evaluate the story that gives your shares value, have some clear idea of the numbers the company has to hit to get there, figure out what you'll make according to that story if things go well, risk-weight that, and see if the offer is competitive. Most employees don't do this, even when they're empowered to do so by management. Shares are undervalued by employees; many more of them should just be paid cash.
  - ska 7y ago
    Cap table evolution is part of that story. I'm not talking about folkloric benchmarks, I'm talking about understanding who holds what now, what the overall capital needs are going to look like, what that is liable to look like. This is very different at different points in the evolution and and employees should understand that. I don't think we are far apart on this actually, I agree you have to do this sort of evaluation, and that it is fundamentally imperfect. I'm not sure ton how many employees do this or don't, I've know many who do. Many of them fail on the risk-weighting part, and more of them have overvalued their state, ime, than under. If you are really early stage, I also think along with a clear and vetted idea of the numbers the company is going to need to hit is a plan on what to do when that doesn't occur. The more time goes by, the more information you have, the more accurate your EV estimates should be. If they are dropping sharply there is nothing wrong with going back to management and saying this isn't making sense anymore to me, we need to reconsider my comp.

chii 7y ago

the equity being offered needs to be discounted to make it comparable to the cash salary. If the employee over-values the equity, it is to their own detriment.

ska 7y ago
Right, but many people actively encourage them to do this, so I think it happens a lot.