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I have had a number of successful exits but the bottom line is that you're (probably) not getting nearly enough options to offset the risk. Pasted from a comme
by auspex 7y ago
I have had a number of successful exits but the bottom line is that you're (probably) not getting nearly enough options to offset the risk.
Pasted from a comment I made in an earlier thread:
80% of startups fail and 20% succeed in some fashion. Which means if you normally make $50,000 and take a $5,000 paycut (no rsu) to work there you will lose $20,000 over the 4 year vesting period.
80% of the time when the startup goes bust you make 0 on equity and still lost money due to the paycut. For a total of 8x20 or $160,000 loss.
The two times you are successful you make 2xEquity.
This means your equity has to be at least worth $80,000 each time you succeed.... just to break even.
Factoring in the risk of your equity being 0 you should be getting a LOT more equity.
It's very similar to calculating expected value in poker.
- GeneralMayhem 7y agoDoing EV calculation with personal finances is also tricky, because you don't get repeated trials. In poker, assuming you have an appropriate bankroll, you should be able to make risky but positive-EV bets hundreds of times, such that you will realize that EV. For job choices, you're not going to get more than a few cracks at it. You really need to be more concerned with risk of ruin, especially when the ratios are greater. The difference between FAANG and early-stage startups can easily be a 50% pay cut, with at least 5 years until liquidation. If you have a 50% chance of that bet paying off, then maybe it's okay - you can do this twice a decade, and you're reasonably likely to end up at least even over a career. If you have a 5% chance of the bet paying off, even if the rewards are large enough to make the EV even or positive, that's an insane amount of risk to take unless you're already financially independent, because over a career you're not likely to win even once. This is one of the fundamental power imbalances between labor and capital: Capital can diversify. To go back to the poker analogy, VCs are playing cash games - they can take 100 bets of which they expect only 2 to pan out. Employees are in a short-stack tournament - even if you make the highest-EV play, if you're going to lose most of the time, you shouldn't be going all-in.
- auspex 7y agoI really like the cash game vs. short stack tournament analogy.
- awb 7y agoWorking at 5 startups with 4 year vesting periods and a 20% success rate (which seems high) means ~12-16 years of taking a pay cut before you get your first win. And don't forget the compound interest you'd be getting from investing that $20k/year (or $10-$15k after taxes) in a diversified investment like the stock market. Basically, if you want to take stock, approach the decision like an investor or VC with that level of skepticism and thought. Otherwise you're just throwing darts.