8 ms·

I value my equity grant (in my privately held company) at $0. If it turns out to be worth something someday, great. But until then, I just don't consider it a p

I value my equity grant (in my privately held company) at $0. If it turns out to be worth something someday, great. But until then, I just don't consider it a part of my compensation. My company has a policy (that HR has made very, very clear can be changed at any time) where for RSUs that are vesting, the company will pay the income taxes for the employee in exchange for withholding/essentially buying back a portion of the vested shares (the exact mechanism by which this is done isn't something I really looked into). This policy opens up a backdoor way of essentially liquidating my vesting shares: I can simply file a new withholding form just before the vesting date, claim way fewer tax exemptions, and the company will withhold a higher portion of the vesting shares/remit more cash to the tax authorities. Upon filing my tax returns at the end of the year, I can receive the excess cash remitted as a refund.

fossuser 6y ago
I get this trope of valuing equity at $0 because a lot of people have been burned, but it’s bad advice. The fastest way to wealth is through equity. Yes, it’s hard to value but that value is not zero. Spending effort trying to value it is worth it, and picking companies where you think the equity will be valuable is worth it. Also worth considering the character of the founder and the other directors. There’s a lot of ways to get screwed out of equity, working with good people is important.
- MattGaiser 6y ago
  If you can determine company value and future with any reliability, you may as well just take those skills to the public markets and use your extra cash compensation to buy stocks/options. Far more information is available about those companies than any privately held ones.
  - fossuser 6y ago
    Yeah I do do that, but you have to risk more and I disagree about it being easier to value from the outside. Public markets for non-dividend paying stocks are also betting more on what other people think the stock price will be rather than the company value itself - it’s a bit of a different game.
    - bradlys 6y ago
      > Yeah I do do that, but you have to risk more and I disagree about it being easier to value from the outside. I don't know. To me, wasting my time (AKA - my life) seems more risky than anything. On top of that - when you do exercise your options that you earn, you have to pay $$$ for them anyway. (Along with paying AMT - yay!) I'm pissing away a third of my net income on my options + tax right now. Who knows if I'll get jack shit. At least with the stock market I can usually get SOME of my money back unless you're doing something super risky like playing with options. IMO - playing the market is less risky than playing the startup game. Especially if you're joining early startups or ones that haven't just been straight up rockets.
      - fossuser 6y ago
        Well yeah don’t waste your life, equity should be one consideration among many when choosing a place to work.
      - datalus 6y ago
        Have you seen the bloodshed in the NASDAQ lately? It's wiped out quite a bit of wealth... although it was fairly overheated and tech was due for a major correction, but damn watching those gains come down was painful. :/
        freewilly1040 6y ago
        Still not close to the very common experience of having equity you worked years for cash out to nothing!
        jefftk 6y ago
        Or less than nothing: I paid to exercise my options when I left my first start up, and they were eventually worth much less than I'd paid.
        freewilly1040 6y ago
  - shajznnckfke 6y ago
    The lack of public information about startups means that the value is uncertain, and that’s a reason for a candidate with no special insight to discount the stock heavily. On the other hand, in the job seeking/networking process you may be able to find out important nonpublic information, which could provide an opportunity to legally “insider trade” by joining a company with a lot of upside that hasn’t yet been reflected in the valuation.
- m00x 6y ago
  > The fastest way to wealth is through equity. The fastest way to wealth is actually through winning the lottery. Equity is kind of a lottery, but with you having an influence in the odds. It's important and could definitely make you rich, but it shouldn't be counted on.
  - fossuser 6y ago
    Counted on no, but you should try to value it and try to pick winners if you can. Just pretending it’s $0 is a mistake. I live in Palo Alto and I’ve seen many people get rich through equity, people who just read HN outside of startups don’t think it’s possible, but it is. I didn’t realize how possible until I moved out here. FAANG salaries have tempered that a bit since you can just get rich on that income, but even a lot of that comp is equity too (and most of the people I know got most of their wealth from that equity). I’m just telling people reading this in college to take equity value seriously and not dismiss it as worthless because people on HN say to do that all the time.
    - rectang 6y ago
      > I’m just telling people reading this in college to take equity value seriously and not dismiss it as worthless because people on HN say to do that all the time. The vast majority of those people who you are giving that advice to will be played for suckers. It is good advice only for a tiny fraction that have the capacity, the opportunity, and the resources to negotiate a non-exploitative equity package. It is terrible advice for all the rest.
      - bradlys 6y ago
        Maybe he only talks to people going to Stanford - he lives in Palo Alto after all. The people going to Stanford tend to have such incredible privilege that they might just be the right people for his advice.
      - opportune 6y ago
        I mean it might be rude to say "if you're able to get hired at top startups of a certain kind the equity might be nonzero" but for the people that applies to, it's not terrible advice. Like, high school kids in general should not assume they can count on a career in the NBA, but if you're a 7' tall human male you have a >10% chance of playing in the NBA in your lifetime, so for them knowing that they have greater odds of success could be valuable information.
- hinkley 6y ago
  It’s not equity though. The investors get to revalue your common stock whenever they feel like it. They have equity. You have a good selection of table scraps. Except for a very small number of people who essentially exist to make the rest of us think that could be us soon.
- jhatemyjob 6y ago
  Thank you. I hate that trope because, yeah technically it's the right advice for most people, since it applies to 99% of companies. But there's that 1% that raised seed or series A from a16z or Founders Fund where your equity has a relatively high chance of a decent payout
  - cortesoft 6y ago
    Even that 'relatively high chance' is really low. Even companies funded by the top VCs only have a success rate of about 7.5% (success means generating ANY positive return). This is according to Marc Andreessen himself: https://youtu.be/JYYsXzt1VDc https://youtu.be/JYYsXzt1VDc
    - est31 6y ago
      To add to that, even companies that "make it" like Skype can still royally screw their employees upon being acquired.
  - woofie11 6y ago
    Well, no. Most of those companies have special terms which end up screwing most employees out of any upside. That goes anything from shares people can't exercise without a 10-year commitment to tiers of options, to simply offering 0.0000001% of the company, to many others. Equity is worth $0 unless the company is fully transparent on this stuff. I've never run into one which was.
  - dleslie 6y ago
    > I hate that trope because, yeah technically it's the right advice for most people, since it applies to 99% of companies. But there's that 1% that raised seed or series A from a16z or Founders Fund where your equity has a relatively high chance of a decent payout Then it's _excellent_ advice. In Canada we have endless amounts of kids who bust their butts to get themselves into the NHL, and only a fraction of a fraction make it, and only a fraction of _those_ get a jaw-dropping contract. From your own admission, and from what seems to be generally accepted, this is also the case for winning the equity lottery in Tech Startups. For those trying to make a living, buy a house, and have a family then valuing your equity at $0 is the only rational option.
- actuator 6y ago
  I think the advice of valuing it as $0 in most cases makes sense, except if you happen to board the likes of Stripe, Spotify at a time point when they have fairly matured. Only few companies make it to the much vaunted IPO/acquisition stage. Even in acquisitions, esop holders can end up getting a raw deal. It is very hard for one to gauge companies which are going to succeed, I joined a newly Series B startup, a leader in its space with huge market opportunity with a very good product that went nowhere. While I love my initial days building stuff there, I do rue the missed opportunity of not just minting FAANG stocks. Also, even public company equity appreciates. Among the already big FAANG, equity price has increased between 3-6x in the last five years; that is very good considering the amount of equity you get.
- smileysteve 6y ago
  > The fastest way to wealth is through equity. That's a reason to value illiquid "equity" at $0. Because with a higher cash salary one can invest in "diversified" liquid equity that has a much higher future value than the uncertainties in many startups.
  - fossuser 6y ago
    Yeah that’s some risk to price but it isn’t worth $0. Your $100k in diversified market returns (at best) won’t be much compared to a couple million in illiquid equity that becomes valuable.
    - joshuamorton 6y ago
      Who are you assuming is getting multi million dollar equity packages? To get that you either need to join really early stage or be relatively senior, the first is a lottery ticket, and the second is making your second million, which is much, much easier.
      - fossuser 6y ago
        The growth is what makes it worth millions. If you were at Amazon, Facebook, or Google for part of the last ten years and held your equity comp you probably did very well even though the grants at the time were “only” 100-150k or something. I started working in 2012, people I know that joined snap chat around then and the next year or so after made seven figures (some eight) easily in that IPO.
        joshuamorton 6y ago
        I can't tell what your point is. A Google new grad employee who joined Google in 2012 would also have a decent chance of being a liquid millionare in 2017, and it was never illiquid). And snapchat is an extreme outlier. Even among unicorns it had a high valuation. There are currently 3 us software companies with similar pre ipo valuations: stripe, airbnb and palantir. Which is to say, if your company is the next snapchat, you're break even. Anything less, and a large tech company is a better investment. Betting that your company is the next snapchat, even if it's already a unicorn, is probably a losing proposition, and it's almost certainly losing of you're not already a unicorn.
- 2muchcoffeeman 6y ago
  Even amongst a bunch of technical people. It’s hard to get them to make sensible financial decisions. At my previous company I made a mint from the shares awarded as part of compensation. By selling and reinvesting. But some people actually lost money.
- staysaasy 6y ago
  I agree and on a related note, I often see startup employees valuing their equity at either $0 or #retirementmoney. In reality the expected value is pretty much always in between those two, and really warrants critical attention. There's a takeaway for hiring managers in this as well – you need to do a lot of education and trust-building to hire well if equity is a meaningful part of the compensation story (and you need to really show integrity in the long run because people talk).
- taneq 6y ago
  > The fastest way to wealth is through equity. The fastest way to wealth might be through equity. Also equity in a startup is a far different proposition compared with equity in a profitable company.
- nsxwolf 6y ago
  I’ve been working for 25 years. I could wallpaper my home office with all my worthless options. I’ve never seen a penny and I never will. It’s just not going to happen.
- deleted 6y ago
  [deleted]
- eanzenberg 6y ago
  Absolutely agree. It’s a numbers game but the first 9 may not hit but the 10th makes you wealthy. So if you’re on your 6th then you will feel the equity value is worth $0
- jariel 6y ago
  "The fastest way to wealth is through equity." "The fastest way to wealth is a lottery ticket" It's reasonable to indicate big wealth only comes with the leverage of equity, but it has to be put in the context of the risks involved, and especially the opportunity cost of forgoing a lower salary otherwise.
kelnos 6y ago
> This policy opens up a backdoor way of essentially liquidating my vesting shares: I can simply file a new withholding form just before the vesting date, claim way fewer tax exemptions, and the company will withhold a higher portion of the vesting shares/remit more cash to the tax authorities. Does that actually work? (As in, have you tried it?) My understanding (and how my company does it) is that they withhold the statutory minimums and don't take into account my personal tax situation at all. I didn't think that there was wiggle room for companies to do it differently, but perhaps I'm wrong about that. (Then again, my company is public, and the RSUs sold for tax withholding are sold on the open market, so I guess it is indeed a different situation, as it sounds like your company is private and the company itself buys the tax-withholding RSUs back?)
dleslie 6y ago
> If it turns out to be worth something someday, great. But until then, I just don't consider it a part of my compensation. Because it's not compensation, per se, it's the promise of potential future compensation. More than likely between now and then there will be numerous financial events that reduce its value further and eventual deplete it to as minimal a possible compensation it could be in any realistic trigger event. Equity is worth $0 until it's not. It is never worth more than $0 until someone is willing to hand you more than $0 for it.
shuckles 6y ago
Equity is a much better proposition than $0 if you’re willing to walk away from bad opportunities (i.e. anything flatter than a rocketship). More information here: https://www.benkuhn.net/optopt/ https://www.benkuhn.net/optopt/
toast0 6y ago
So, when your RSUs vest, you have realized wage income in the amount of the vest. As a result, the company needs to send withholding in to whatever jurisdictions tax your income. There's two questions then: how much, and where do they get the money. For US federal income tax, withholding from equity is generally treated with the supplemental (bonus) withholding rates; there's an easy way and a hard way, the easy way is 22% for the first $1 million in supplemental wages per calendar year, and 37% after that. The hard way is mush it in with your regular payroll withholdings (until you reach $1M of supplemental wages, and then 37%). For california, the employer can do the easy way and supplimental wages from equity are fixed at 10.23% or they can do the hard way like in federal. Chances are, payroll is going to use the easy way, and your withholding changes aren't going to matter for supplimental wages. Part two is that they have to get the money to pay the withholding from somewhere. Most companies will do net share withholding, so you just get about 2/3rds of the shares (assuming california), cause the other 1/3rd was bought by the company. But, if there's a market, they could do an automatic sale for withholding. Or they could ask you to pay the withholding, or they could give you a cash bonus, and take it for withholding (but they have to gross-up that bonus, because it also needs to have withholding paid).

fossuser 6y ago

I get this trope of valuing equity at $0 because a lot of people have been burned, but it’s bad advice. The fastest way to wealth is through equity. Yes, it’s hard to value but that value is not zero. Spending effort trying to value it is worth it, and picking companies where you think the equity will be valuable is worth it. Also worth considering the character of the founder and the other directors. There’s a lot of ways to get screwed out of equity, working with good people is important.

MattGaiser 6y ago
If you can determine company value and future with any reliability, you may as well just take those skills to the public markets and use your extra cash compensation to buy stocks/options. Far more information is available about those companies than any privately held ones.
- fossuser 6y ago
  Yeah I do do that, but you have to risk more and I disagree about it being easier to value from the outside. Public markets for non-dividend paying stocks are also betting more on what other people think the stock price will be rather than the company value itself - it’s a bit of a different game.
  - bradlys 6y ago
    > Yeah I do do that, but you have to risk more and I disagree about it being easier to value from the outside. I don't know. To me, wasting my time (AKA - my life) seems more risky than anything. On top of that - when you do exercise your options that you earn, you have to pay $$$ for them anyway. (Along with paying AMT - yay!) I'm pissing away a third of my net income on my options + tax right now. Who knows if I'll get jack shit. At least with the stock market I can usually get SOME of my money back unless you're doing something super risky like playing with options. IMO - playing the market is less risky than playing the startup game. Especially if you're joining early startups or ones that haven't just been straight up rockets.
    - fossuser 6y ago
      Well yeah don’t waste your life, equity should be one consideration among many when choosing a place to work.
    - datalus 6y ago
      Have you seen the bloodshed in the NASDAQ lately? It's wiped out quite a bit of wealth... although it was fairly overheated and tech was due for a major correction, but damn watching those gains come down was painful. :/
      - freewilly1040 6y ago
        Still not close to the very common experience of having equity you worked years for cash out to nothing!
        jefftk 6y ago
        Or less than nothing: I paid to exercise my options when I left my first start up, and they were eventually worth much less than I'd paid.
        freewilly1040 6y ago
- shajznnckfke 6y ago
  The lack of public information about startups means that the value is uncertain, and that’s a reason for a candidate with no special insight to discount the stock heavily. On the other hand, in the job seeking/networking process you may be able to find out important nonpublic information, which could provide an opportunity to legally “insider trade” by joining a company with a lot of upside that hasn’t yet been reflected in the valuation.
m00x 6y ago
> The fastest way to wealth is through equity. The fastest way to wealth is actually through winning the lottery. Equity is kind of a lottery, but with you having an influence in the odds. It's important and could definitely make you rich, but it shouldn't be counted on.
- fossuser 6y ago
  Counted on no, but you should try to value it and try to pick winners if you can. Just pretending it’s $0 is a mistake. I live in Palo Alto and I’ve seen many people get rich through equity, people who just read HN outside of startups don’t think it’s possible, but it is. I didn’t realize how possible until I moved out here. FAANG salaries have tempered that a bit since you can just get rich on that income, but even a lot of that comp is equity too (and most of the people I know got most of their wealth from that equity). I’m just telling people reading this in college to take equity value seriously and not dismiss it as worthless because people on HN say to do that all the time.
  - rectang 6y ago
    > I’m just telling people reading this in college to take equity value seriously and not dismiss it as worthless because people on HN say to do that all the time. The vast majority of those people who you are giving that advice to will be played for suckers. It is good advice only for a tiny fraction that have the capacity, the opportunity, and the resources to negotiate a non-exploitative equity package. It is terrible advice for all the rest.
    - bradlys 6y ago
      Maybe he only talks to people going to Stanford - he lives in Palo Alto after all. The people going to Stanford tend to have such incredible privilege that they might just be the right people for his advice.
    - opportune 6y ago
      I mean it might be rude to say "if you're able to get hired at top startups of a certain kind the equity might be nonzero" but for the people that applies to, it's not terrible advice. Like, high school kids in general should not assume they can count on a career in the NBA, but if you're a 7' tall human male you have a >10% chance of playing in the NBA in your lifetime, so for them knowing that they have greater odds of success could be valuable information.
hinkley 6y ago
It’s not equity though. The investors get to revalue your common stock whenever they feel like it. They have equity. You have a good selection of table scraps. Except for a very small number of people who essentially exist to make the rest of us think that could be us soon.
jhatemyjob 6y ago
Thank you. I hate that trope because, yeah technically it's the right advice for most people, since it applies to 99% of companies. But there's that 1% that raised seed or series A from a16z or Founders Fund where your equity has a relatively high chance of a decent payout
- cortesoft 6y ago
  Even that 'relatively high chance' is really low. Even companies funded by the top VCs only have a success rate of about 7.5% (success means generating ANY positive return). This is according to Marc Andreessen himself: https://youtu.be/JYYsXzt1VDc https://youtu.be/JYYsXzt1VDc
  - est31 6y ago
    To add to that, even companies that "make it" like Skype can still royally screw their employees upon being acquired.
- woofie11 6y ago
  Well, no. Most of those companies have special terms which end up screwing most employees out of any upside. That goes anything from shares people can't exercise without a 10-year commitment to tiers of options, to simply offering 0.0000001% of the company, to many others. Equity is worth $0 unless the company is fully transparent on this stuff. I've never run into one which was.
- dleslie 6y ago
  > I hate that trope because, yeah technically it's the right advice for most people, since it applies to 99% of companies. But there's that 1% that raised seed or series A from a16z or Founders Fund where your equity has a relatively high chance of a decent payout Then it's _excellent_ advice. In Canada we have endless amounts of kids who bust their butts to get themselves into the NHL, and only a fraction of a fraction make it, and only a fraction of _those_ get a jaw-dropping contract. From your own admission, and from what seems to be generally accepted, this is also the case for winning the equity lottery in Tech Startups. For those trying to make a living, buy a house, and have a family then valuing your equity at $0 is the only rational option.
actuator 6y ago
I think the advice of valuing it as $0 in most cases makes sense, except if you happen to board the likes of Stripe, Spotify at a time point when they have fairly matured. Only few companies make it to the much vaunted IPO/acquisition stage. Even in acquisitions, esop holders can end up getting a raw deal. It is very hard for one to gauge companies which are going to succeed, I joined a newly Series B startup, a leader in its space with huge market opportunity with a very good product that went nowhere. While I love my initial days building stuff there, I do rue the missed opportunity of not just minting FAANG stocks. Also, even public company equity appreciates. Among the already big FAANG, equity price has increased between 3-6x in the last five years; that is very good considering the amount of equity you get.
smileysteve 6y ago
> The fastest way to wealth is through equity. That's a reason to value illiquid "equity" at $0. Because with a higher cash salary one can invest in "diversified" liquid equity that has a much higher future value than the uncertainties in many startups.
- fossuser 6y ago
  Yeah that’s some risk to price but it isn’t worth $0. Your $100k in diversified market returns (at best) won’t be much compared to a couple million in illiquid equity that becomes valuable.
  - joshuamorton 6y ago
    Who are you assuming is getting multi million dollar equity packages? To get that you either need to join really early stage or be relatively senior, the first is a lottery ticket, and the second is making your second million, which is much, much easier.
    - fossuser 6y ago
      The growth is what makes it worth millions. If you were at Amazon, Facebook, or Google for part of the last ten years and held your equity comp you probably did very well even though the grants at the time were “only” 100-150k or something. I started working in 2012, people I know that joined snap chat around then and the next year or so after made seven figures (some eight) easily in that IPO.
      - joshuamorton 6y ago
        I can't tell what your point is. A Google new grad employee who joined Google in 2012 would also have a decent chance of being a liquid millionare in 2017, and it was never illiquid). And snapchat is an extreme outlier. Even among unicorns it had a high valuation. There are currently 3 us software companies with similar pre ipo valuations: stripe, airbnb and palantir. Which is to say, if your company is the next snapchat, you're break even. Anything less, and a large tech company is a better investment. Betting that your company is the next snapchat, even if it's already a unicorn, is probably a losing proposition, and it's almost certainly losing of you're not already a unicorn.
2muchcoffeeman 6y ago
Even amongst a bunch of technical people. It’s hard to get them to make sensible financial decisions. At my previous company I made a mint from the shares awarded as part of compensation. By selling and reinvesting. But some people actually lost money.
staysaasy 6y ago
I agree and on a related note, I often see startup employees valuing their equity at either $0 or #retirementmoney. In reality the expected value is pretty much always in between those two, and really warrants critical attention. There's a takeaway for hiring managers in this as well – you need to do a lot of education and trust-building to hire well if equity is a meaningful part of the compensation story (and you need to really show integrity in the long run because people talk).
taneq 6y ago
> The fastest way to wealth is through equity. The fastest way to wealth might be through equity. Also equity in a startup is a far different proposition compared with equity in a profitable company.
nsxwolf 6y ago
I’ve been working for 25 years. I could wallpaper my home office with all my worthless options. I’ve never seen a penny and I never will. It’s just not going to happen.
deleted 6y ago
[deleted]
eanzenberg 6y ago
Absolutely agree. It’s a numbers game but the first 9 may not hit but the 10th makes you wealthy. So if you’re on your 6th then you will feel the equity value is worth $0
jariel 6y ago
"The fastest way to wealth is through equity." "The fastest way to wealth is a lottery ticket" It's reasonable to indicate big wealth only comes with the leverage of equity, but it has to be put in the context of the risks involved, and especially the opportunity cost of forgoing a lower salary otherwise.

kelnos 6y ago

> This policy opens up a backdoor way of essentially liquidating my vesting shares: I can simply file a new withholding form just before the vesting date, claim way fewer tax exemptions, and the company will withhold a higher portion of the vesting shares/remit more cash to the tax authorities. Does that actually work? (As in, have you tried it?) My understanding (and how my company does it) is that they withhold the statutory minimums and don't take into account my personal tax situation at all. I didn't think that there was wiggle room for companies to do it differently, but perhaps I'm wrong about that. (Then again, my company is public, and the RSUs sold for tax withholding are sold on the open market, so I guess it is indeed a different situation, as it sounds like your company is private and the company itself buys the tax-withholding RSUs back?)

dleslie 6y ago

> If it turns out to be worth something someday, great. But until then, I just don't consider it a part of my compensation. Because it's not compensation, per se, it's the promise of potential future compensation. More than likely between now and then there will be numerous financial events that reduce its value further and eventual deplete it to as minimal a possible compensation it could be in any realistic trigger event. Equity is worth $0 until it's not. It is never worth more than $0 until someone is willing to hand you more than $0 for it.

shuckles 6y ago

Equity is a much better proposition than $0 if you’re willing to walk away from bad opportunities (i.e. anything flatter than a rocketship). More information here: https://www.benkuhn.net/optopt/ https://www.benkuhn.net/optopt/

toast0 6y ago

So, when your RSUs vest, you have realized wage income in the amount of the vest. As a result, the company needs to send withholding in to whatever jurisdictions tax your income. There's two questions then: how much, and where do they get the money. For US federal income tax, withholding from equity is generally treated with the supplemental (bonus) withholding rates; there's an easy way and a hard way, the easy way is 22% for the first $1 million in supplemental wages per calendar year, and 37% after that. The hard way is mush it in with your regular payroll withholdings (until you reach $1M of supplemental wages, and then 37%). For california, the employer can do the easy way and supplimental wages from equity are fixed at 10.23% or they can do the hard way like in federal. Chances are, payroll is going to use the easy way, and your withholding changes aren't going to matter for supplimental wages. Part two is that they have to get the money to pay the withholding from somewhere. Most companies will do net share withholding, so you just get about 2/3rds of the shares (assuming california), cause the other 1/3rd was bought by the company. But, if there's a market, they could do an automatic sale for withholding. Or they could ask you to pay the withholding, or they could give you a cash bonus, and take it for withholding (but they have to gross-up that bonus, because it also needs to have withholding paid).