5 ms·

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

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.
    - fossuser 6y ago
      I’m not really drawing a big distinction between public and private equity. My entire point is that equity should be valued at something above $0 even though it’s hard to do so, it’s worth the effort. Stripe, Airbnb, Snap - if you’re in the bay it’s obvious what the successful companies are and you meet people working for them. I’m just pushing back on the “treat all equity as $0” advice. Private company equity has risks, but huge reward and that payoff is real and it happens.
      - joshuamorton 6y ago
        Keep in mind that if you joined airbnb, or palantir in 2012, instead of snap (and both were hot companies) you'd be stuck at the company even now, since if you leave you'd forfeit your options unless you were independently wealthy. That's 8 years forced to stay at the same employer or your options are worth nothing. And again, those companies were already unicorns. And the stock will still be worth $0 to many. Now imagine a non-unicorn where you don't even know if you'll go public eventually.
        fossuser 6y ago
        You can save money and exercise your options. There are also companies that will help you exercise your options for a cut (you don't need to be independently wealthy). I don't disagree though - this is part of the risk to factor into the price. I'm not saying it's easy I'm saying it's worth thinking about and not reflexively assigning a value of $0. It should be a non-zero factor in evaluating a comp package and evaluating the company.
        joshuamorton 6y ago
        > You can save money and exercise your options. Can you though? Your thesis has been that the majority of your income will be due to equity + appreciation. If you are able to save half your after tax income, which is feasible but requires some frugality, you can't actually afford to exercise + taxes on a stock grant whose EV is equal to your base salary. Many people complain about how difficult affording a house is in the bay. The tax cost on an equity event is larger than the down payment on an equivalently valued house, and you're casually suggesting to save for it, on a much lower income (since you can't use your equity). > There are also companies that will help you exercise your options for a cut As far as I can tell, the terms of these deals mean that unless the price of the stock increases well beyond the strike price when you exercise, you'll get nothing, and even then you're going to end up losing 50%+ of the returns. I'm not saying that you can't ever come out ahead, obviously some people do. But if you sample startups at random, the median stock value is zero. If you sample private unicorns, the median payout is mich worse than amazon or microsoft.
  - Bahamut 6y ago
    And if you worked at Apple or Amazon in 2012 and still are working there today & holding that stock, your stock went up almost 20x - an original $100k grant would be worth about $2m, and that's not even counting any of the follow on refresh stock grants. Even having joined a company like Snap then would've been a raw deal compared to working for the tech giants.

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.
  - fossuser 6y ago
    I’m not really drawing a big distinction between public and private equity. My entire point is that equity should be valued at something above $0 even though it’s hard to do so, it’s worth the effort. Stripe, Airbnb, Snap - if you’re in the bay it’s obvious what the successful companies are and you meet people working for them. I’m just pushing back on the “treat all equity as $0” advice. Private company equity has risks, but huge reward and that payoff is real and it happens.
    - joshuamorton 6y ago
      Keep in mind that if you joined airbnb, or palantir in 2012, instead of snap (and both were hot companies) you'd be stuck at the company even now, since if you leave you'd forfeit your options unless you were independently wealthy. That's 8 years forced to stay at the same employer or your options are worth nothing. And again, those companies were already unicorns. And the stock will still be worth $0 to many. Now imagine a non-unicorn where you don't even know if you'll go public eventually.
      - fossuser 6y ago
        You can save money and exercise your options. There are also companies that will help you exercise your options for a cut (you don't need to be independently wealthy). I don't disagree though - this is part of the risk to factor into the price. I'm not saying it's easy I'm saying it's worth thinking about and not reflexively assigning a value of $0. It should be a non-zero factor in evaluating a comp package and evaluating the company.
        joshuamorton 6y ago
        > You can save money and exercise your options. Can you though? Your thesis has been that the majority of your income will be due to equity + appreciation. If you are able to save half your after tax income, which is feasible but requires some frugality, you can't actually afford to exercise + taxes on a stock grant whose EV is equal to your base salary. Many people complain about how difficult affording a house is in the bay. The tax cost on an equity event is larger than the down payment on an equivalently valued house, and you're casually suggesting to save for it, on a much lower income (since you can't use your equity). > There are also companies that will help you exercise your options for a cut As far as I can tell, the terms of these deals mean that unless the price of the stock increases well beyond the strike price when you exercise, you'll get nothing, and even then you're going to end up losing 50%+ of the returns. I'm not saying that you can't ever come out ahead, obviously some people do. But if you sample startups at random, the median stock value is zero. If you sample private unicorns, the median payout is mich worse than amazon or microsoft.
- Bahamut 6y ago
  And if you worked at Apple or Amazon in 2012 and still are working there today & holding that stock, your stock went up almost 20x - an original $100k grant would be worth about $2m, and that's not even counting any of the follow on refresh stock grants. Even having joined a company like Snap then would've been a raw deal compared to working for the tech giants.