4 ms·
A quirk of Silicon Valley culture is that senior employees on the inside of it tend to be rather sophisticated about how they think about equity, and they also
by patio11 6y ago
A quirk of Silicon Valley culture is that senior employees on the inside of it tend to be rather sophisticated about how they think about equity, and they also tend to be rather reticent about talking about that externally, because of factors such as legal and PR risk.
This is immensely frustrating to me, because thinking lucidly about equity is incredibly important for career planning for engineers who are startup-adjacent, work at AppAmaGooBookSoft, or who are in markets where those firms' offers set market terms. I think this sets us up for a continuance of the class system, where people who talked about this subject around the dinner table or have a frat brother who was in Google in 2004 know the score, and people who grew up in Chicago and didn't know what Google was in 2003 do not, even when they're evaluating career options which are heavily dependent on correctly valuing equity.
I did not always think lucidly about equity, and overly trusted the representations of folks on Internet watering holes who said that equity was likely to be nearly worthless. I would like to think I've learned a bit over the years.
I apologize for being indirect here; feel free to ask me about equity in some place where it will not be reasonably read as a comment on a firm I owe various duties to. (Offer broadly open to HNers.)
- ffggvv 6y agoI don't think the equity is worthless. I just think an engineer can work at Facebook with a monthly vest and their equity is as good as cash. An engineer at stripe has illiquid shares that they hope they can convert to cash in 3+ years. Usually the hope of a large return would offset that (time value of money) but thats cancelled by the fact that stripe's private valuation is 30B+.
- ivalm 6y agoNot patio11 but you can still evaluate something like net preset value by doing discount to the eventual liquidity event. In reality this is complicated as you need to assign probabilities to (1) when liquidity event can occur (2) real value of your equity at the event (3) discount rate. While estimating probability distributions is probably beyond what one can do without detailed inside knowledge (and even then), it's useful to think of a number of stories, eg: target_co will ipo in 3 years at 2x last raised value, target_co will ipo in 5 year at last raise, target_co will be acquired at 0.1x last raise in 8 years (what is the overhang?); let's say all at equal probabilities. For discount rate you can think of alternative places where you could work (eg. alternative_public_co will grow at -10, +20, +30% yoy with equal probability) + time value of not being able to liquidate (let's say another 10%). This will give you some range of numbers to consider.
- ffggvv 6y agothat makes sense. though it seems like many companies these days such as uber, palantir etc are actually worth less after IPO than before.
- deleted 6y ago[deleted]
- VBprogrammer 6y agoMaybe I'm misreading what Patrick is saying here but personally, if I believed that the equity part of an offer was worth near zero, then I'd ensure that the cash part of an offer met my needs and aspirations for the medium term. Perhaps there is an argument that by being so focused on the cash part of an offer I probably left equity on the table, if the IPO lottery ticket came in perhaps I would find myself regretting that.