8 ms·

An Engineer’s Guide to Stock Options (2013)

249 points by lemonspat 6y ago

Waterluvian 6y ago
What I need is "A Canadian (or non American) Remote Worker Engineer's guide to U.S. Stock Options." At the moment they feel entirely valueless.
- thinkingkong 6y ago
  We should talk about this. I'm working with 3 other people who are all in the same boat. So far it seems like the only way to really make it work is to get options with a 10 year exercise window, or basically consider them worthless until the company has liquidity.
- jvns 6y ago
  my understanding of US stock options for Canadians (and really for anyone who can't afford to exercise their options) is: - having ISOs is bad, you don't get any of the tax advantages that Americans get and it means that they expire 90 days after you leave the company if you don't exercise them - having NSOs that expire after 10 years is good, they can still be risky to exercise (same as with ISOs), but that's not too bad because you can delay exercising for 10 years after you get them, and hopefully they'll become liquid (or worthless) before then - it's possible for a company to switch employees' options from ISOs to NSOs (for example Pinterest did this https://fortune.com/2015/03/23/pinterest-employee-taxes/ https://fortune.com/2015/03/23/pinterest-employee-taxes/), so it might be worth putting pressure on your employer to offer that change if you're in the bad (ISO) situation
  - Waterluvian 6y ago
    It's reassuring that you've independently come to the same conclusion I did. And in the absence of the NSO option, my current thought on the matter is that they hold no value unless there's an exit while I'm working there, and I'll want to get an accountant who knows how to exercise it all properly.
lostdog 6y ago
Companies will shovel money to their lawyers to set up an ownership structure that benefits the investors and founders, but don't bother to develop a workaround to the AMT exercise trap, and that tells you everything you need to know about working at a pre-RSU startup. *Doesn't apply to companies with 10-year exercise windows or other good tricks.
- CalChris 6y ago
  The AMT Trap. https://www.holloway.com/g/equity-compensation/sections/the-amt-trap https://www.holloway.com/g/equity-compensation/sections/the-...
- bhahn 6y ago
  I'm curious why ISO exercises were ever added into the AMT income calculation. Exercised shares in private companies are generally very illiquid, and exercised shares in public companies would get taxed on sale, just like any other stock. On the surface, it just seems like a rule that doesn't make sense at all, but likely would never get changed due to the optics of it.
- cj 6y ago
  I agree with your overall sentiment. Most companies should have a better legal structure that benefit employees. However > Companies will shovel money to their lawyers to set up an ownership structure that benefits the investors and founders This isn’t entirely true. When a new startup goes to a law firm to set this up, even top tier law firms will provide a structure based on prewritten templates that the firm uses will (nearly) all their clients. This means that setting up a company is actually relatively cheap if you use pre-written templates from your law firm. As soon as you make any special requests, it means those templates can no longer be re-used and that’s when the startup needs to shovel money having lawyers rewrite the templates to accommodate special requests / clauses. The blame for this is always put on founders, which isn’t uncalled for. But for real industry wide change to happen, it’s the law firms that need to make it easier for their clients to offer employee-friendly structures so that founders don’t need to pay a premium for employee-friendly structures. Also important is that the entire structure is typically set up very early in the company’s history (usually before the company has any or minimal funding). It’s difficult to justify spending $20,000 to set up a non-standard equity structure vs. $2,000 for the standard docs when the startup may only have just $100k in the bank. Industry change won’t happen without law firms offering cost efficient ways for companies to set up employee friendly structures. The situation is very unfortunate and unfortunately difficult to fix.
owlninja 6y ago
2013 discussion: https://news.ycombinator.com/item?id=6882744 https://news.ycombinator.com/item?id=6882744
ludwigvan 6y ago
"For most startup employee’s startup stock options are now a bad deal." "Startup Stock Options – Why A Good Deal Has Gone Bad" https://steveblank.com/2019/04/10/startup-stock-options-why-a-good-deal-has-gone-bad/ https://steveblank.com/2019/04/10/startup-stock-options-why-...
- tempsy 6y ago
  Then 2020 happened and startups are going public at a rate not seen since the dot com days. Whenever an article like this is posted HN seems to immediately raise this issue about how startup equity is just a lottery ticket when the probability of it paying off is clearly so much higher especially at a time when so many startups this year and next are going public at $10B plus valuations. If there was a time to have options at a growing, revenue generating startup it’s today.
  - z3ncyberpunk 6y ago
    just because a random startup has a $10b "valuation" does not mean at all that it is actually worth $10b.
  - fossuser 6y ago
    Agreed - there was an old thread on this here: https://news.ycombinator.com/item?id=24438641 https://news.ycombinator.com/item?id=24438641 Basically if you're in college and reading this on HN don't listen to HN comments that discount equity or value it at zero. Know that it's hard to value, but that isn't the same as zero. It could be worth millions, it could be worth nothing, it could be worth somewhere in between. There are lots of angel investors in the bay area because of exits that netted them 2-5M or higher ($10-20M) as regular employees. This feedback loop is part of the reason the bay area generates so many companies. It's a bet like anything else, try and judge what kind of people the founders are and how solid the business is. Learn about ISOs and what questions to ask/how the basics work (things like the linked article here). It's an investment - owning equity in a good company is the quickest way to get real wealth if you don't already have a lot of money. Ignore a lot of the people that make over-confident statements about it being worthless, consider the risk, value the company and founders, decide for yourself. --- Today Stripe seems like a good choice to get a good equity return as an employee on IPO, Roblox and Robinhood are others. It's not obvious how things will turn out, but it's not impossible to make a good guess.
an_opabinia 6y ago
They suck. There ya go!
agency 6y ago
Fun situation I found myself in a couple of years back: My options were expiring for a company I had worked for (3 year expiration after I left) and the secondary market was not great. I was able to make a sale well above my strike price but below the most recent 409(a) valuation. I arranged a deal where I exercised and sold the shares in the same day, with the buyer fronting the money to exercise as part of the transaction. In this case despite the fact that I sold the shares on the same day for less than the 409(a) valuation, that valuation is still used to determine taxes owed for exercising. And that spread is taxed as income, whereas the subsequent "loss" on the sale (since the cost basis for the stock was then the 409(a) valuation and I sold lower than that) is a capital loss, and so they do not cancel each other out. Luckily in my case my sale price was just a little below the 409(a) valuation so I didn't get hit too hard but still, it felt absurd.
- darig 6y ago
  Why didn't you donate your shares to an irish shell company, and then have that company issue you an interest free loan that you fail to repay, while licensing some artwork you created for them for a matching amount? Absurdity begets absurdity.
biren34 6y ago
While I totally understand the frustration with taxes, vesting rules, etc. the entire problem, IMO, comes from the lack of liquidity in these shares. These are "realized" gains to the IRS, but unrealizable to the employee because there's no way to sell the shares. That leads to large tax bills only payable in cash, which you can't get by selling the shares. There are solutions to provide this liquidity in the works: https://www.google.com/amp/s/amp.ft.com/content/d52b0487-b13c-4bae-bf27-770518ff083d https://www.google.com/amp/s/amp.ft.com/content/d52b0487-b13... As soon as these are real, most issues with stock option compensation go away.
- lisper 6y ago
  > the entire problem, IMO, comes from the lack of liquidity in these shares There's also the lockup period after an IPO during which a stock can be very liquid but employees are prohibited from selling.
  - biren34 6y ago
    That applies to all insiders, though. It's not specific to the employees.
- auspex 6y ago
  I think that if we are expected to pay taxes there needs to be an immediate market to sell those shares at the taxable price. Would the IRS take the shares to pay the taxes? If not they shouldn’t be considered taxable until there is an exit.
supernova87a 6y ago
I wonder if anyone here can offer any good financial advice for people whose company recently went or is about to go IPO in this market? (and who hold a significant chunk of vested equity now) Are there tax strategies to consider? Selling / holding strategies? Should one consult a tax advisor for a few sessions to learn about any specific issues to take into account in holding, selling, planning, and taxes? Thanks!
- jedberg 6y ago
  It depends on your options, but most likely there are no tax loopholes to take advantage of -- in most cases they are taxed like regular income and treated as deferred income for tax purposes. That being said, if their value is over $1MM, a lot of financial advisors will gladly review your stock agreements and give you a free consultation. They do this because they hope you will sign up for their services after you become rich.
boulos 6y ago
Since this post in 2013, the major change in the US is the addition of 83(i) [1]. At least that way, folks who believe the stock will be liquid within 5 years, but don’t want to wait can exercise, defer taxes, change jobs and see how it goes. As the article says though: > And, as in any option exercise, paying the exercise price itself is an investment risk and having a tax-deferred exercise does not make the exercise risk-free. [1] http://stockoptioncounsel.com/blog/tax-deferred-option-exercises-under-the-new-section-83i-tax-cuts-and-jobs-act-of-2017 http://stockoptioncounsel.com/blog/tax-deferred-option-exerc...
dang 6y ago
Discussed at the time: https://news.ycombinator.com/item?id=6882744 https://news.ycombinator.com/item?id=6882744
andrewmcwatters 6y ago
See also https://tldroptions.io https://tldroptions.io
suyash 6y ago
does someone has a similar guide but for public companies offering RSU's and other options?
- dbish 6y ago
  It's pretty straight forward for public companies. You can map the value directly to stock and when you vest it's treated exactly like standard income, and you can (and generally should) sell. If you choose not to sell, you have the same tax rules that apply if you had just bought shares the day you vested.
CalChris 6y ago
Suppose you have stocks options and then you leave the company and face an AMT trap. This can be very very bad. Crushingly bad. Why would a company knowingly subject their employees to this possibility? Can the option part of ISO be written in such a way that you can decline the option if it is financially disadvantageous to exercise it? Is it enough for the company to grant a long exercise window, say five years along with a decline option?
- libraryofbabel 6y ago
  Happily that is precisely what an Option is: the right, but not the obligation, to buy a stock at an agreed upon price.
- deleted 6y ago
  [deleted]
- rytill 6y ago
  The "AMT trap" occurs when you exercise and is calculated based on (options exercised)*(FMV - strike price). By not exercising, or exercising a small amount, you will not be subject to AMT. However, I completely agree with your sentiment that knowingly granting vanilla ISOs to early employees which require any double digit percentage of salary to exercise as they vest is quite cruel, especially those that do not understand the dynamics of the "AMT trap".
frongpik 6y ago
In short: startups lure you with an opportunity to make a FANG-level pay if and only if the startup goes big.
locusofself 6y ago
Isn't it great when you get an offer from a startup and they say you will get 5000 option shares but they can't tell you literally anything about what they could possibly mean for you in the future? Like even how many shares are outstanding or what the current and expected valuation might be. I've had that experience a few times.
- andrewmcwatters 6y ago
  HR almost never knows, because they themselves have no idea what the options are or are worth, and indeed are a majority of the time, worthless anyway.
robocat 6y ago
YCombinator probably has the actual data on the final value of shares across all employees for their IPOed companies... It would be fantastic if YCombinator could run the numbers: I suspect the median payout would be very low!
- doktorhladnjak 6y ago
  That's probably why such numbers have never been published by VCs
DGAP 6y ago
All issues with stock options aside, if you are confident in an exit isn't it better to exercise as they vest in order to minimize the income tax you'll pay during a liquidity event?
- sateesh 6y ago
  It is easier said. At the time of vesting probably you would know that the startup is doing well, it is gaining customers, and revenue figures look good. But you might not know if the startup is breaking-even, if so how profitable and even it is profitable, is the FMV high or low. If FMV seems tad higher, does your investment and tax incidence on it gives a better return than investment elsewhere (say index funds, stock markets, fixed deposits etc.). Add to it the uncertainty that some unforeseen risk/event could still cause the startup to falter.
tom-_- 6y ago
For the youngsters reading this thread, please understand there is a big difference in the expected return of early and late stage startups. Early stage startups are often a crap shoot financially as others have pointed out, and contracts are structured so that unless you're a founding member, even a successful exit (after 10 years avg) probably won't net you FAANG money. You will however probably have greater job satisfaction having more ownership over the product and will gain a much greater breadth of experience, which are the main reasons people leave FAANGs for startups (yes that is quite common). Late stage startups (companies that are still primarily VC backed) but have a high likelihood of a successful exit have a financial risk-reward that is much closer to FAANG. The upside is that they are not so massive that your job will mean more than just ladder climbing and working on menial projects that have zero business impact. You may find pre-ipo companies (Robinhood, Instacart, Coursera) hit that sweet spot of comp and job satisfaction. Also if SPACs continue to get more popular, there's another option for the mid-stage startups.
swagtricker 6y ago
Standard Disclaimer: This is from my own personal experience. YMMV. This looks like the same type of Gold Rush that happened 20 years ago in the dot.com boom/bust. Same advice I learned the hard way applies today as I wish I'd learned it then - "when there's a gold rush, go sell shovels." Or in this case, as a technologist, sell topographical survey info you've collected, gold panning tutorials, fully outfitted claim excursions (you get the idea) - ANY knowledge you have about HOW to do what people THINK they need to do to find gold. Don't take equity, take cash today. It doesn't matter if they get rich or not, YOU make sure you get paid FIRST and be clear that if they don't want to pay for your services, their competitors certainly will. To continue to abuse the analogy, to the business person we technologists are now and have always been "resources" to be used as a means to an end. You think they want to give their "pack mules and shovels" a cut of the gold? Unless you have some business domain knowledge, you'll never get an equal seat at the table. 9 times out of 10, if you DO have some business knowledge, you can probably make more money by going off to become a direct competitor. Or, better yet, gain some knowledge of the field and work with a competitor who has a better vision. I've been inside 4 start-ups in various stages, and one post-IPO company that included stock options over the past 20 years. Only the dot.com era company ever amounted to anything, and that was dumb luck WRT having an IPO when people would force money on you for doing eAnything(TM). I follow one primary rule when taking a job: you're either there to earn, or you're there to learn. It you're humble enough and not an idiot, you realize that there's a number of things to "learn" at any point in your career between different industries, different career paths, and different levels of position. If you think you're "too good" to do some job, you may be right but you may also just be an asshole.

249 points by lemonspat 6y ago

What I need is "A Canadian (or non American) Remote Worker Engineer's guide to U.S. Stock Options." At the moment they feel entirely valueless.

thinkingkong 6y ago
We should talk about this. I'm working with 3 other people who are all in the same boat. So far it seems like the only way to really make it work is to get options with a 10 year exercise window, or basically consider them worthless until the company has liquidity.
jvns 6y ago
my understanding of US stock options for Canadians (and really for anyone who can't afford to exercise their options) is: - having ISOs is bad, you don't get any of the tax advantages that Americans get and it means that they expire 90 days after you leave the company if you don't exercise them - having NSOs that expire after 10 years is good, they can still be risky to exercise (same as with ISOs), but that's not too bad because you can delay exercising for 10 years after you get them, and hopefully they'll become liquid (or worthless) before then - it's possible for a company to switch employees' options from ISOs to NSOs (for example Pinterest did this https://fortune.com/2015/03/23/pinterest-employee-taxes/ https://fortune.com/2015/03/23/pinterest-employee-taxes/), so it might be worth putting pressure on your employer to offer that change if you're in the bad (ISO) situation
- Waterluvian 6y ago
  It's reassuring that you've independently come to the same conclusion I did. And in the absence of the NSO option, my current thought on the matter is that they hold no value unless there's an exit while I'm working there, and I'll want to get an accountant who knows how to exercise it all properly.

lostdog 6y ago

Companies will shovel money to their lawyers to set up an ownership structure that benefits the investors and founders, but don't bother to develop a workaround to the AMT exercise trap, and that tells you everything you need to know about working at a pre-RSU startup. *Doesn't apply to companies with 10-year exercise windows or other good tricks.

CalChris 6y ago
The AMT Trap. https://www.holloway.com/g/equity-compensation/sections/the-amt-trap https://www.holloway.com/g/equity-compensation/sections/the-...
bhahn 6y ago
I'm curious why ISO exercises were ever added into the AMT income calculation. Exercised shares in private companies are generally very illiquid, and exercised shares in public companies would get taxed on sale, just like any other stock. On the surface, it just seems like a rule that doesn't make sense at all, but likely would never get changed due to the optics of it.
cj 6y ago
I agree with your overall sentiment. Most companies should have a better legal structure that benefit employees. However > Companies will shovel money to their lawyers to set up an ownership structure that benefits the investors and founders This isn’t entirely true. When a new startup goes to a law firm to set this up, even top tier law firms will provide a structure based on prewritten templates that the firm uses will (nearly) all their clients. This means that setting up a company is actually relatively cheap if you use pre-written templates from your law firm. As soon as you make any special requests, it means those templates can no longer be re-used and that’s when the startup needs to shovel money having lawyers rewrite the templates to accommodate special requests / clauses. The blame for this is always put on founders, which isn’t uncalled for. But for real industry wide change to happen, it’s the law firms that need to make it easier for their clients to offer employee-friendly structures so that founders don’t need to pay a premium for employee-friendly structures. Also important is that the entire structure is typically set up very early in the company’s history (usually before the company has any or minimal funding). It’s difficult to justify spending $20,000 to set up a non-standard equity structure vs. $2,000 for the standard docs when the startup may only have just $100k in the bank. Industry change won’t happen without law firms offering cost efficient ways for companies to set up employee friendly structures. The situation is very unfortunate and unfortunately difficult to fix.

owlninja 6y ago

2013 discussion: https://news.ycombinator.com/item?id=6882744 https://news.ycombinator.com/item?id=6882744

ludwigvan 6y ago

"For most startup employee’s startup stock options are now a bad deal." "Startup Stock Options – Why A Good Deal Has Gone Bad" https://steveblank.com/2019/04/10/startup-stock-options-why-a-good-deal-has-gone-bad/ https://steveblank.com/2019/04/10/startup-stock-options-why-...

tempsy 6y ago
Then 2020 happened and startups are going public at a rate not seen since the dot com days. Whenever an article like this is posted HN seems to immediately raise this issue about how startup equity is just a lottery ticket when the probability of it paying off is clearly so much higher especially at a time when so many startups this year and next are going public at $10B plus valuations. If there was a time to have options at a growing, revenue generating startup it’s today.
- z3ncyberpunk 6y ago
  just because a random startup has a $10b "valuation" does not mean at all that it is actually worth $10b.
- fossuser 6y ago
  Agreed - there was an old thread on this here: https://news.ycombinator.com/item?id=24438641 https://news.ycombinator.com/item?id=24438641 Basically if you're in college and reading this on HN don't listen to HN comments that discount equity or value it at zero. Know that it's hard to value, but that isn't the same as zero. It could be worth millions, it could be worth nothing, it could be worth somewhere in between. There are lots of angel investors in the bay area because of exits that netted them 2-5M or higher ($10-20M) as regular employees. This feedback loop is part of the reason the bay area generates so many companies. It's a bet like anything else, try and judge what kind of people the founders are and how solid the business is. Learn about ISOs and what questions to ask/how the basics work (things like the linked article here). It's an investment - owning equity in a good company is the quickest way to get real wealth if you don't already have a lot of money. Ignore a lot of the people that make over-confident statements about it being worthless, consider the risk, value the company and founders, decide for yourself. --- Today Stripe seems like a good choice to get a good equity return as an employee on IPO, Roblox and Robinhood are others. It's not obvious how things will turn out, but it's not impossible to make a good guess.

an_opabinia 6y ago

They suck. There ya go!

agency 6y ago

Fun situation I found myself in a couple of years back: My options were expiring for a company I had worked for (3 year expiration after I left) and the secondary market was not great. I was able to make a sale well above my strike price but below the most recent 409(a) valuation. I arranged a deal where I exercised and sold the shares in the same day, with the buyer fronting the money to exercise as part of the transaction. In this case despite the fact that I sold the shares on the same day for less than the 409(a) valuation, that valuation is still used to determine taxes owed for exercising. And that spread is taxed as income, whereas the subsequent "loss" on the sale (since the cost basis for the stock was then the 409(a) valuation and I sold lower than that) is a capital loss, and so they do not cancel each other out. Luckily in my case my sale price was just a little below the 409(a) valuation so I didn't get hit too hard but still, it felt absurd.

darig 6y ago
Why didn't you donate your shares to an irish shell company, and then have that company issue you an interest free loan that you fail to repay, while licensing some artwork you created for them for a matching amount? Absurdity begets absurdity.

biren34 6y ago

While I totally understand the frustration with taxes, vesting rules, etc. the entire problem, IMO, comes from the lack of liquidity in these shares. These are "realized" gains to the IRS, but unrealizable to the employee because there's no way to sell the shares. That leads to large tax bills only payable in cash, which you can't get by selling the shares. There are solutions to provide this liquidity in the works: https://www.google.com/amp/s/amp.ft.com/content/d52b0487-b13c-4bae-bf27-770518ff083d https://www.google.com/amp/s/amp.ft.com/content/d52b0487-b13... As soon as these are real, most issues with stock option compensation go away.

lisper 6y ago
> the entire problem, IMO, comes from the lack of liquidity in these shares There's also the lockup period after an IPO during which a stock can be very liquid but employees are prohibited from selling.
- biren34 6y ago
  That applies to all insiders, though. It's not specific to the employees.
auspex 6y ago
I think that if we are expected to pay taxes there needs to be an immediate market to sell those shares at the taxable price. Would the IRS take the shares to pay the taxes? If not they shouldn’t be considered taxable until there is an exit.

supernova87a 6y ago

I wonder if anyone here can offer any good financial advice for people whose company recently went or is about to go IPO in this market? (and who hold a significant chunk of vested equity now) Are there tax strategies to consider? Selling / holding strategies? Should one consult a tax advisor for a few sessions to learn about any specific issues to take into account in holding, selling, planning, and taxes? Thanks!

jedberg 6y ago
It depends on your options, but most likely there are no tax loopholes to take advantage of -- in most cases they are taxed like regular income and treated as deferred income for tax purposes. That being said, if their value is over $1MM, a lot of financial advisors will gladly review your stock agreements and give you a free consultation. They do this because they hope you will sign up for their services after you become rich.

boulos 6y ago

Since this post in 2013, the major change in the US is the addition of 83(i) [1]. At least that way, folks who believe the stock will be liquid within 5 years, but don’t want to wait can exercise, defer taxes, change jobs and see how it goes. As the article says though: > And, as in any option exercise, paying the exercise price itself is an investment risk and having a tax-deferred exercise does not make the exercise risk-free. [1] http://stockoptioncounsel.com/blog/tax-deferred-option-exercises-under-the-new-section-83i-tax-cuts-and-jobs-act-of-2017 http://stockoptioncounsel.com/blog/tax-deferred-option-exerc...

dang 6y ago

Discussed at the time: https://news.ycombinator.com/item?id=6882744 https://news.ycombinator.com/item?id=6882744

andrewmcwatters 6y ago

See also https://tldroptions.io https://tldroptions.io

suyash 6y ago

does someone has a similar guide but for public companies offering RSU's and other options?

dbish 6y ago
It's pretty straight forward for public companies. You can map the value directly to stock and when you vest it's treated exactly like standard income, and you can (and generally should) sell. If you choose not to sell, you have the same tax rules that apply if you had just bought shares the day you vested.

CalChris 6y ago

Suppose you have stocks options and then you leave the company and face an AMT trap. This can be very very bad. Crushingly bad. Why would a company knowingly subject their employees to this possibility? Can the option part of ISO be written in such a way that you can decline the option if it is financially disadvantageous to exercise it? Is it enough for the company to grant a long exercise window, say five years along with a decline option?

libraryofbabel 6y ago
Happily that is precisely what an Option is: the right, but not the obligation, to buy a stock at an agreed upon price.
deleted 6y ago
[deleted]
rytill 6y ago
The "AMT trap" occurs when you exercise and is calculated based on (options exercised)*(FMV - strike price). By not exercising, or exercising a small amount, you will not be subject to AMT. However, I completely agree with your sentiment that knowingly granting vanilla ISOs to early employees which require any double digit percentage of salary to exercise as they vest is quite cruel, especially those that do not understand the dynamics of the "AMT trap".

frongpik 6y ago

In short: startups lure you with an opportunity to make a FANG-level pay if and only if the startup goes big.

locusofself 6y ago

Isn't it great when you get an offer from a startup and they say you will get 5000 option shares but they can't tell you literally anything about what they could possibly mean for you in the future? Like even how many shares are outstanding or what the current and expected valuation might be. I've had that experience a few times.

andrewmcwatters 6y ago
HR almost never knows, because they themselves have no idea what the options are or are worth, and indeed are a majority of the time, worthless anyway.

robocat 6y ago

YCombinator probably has the actual data on the final value of shares across all employees for their IPOed companies... It would be fantastic if YCombinator could run the numbers: I suspect the median payout would be very low!

doktorhladnjak 6y ago
That's probably why such numbers have never been published by VCs

DGAP 6y ago

All issues with stock options aside, if you are confident in an exit isn't it better to exercise as they vest in order to minimize the income tax you'll pay during a liquidity event?

sateesh 6y ago
It is easier said. At the time of vesting probably you would know that the startup is doing well, it is gaining customers, and revenue figures look good. But you might not know if the startup is breaking-even, if so how profitable and even it is profitable, is the FMV high or low. If FMV seems tad higher, does your investment and tax incidence on it gives a better return than investment elsewhere (say index funds, stock markets, fixed deposits etc.). Add to it the uncertainty that some unforeseen risk/event could still cause the startup to falter.

tom-_- 6y ago

For the youngsters reading this thread, please understand there is a big difference in the expected return of early and late stage startups. Early stage startups are often a crap shoot financially as others have pointed out, and contracts are structured so that unless you're a founding member, even a successful exit (after 10 years avg) probably won't net you FAANG money. You will however probably have greater job satisfaction having more ownership over the product and will gain a much greater breadth of experience, which are the main reasons people leave FAANGs for startups (yes that is quite common). Late stage startups (companies that are still primarily VC backed) but have a high likelihood of a successful exit have a financial risk-reward that is much closer to FAANG. The upside is that they are not so massive that your job will mean more than just ladder climbing and working on menial projects that have zero business impact. You may find pre-ipo companies (Robinhood, Instacart, Coursera) hit that sweet spot of comp and job satisfaction. Also if SPACs continue to get more popular, there's another option for the mid-stage startups.

swagtricker 6y ago

Standard Disclaimer: This is from my own personal experience. YMMV. This looks like the same type of Gold Rush that happened 20 years ago in the dot.com boom/bust. Same advice I learned the hard way applies today as I wish I'd learned it then - "when there's a gold rush, go sell shovels." Or in this case, as a technologist, sell topographical survey info you've collected, gold panning tutorials, fully outfitted claim excursions (you get the idea) - ANY knowledge you have about HOW to do what people THINK they need to do to find gold. Don't take equity, take cash today. It doesn't matter if they get rich or not, YOU make sure you get paid FIRST and be clear that if they don't want to pay for your services, their competitors certainly will. To continue to abuse the analogy, to the business person we technologists are now and have always been "resources" to be used as a means to an end. You think they want to give their "pack mules and shovels" a cut of the gold? Unless you have some business domain knowledge, you'll never get an equal seat at the table. 9 times out of 10, if you DO have some business knowledge, you can probably make more money by going off to become a direct competitor. Or, better yet, gain some knowledge of the field and work with a competitor who has a better vision. I've been inside 4 start-ups in various stages, and one post-IPO company that included stock options over the past 20 years. Only the dot.com era company ever amounted to anything, and that was dumb luck WRT having an IPO when people would force money on you for doing eAnything(TM). I follow one primary rule when taking a job: you're either there to earn, or you're there to learn. It you're humble enough and not an idiot, you realize that there's a number of things to "learn" at any point in your career between different industries, different career paths, and different levels of position. If you think you're "too good" to do some job, you may be right but you may also just be an asshole.