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"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/

"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.
  - sam0x17 6y ago
    Also don't be afraid to insist on learning the current valuation and anticipated future valuation from stakeholders if they are trying to give you an equity grant. You have a right to know!
  - jedberg 6y ago
    > 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. But that happened back in the day when an early employee got a good cut of the stock. VCs have been perfecting their process, especially since the early 2010s. The contracts are different now -- the founders and the VCs get pretty much all the equity now. Look at even the biggest IPOs this year. Look at how much equity was in the employee stock pools. Not nearly as much as it used to be. > Today Stripe seems like a good choice to get a good equity return as an employee on IPO That's highly unlikely. The company is doing well, but a new employee will get a tiny fraction of the equity.
  - chris11 6y ago
    I heard a rumor that Stripe recently changed their initial RSU grant. Now the value is fixed, you get $x worth of stock every year. So new hires lose out on a lot of the upside from stock growth.
    - throwawaygulf 6y ago
      I don't believe that's how RSUs work at Stripe (or anywhere). On hiring, you get 5000 RSUs (or whatever the number), and after time vesting, they convert into stock. New hires gain a lot of the upside from stock growth, even with RSUs.
  - whakim 6y ago
    Stripe was founded in 2010. Robinhood in 2013. Roblox in 2004 (!). If you were an early employee at one of these companies, stayed two years, and were considering whether to buy your options, you'd have to spend a large sum of your own money (plus the taxes - oh god, the taxes!) for a potential (unlikely) payoff occurring on average a decade down the line. Additionally, given this incredibly high amount of uncertainty, would you really be motivated to work that little bit harder considering such a distant liquidity event? Hindsight is 20/20, it's easy to pick the success stories after the fact. Can you pick the 3 companies most likely to IPO in ~2030, and would you stake money on that? > 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. Sure, it's the quickest way to get real wealth if you get very lucky. For most people it's a losing proposition.
- slumpt_ 6y ago
  How many HN posts did we have for all the startups that went under or sold for pennies on the dollar? My friends who spent 6 years at a startup just found out his equity is literally worth pennies on the dollar. It will be a write off at best. 2020 as well. This mentality of looking at successful exits is the same now as it was a decade ago or more.
  - z3ncyberpunk 6y ago
    equity was always worthless at startups unless you're the ceo. you should never join any company trying to pay you in equity.
  - tempsy 6y ago
    I didn’t say everyone is going get rich joining a startup. But there’s a dozen startups from Airbnb to DoorDash to Roblox to Affirm to Coinbase to Robinhood that IPO’d this year or will next where early employees who had strike prices in the pennies or dollars will become very wealthy.
    - rconti 6y ago
      And for every one you've heard of, there are IPOs you've not heard of, acquisitions, etc. You might not get rich, but there are plenty of folks out there who have made a few hundred thousand in a small company IPO, or an extra $50k for 6 months of work, or whatever.
    - slumpt_ 6y ago
      And that’s always been the case. The point is that joining any of those companies once they are notable and large means your strike and equity offering will be sufficiently small as to render it a nice consolation prize and probably (hopefully?) make up for the years you weren’t earning equity at a higher-paying public firm. Yes, there are always people winning the startup lottery. That has never changed and nobody has ever claimed winning at it is impossible. No, there are not many of them and now is no better a time than any other. The lottery is the lottery. World keeps spinning.
- xwdv 6y ago
  > If there was a time to have options at a growing, revenue generating startup it’s today. Uh no, it isn't. You are literally better off throwing some money from your salary every week into lotto calls for options in real companies.
  - tempsy 6y ago
    Tell that to Airbnb and DoorDash employees. And the thousand of employees who are working at companies going public in the next year.
    - slumpt_ 6y ago
      Most do not become wealthy or even approximate “rich.” Most are simply made whole after years of being underpaid. Looking at successful exits (the ones you hear about) as your indicator of the market state is lopsided and inaccurate. I have one friend who did well in an exit. I have countless other friends who have been in and out of startups that either fail, get rolled into another company with little/no cash landing in their pockets, or get acquired for a pittance. You are looking at the Michael Jordans and Kobe Bryants and deciding that everyone can win big in basketball.
      - tempsy 6y ago
        I have a very different experience. And so do many of my friends. Again there’s always winners and losers. I didn’t say everyone is a winner. But the odds are no where near “random lottery odds” especially if you aren’t just randomly picking a company to work for and have a clue why the company could be successful.
        edmundsauto 6y ago
        So you feel like your circle of friends is good at picking which startups will have a financially successful exit? If true, you should be a VC and not a lowly tech worker ;)
- bumby 6y ago
  When does the rate of IPOs become a bubble? I’ve heard talk in other sectors it’s when they trend to roll over immediately after release.
  - tempsy 6y ago
    When the Fed stops printing money and raises rates which they literally cannot do for years.
    - bumby 6y ago
      The implication being there is no alternative to preserve capital so people will continue to pump up the IPOs and other stocks?
    - lumost 6y ago
      At this point the fed seems trapped, maybe even permanently so - in 5 years asset prices will have been driven multiples higher on fed money and 0% interest. It would take a gargantuan amount of political will get the base rate back to even 3% - bringing down asset prices and corporate/institutional/individual borrowers with them.
- TuringNYC 6y ago
  I'm not sure I agree. How many tech IPOs have there been this year? 20 or 30? Of those 20 or 30 companies, how many of their peers at founding (~2010-2013) have survived? If I take knowledge of 2020, go back in time, and take a job, it seems like a great deal. If I'm back in 2010 or 2011, and take only knowledge of the world at that time, would I have chosen AirBNB? I'm not sure. Even if I did, what are the odds I could/would stick around long enough to make it to the IPO -- or was willing to exercise illiquid stock at departure with years to go before the stock can be sold? To make it fair, one should of course also consider companies which did not IPO but had good acquisitions. I'm not sure what that number is, 300? 3000? Still, across a field of 20,000 or more startups it is unclear how I'd get to this smaller set. I think there are def things that can increase the odds, but I dont think it is fair to look backwards using 2020 knowledge.
  - deleted 6y ago
    [deleted]
  - stouset 6y ago
    Worse, you’re penalized the longer you stay at a company pre-IPO if you ever want to leave. If you do decide to exercise your shares, you not only have to pay the cost of exercise, but you also have to pay taxes on the difference in strike price and presumed current market value. Despite there being no actual market, the high possibility that there will never be a market, and that “current value” may reflect extremely favorable investment terms not available on the open market. If your strike price is $1/share, you have 100,000 shares, and the last funding round closed at $20/share, you have to pay $100,000 to exercise and pay taxes on $2,000,000 that you’re still highly likely to never actually have the opportunity to turn into real dollars through a stock sale. The longer you stick around, the more you’re incentivized to stay waiting around for a liquidity event at a job you’ve outgrown and potentially hate at this point. While the company itself has incentives to delay IPO as long as possible, knowing full well that they’ll lose a sizable amount of their burnt-out senior talent within months of going public.
  - BostonEnginerd 6y ago
    Add to this the possibility of a "reverse stock split". My friend's old company wiped him and many of his colleagues out just prior to being acquired by Google. https://blocksandfiles.com/2020/10/12/actifio-reverse-stock-split-employees-hit/ https://blocksandfiles.com/2020/10/12/actifio-reverse-stock-...
- tyre 6y ago
  Oh boy. This is exactly how lotteries work too. “People keep saying that lotteries are ‘a tax on people who can’t do math’, but if you pay attention there are lottery winners every day. There’s no better time to play the lottery!” Look at venture capital, since they’re the ones that invest in every one of these VC-backed funds. Most funds don’t make money and of those that do, exceedingly few beat the S&P 500. The examples you’re giving are a tiny sliver of startups and at this point are not startups.
- jt2190 6y ago
  Unlike an actual lottery ticket, the theory was that there was incentive to help the company succeed in the stock options: From Steve Blank's article: > Startup employees calculated that a) their hard work could change the odds [of their options being valuable] and b) someday the stock options they were vesting might make them into millionaires. So while from an odds perspective, today's ISOs are still (perhaps) better investments than state-run lottery tickets, from an employer/employee perspective the alignment of interests is no longer there. And (as you've noted down-thread) this is resulting in employees asking for much higher salaries that essentially match what they're being offered by already public companies. In addition, employees may be more focused on the success of their careers and less on the success of their employer.
  - taway1871 6y ago
    Posting anon for obvious reasons. There is no alignment of interest for most employees with stock options, and anyone that things so is being naive or foolish. Firstly, you have no idea what the cap table looks like as an employee, so it isnt clear whether you alignment is equivalent to a grain of salt or a car or a private island. And if it werent a grain of salt, the company would be eager to tell you. Next, founders often get partial cashouts, so their goals are different from yours. They already got their nice house in palo alto, their nice car, and a kids's college fund. Now they are swinging bats for a grand slam. You are the ball they are hitting -- most likely they strike out. You lose, they still win, just not as big. Next, VC-installed management, friends of the board, and other insiders are already cashing out while you "wait for the big IPO." The insiders are getting nice cash bonuses. They are on incentive plans where they get $1/2 Million or more for hitting targets. Or they are 20somethings who are mysteriously senior directors or VPs earning cushy 400k salaries. You arent. Instead, you are taking your "startup salary", a big discount over big company stock. You're working just as hard. Each year you give up big perks and big pay at big companies you could be working at. If you cant take it anymore, you lose, because you have to exercise illiquid stock and pay tax with real money. If you get bullied or have been sexually harrassed and are desperate to find another job, you still lose -- , because you have to exercise illiquid stock and pay tax with real money. Except there are a line of suckers, often out of college, willing to take this bet. So the music plays on.
- lostdog 6y ago
  > If there was a time to have options at a growing, revenue generating startup it’s today. AirBnB, DoorDash, etc. have been giving RSU's, not options, for years. RSU's are still worthless without an exit, but stock options have the major problem that you can wind up with negative value, or even extremely negative value. RSU's at least have a floor of zero.
  - dilyevsky 6y ago
    That’s only if you exercise before stock is liquid (pre-ipo). Nowadays it’s more common to have long exercise windows that avoid this problem
    - edoceo 6y ago
      That window would need to be many years. I've never seen longer than 18 months - and that option is only for "blessed" employees
      - dilyevsky 6y ago
        It’s becoming more common to grant 7-10 year window after certain tenure (like two years) at least among yc companies. I’ve also seen window extended per year of tenure
    - taway1871 6y ago
      Unless you have to leave because 1. You cant afford to be on a "startup salary" anymore 2. Any number of reasons 3. You are being bullied 4. You are being sexually harrassed Regardless why, if you leave, you are forced to exercise in 3mo. Then, if you take the deal, you usually end up with negative value.
      - dilyevsky 6y ago
        Should probably read the post in full before replying
- 6gvONxR4sf7o 6y ago
  Even now, maybe not. Does anyone know whether most of these companies ever did share buybacks for the rank and file employees? If not, then imagine the scenario where you left somewhere between 2015 and 2019 and had 30(?) days to exercise ISOs. You might have to put in a ton of money and even more for the tax bill. Maybe more than you can afford. I’d love to know whether this is a common story or a rare one, but I doubt that data exists publicly.
  - forkerenok 6y ago
    > Maybe more than you can afford. Nowadays there are non-recourse loans available on the market for that (covering both exercise costs and taxes). Not for all startups though and mostly late stage ones.
  - hamburglar 6y ago
    I had a company offer to arrange a purchase of some of my (non-public) stock as I was leaving. They knew of an investor that wanted to own more shares and brokered a price that was well above the most recent 409a, so I was able to exercise everything and sell off exactly enough to cover the tax consequences of my "gain." Not only did it let me exercise options to get stock without having to come up with a bunch of cash, but it gave me more confidence that I actually wanted the stock. Very cool move on the company's part, in my opinion. I have no idea how common this is.
dan-robertson 6y ago
See also, Options v. Cash: https://danluu.com/startup-options/ https://danluu.com/startup-options/

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.
- sam0x17 6y ago
  Also don't be afraid to insist on learning the current valuation and anticipated future valuation from stakeholders if they are trying to give you an equity grant. You have a right to know!
- jedberg 6y ago
  > 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. But that happened back in the day when an early employee got a good cut of the stock. VCs have been perfecting their process, especially since the early 2010s. The contracts are different now -- the founders and the VCs get pretty much all the equity now. Look at even the biggest IPOs this year. Look at how much equity was in the employee stock pools. Not nearly as much as it used to be. > Today Stripe seems like a good choice to get a good equity return as an employee on IPO That's highly unlikely. The company is doing well, but a new employee will get a tiny fraction of the equity.
- chris11 6y ago
  I heard a rumor that Stripe recently changed their initial RSU grant. Now the value is fixed, you get $x worth of stock every year. So new hires lose out on a lot of the upside from stock growth.
  - throwawaygulf 6y ago
    I don't believe that's how RSUs work at Stripe (or anywhere). On hiring, you get 5000 RSUs (or whatever the number), and after time vesting, they convert into stock. New hires gain a lot of the upside from stock growth, even with RSUs.
- whakim 6y ago
  Stripe was founded in 2010. Robinhood in 2013. Roblox in 2004 (!). If you were an early employee at one of these companies, stayed two years, and were considering whether to buy your options, you'd have to spend a large sum of your own money (plus the taxes - oh god, the taxes!) for a potential (unlikely) payoff occurring on average a decade down the line. Additionally, given this incredibly high amount of uncertainty, would you really be motivated to work that little bit harder considering such a distant liquidity event? Hindsight is 20/20, it's easy to pick the success stories after the fact. Can you pick the 3 companies most likely to IPO in ~2030, and would you stake money on that? > 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. Sure, it's the quickest way to get real wealth if you get very lucky. For most people it's a losing proposition.
slumpt_ 6y ago
How many HN posts did we have for all the startups that went under or sold for pennies on the dollar? My friends who spent 6 years at a startup just found out his equity is literally worth pennies on the dollar. It will be a write off at best. 2020 as well. This mentality of looking at successful exits is the same now as it was a decade ago or more.
- z3ncyberpunk 6y ago
  equity was always worthless at startups unless you're the ceo. you should never join any company trying to pay you in equity.
- tempsy 6y ago
  I didn’t say everyone is going get rich joining a startup. But there’s a dozen startups from Airbnb to DoorDash to Roblox to Affirm to Coinbase to Robinhood that IPO’d this year or will next where early employees who had strike prices in the pennies or dollars will become very wealthy.
  - rconti 6y ago
    And for every one you've heard of, there are IPOs you've not heard of, acquisitions, etc. You might not get rich, but there are plenty of folks out there who have made a few hundred thousand in a small company IPO, or an extra $50k for 6 months of work, or whatever.
  - slumpt_ 6y ago
    And that’s always been the case. The point is that joining any of those companies once they are notable and large means your strike and equity offering will be sufficiently small as to render it a nice consolation prize and probably (hopefully?) make up for the years you weren’t earning equity at a higher-paying public firm. Yes, there are always people winning the startup lottery. That has never changed and nobody has ever claimed winning at it is impossible. No, there are not many of them and now is no better a time than any other. The lottery is the lottery. World keeps spinning.
xwdv 6y ago
> If there was a time to have options at a growing, revenue generating startup it’s today. Uh no, it isn't. You are literally better off throwing some money from your salary every week into lotto calls for options in real companies.
- tempsy 6y ago
  Tell that to Airbnb and DoorDash employees. And the thousand of employees who are working at companies going public in the next year.
  - slumpt_ 6y ago
    Most do not become wealthy or even approximate “rich.” Most are simply made whole after years of being underpaid. Looking at successful exits (the ones you hear about) as your indicator of the market state is lopsided and inaccurate. I have one friend who did well in an exit. I have countless other friends who have been in and out of startups that either fail, get rolled into another company with little/no cash landing in their pockets, or get acquired for a pittance. You are looking at the Michael Jordans and Kobe Bryants and deciding that everyone can win big in basketball.
    - tempsy 6y ago
      I have a very different experience. And so do many of my friends. Again there’s always winners and losers. I didn’t say everyone is a winner. But the odds are no where near “random lottery odds” especially if you aren’t just randomly picking a company to work for and have a clue why the company could be successful.
      - edmundsauto 6y ago
        So you feel like your circle of friends is good at picking which startups will have a financially successful exit? If true, you should be a VC and not a lowly tech worker ;)
bumby 6y ago
When does the rate of IPOs become a bubble? I’ve heard talk in other sectors it’s when they trend to roll over immediately after release.
- tempsy 6y ago
  When the Fed stops printing money and raises rates which they literally cannot do for years.
  - bumby 6y ago
    The implication being there is no alternative to preserve capital so people will continue to pump up the IPOs and other stocks?
  - lumost 6y ago
    At this point the fed seems trapped, maybe even permanently so - in 5 years asset prices will have been driven multiples higher on fed money and 0% interest. It would take a gargantuan amount of political will get the base rate back to even 3% - bringing down asset prices and corporate/institutional/individual borrowers with them.
TuringNYC 6y ago
I'm not sure I agree. How many tech IPOs have there been this year? 20 or 30? Of those 20 or 30 companies, how many of their peers at founding (~2010-2013) have survived? If I take knowledge of 2020, go back in time, and take a job, it seems like a great deal. If I'm back in 2010 or 2011, and take only knowledge of the world at that time, would I have chosen AirBNB? I'm not sure. Even if I did, what are the odds I could/would stick around long enough to make it to the IPO -- or was willing to exercise illiquid stock at departure with years to go before the stock can be sold? To make it fair, one should of course also consider companies which did not IPO but had good acquisitions. I'm not sure what that number is, 300? 3000? Still, across a field of 20,000 or more startups it is unclear how I'd get to this smaller set. I think there are def things that can increase the odds, but I dont think it is fair to look backwards using 2020 knowledge.
- deleted 6y ago
  [deleted]
- stouset 6y ago
  Worse, you’re penalized the longer you stay at a company pre-IPO if you ever want to leave. If you do decide to exercise your shares, you not only have to pay the cost of exercise, but you also have to pay taxes on the difference in strike price and presumed current market value. Despite there being no actual market, the high possibility that there will never be a market, and that “current value” may reflect extremely favorable investment terms not available on the open market. If your strike price is $1/share, you have 100,000 shares, and the last funding round closed at $20/share, you have to pay $100,000 to exercise and pay taxes on $2,000,000 that you’re still highly likely to never actually have the opportunity to turn into real dollars through a stock sale. The longer you stick around, the more you’re incentivized to stay waiting around for a liquidity event at a job you’ve outgrown and potentially hate at this point. While the company itself has incentives to delay IPO as long as possible, knowing full well that they’ll lose a sizable amount of their burnt-out senior talent within months of going public.
- BostonEnginerd 6y ago
  Add to this the possibility of a "reverse stock split". My friend's old company wiped him and many of his colleagues out just prior to being acquired by Google. https://blocksandfiles.com/2020/10/12/actifio-reverse-stock-split-employees-hit/ https://blocksandfiles.com/2020/10/12/actifio-reverse-stock-...
tyre 6y ago
Oh boy. This is exactly how lotteries work too. “People keep saying that lotteries are ‘a tax on people who can’t do math’, but if you pay attention there are lottery winners every day. There’s no better time to play the lottery!” Look at venture capital, since they’re the ones that invest in every one of these VC-backed funds. Most funds don’t make money and of those that do, exceedingly few beat the S&P 500. The examples you’re giving are a tiny sliver of startups and at this point are not startups.
jt2190 6y ago
Unlike an actual lottery ticket, the theory was that there was incentive to help the company succeed in the stock options: From Steve Blank's article: > Startup employees calculated that a) their hard work could change the odds [of their options being valuable] and b) someday the stock options they were vesting might make them into millionaires. So while from an odds perspective, today's ISOs are still (perhaps) better investments than state-run lottery tickets, from an employer/employee perspective the alignment of interests is no longer there. And (as you've noted down-thread) this is resulting in employees asking for much higher salaries that essentially match what they're being offered by already public companies. In addition, employees may be more focused on the success of their careers and less on the success of their employer.
- taway1871 6y ago
  Posting anon for obvious reasons. There is no alignment of interest for most employees with stock options, and anyone that things so is being naive or foolish. Firstly, you have no idea what the cap table looks like as an employee, so it isnt clear whether you alignment is equivalent to a grain of salt or a car or a private island. And if it werent a grain of salt, the company would be eager to tell you. Next, founders often get partial cashouts, so their goals are different from yours. They already got their nice house in palo alto, their nice car, and a kids's college fund. Now they are swinging bats for a grand slam. You are the ball they are hitting -- most likely they strike out. You lose, they still win, just not as big. Next, VC-installed management, friends of the board, and other insiders are already cashing out while you "wait for the big IPO." The insiders are getting nice cash bonuses. They are on incentive plans where they get $1/2 Million or more for hitting targets. Or they are 20somethings who are mysteriously senior directors or VPs earning cushy 400k salaries. You arent. Instead, you are taking your "startup salary", a big discount over big company stock. You're working just as hard. Each year you give up big perks and big pay at big companies you could be working at. If you cant take it anymore, you lose, because you have to exercise illiquid stock and pay tax with real money. If you get bullied or have been sexually harrassed and are desperate to find another job, you still lose -- , because you have to exercise illiquid stock and pay tax with real money. Except there are a line of suckers, often out of college, willing to take this bet. So the music plays on.
lostdog 6y ago
> If there was a time to have options at a growing, revenue generating startup it’s today. AirBnB, DoorDash, etc. have been giving RSU's, not options, for years. RSU's are still worthless without an exit, but stock options have the major problem that you can wind up with negative value, or even extremely negative value. RSU's at least have a floor of zero.
- dilyevsky 6y ago
  That’s only if you exercise before stock is liquid (pre-ipo). Nowadays it’s more common to have long exercise windows that avoid this problem
  - edoceo 6y ago
    That window would need to be many years. I've never seen longer than 18 months - and that option is only for "blessed" employees
    - dilyevsky 6y ago
      It’s becoming more common to grant 7-10 year window after certain tenure (like two years) at least among yc companies. I’ve also seen window extended per year of tenure
  - taway1871 6y ago
    Unless you have to leave because 1. You cant afford to be on a "startup salary" anymore 2. Any number of reasons 3. You are being bullied 4. You are being sexually harrassed Regardless why, if you leave, you are forced to exercise in 3mo. Then, if you take the deal, you usually end up with negative value.
    - dilyevsky 6y ago
      Should probably read the post in full before replying
6gvONxR4sf7o 6y ago
Even now, maybe not. Does anyone know whether most of these companies ever did share buybacks for the rank and file employees? If not, then imagine the scenario where you left somewhere between 2015 and 2019 and had 30(?) days to exercise ISOs. You might have to put in a ton of money and even more for the tax bill. Maybe more than you can afford. I’d love to know whether this is a common story or a rare one, but I doubt that data exists publicly.
- forkerenok 6y ago
  > Maybe more than you can afford. Nowadays there are non-recourse loans available on the market for that (covering both exercise costs and taxes). Not for all startups though and mostly late stage ones.
- hamburglar 6y ago
  I had a company offer to arrange a purchase of some of my (non-public) stock as I was leaving. They knew of an investor that wanted to own more shares and brokered a price that was well above the most recent 409a, so I was able to exercise everything and sell off exactly enough to cover the tax consequences of my "gain." Not only did it let me exercise options to get stock without having to come up with a bunch of cash, but it gave me more confidence that I actually wanted the stock. Very cool move on the company's part, in my opinion. I have no idea how common this is.

dan-robertson 6y ago

See also, Options v. Cash: https://danluu.com/startup-options/ https://danluu.com/startup-options/