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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 consideri

by 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.

fossuser 6y ago
There is no tax on exercise unless there’s a spread. Companies are taking longer to IPO, that doesn’t make them a bad bet but the time horizon is longer because of all the private money available (in part from people making money via equity). FB started in 2003 and went public in 2012. You could have joined in 2010 and your equity today would be in the seven figures. I’d bet on stripe being similar (though I don’t know the specifics of their offer letters). I think Robinhood is a good bet too. For a smaller, less known company - I’d pick cloud kitchens. > “ Sure, it's the quickest way to get real wealth if you get very lucky. For most people it's a losing proposition.” People on HN can keep repeating this to feel better about themselves, but those that ignore it are the ones that’ll make seven figure (or higher) returns. Edit: SpaceX (Starlink) are other bets I’d be happy to make.
- whakim 6y ago
  Why wouldn't there be a spread? You're an early employee at a company; by the time you choose to exercise, the company is presumably valued at a significantly greater amount than when you joined? > FB started in 2003 and went public in 2012. You could have joined in 2010 and your equity today would be in the seven figures. Feel free to prove me wrong, but I have my doubts that you would receive anywhere near enough stock as a regular employee that late in the day to make it worth millions of dollars after IPO. Same with Stripe. (Note that appreciation in the value of Facebook stock between 2012 and 2020 doesn't matter at all. Anyone could have bought Facebook stock in 2012 and seen those gains).
  - fossuser 6y ago
    Well if there is a spread then you have some other options (second market, third party exercise) and you already have some return. If it's valued at significantly greater than when you joined you're in a decent position. > "Note that appreciation in the value of Facebook stock between 2012 and 2020 doesn't matter at all. Anyone could have bought Facebook stock in 2012 and seen those gains" This isn't really true - FB is kind of an exception since it went down after IPO, but in the general case regular investors don't usually have the ability to get in at the initial price. Also later in a company's life employees are more likely to be granted RSUs instead of options. Holding RSUs is different than dumping in money on IPO day as an outsider (even exercising options gives you some buffer that makes it lower risk). I don't know what FB's 409a was in 2010, but I've had friends at FB, Snap, AirBnB, Slack, Palantir, Tesla all do extremely well from their pre-IPO equity and none (except for Snap) were super early employees. Yes there's risk in exercising options, you can mitigate that by choosing well. It's worth taking it seriously when evaluating comp. I'd also argue the opportunity cost/downside risk here is not so bad either. Salaries at modern VC startups are pretty good anyway. You can make the bet and just work at your preferred megacorp if it doesn't work out. Also - I appreciate the back and forth, the reason I push a little on this issue on HN is because I think it misleads new grads who read these comments into thinking they shouldn't value equity, I think the answer is more nuanced.
    - whakim 6y ago
      No worries, and I appreciate the back and forth as well. To be clear, I don't think that options have no value. I think that at a mature company they definitely have some value and you need to consider that. I think that as an early employee they have nonzero value, but I don't think they have a lot of value (this is where you and I mainly differ, I assume). > Well if there is a spread then you have some other options (second market, third party exercise) and you already have some return. If it's valued at significantly greater than when you joined you're in a decent position. IME this is true at more established private companies but not at most startups. I don't think it would be that easy at Stripe in 2012 or 2013, for instance. > Yes there's risk in exercising options, you can mitigate that by choosing well. It's worth taking it seriously when evaluating comp. With all due respect, I think that you may be letting hindsight get in the way of how difficult it is to pick which companies are going to be successful in 8-12 years' time. I certainly couldn't pick the Stripe, Slack or Palantir of 2030. But if you can, you are much more insightful than I am - although I think that my (limited) level of discernment may be more representative of the average person making these decisions. > I'd also argue the opportunity cost/downside risk here is not so bad either. Salaries at modern VC startups are pretty good anyway. You can make the bet and just work at your preferred megacorp if it doesn't work out. They're not bad, but you can easily pocket an additional $100k+/yr working at a big company, that money adds up when you invest it, and that money is guaranteed. (There are plenty of non-financial reasons to work at the startup, though, obviously.)

by whakim 6y ago

fossuser 6y ago

There is no tax on exercise unless there’s a spread. Companies are taking longer to IPO, that doesn’t make them a bad bet but the time horizon is longer because of all the private money available (in part from people making money via equity). FB started in 2003 and went public in 2012. You could have joined in 2010 and your equity today would be in the seven figures. I’d bet on stripe being similar (though I don’t know the specifics of their offer letters). I think Robinhood is a good bet too. For a smaller, less known company - I’d pick cloud kitchens. > “ Sure, it's the quickest way to get real wealth if you get very lucky. For most people it's a losing proposition.” People on HN can keep repeating this to feel better about themselves, but those that ignore it are the ones that’ll make seven figure (or higher) returns. Edit: SpaceX (Starlink) are other bets I’d be happy to make.

whakim 6y ago
Why wouldn't there be a spread? You're an early employee at a company; by the time you choose to exercise, the company is presumably valued at a significantly greater amount than when you joined? > FB started in 2003 and went public in 2012. You could have joined in 2010 and your equity today would be in the seven figures. Feel free to prove me wrong, but I have my doubts that you would receive anywhere near enough stock as a regular employee that late in the day to make it worth millions of dollars after IPO. Same with Stripe. (Note that appreciation in the value of Facebook stock between 2012 and 2020 doesn't matter at all. Anyone could have bought Facebook stock in 2012 and seen those gains).
- fossuser 6y ago
  Well if there is a spread then you have some other options (second market, third party exercise) and you already have some return. If it's valued at significantly greater than when you joined you're in a decent position. > "Note that appreciation in the value of Facebook stock between 2012 and 2020 doesn't matter at all. Anyone could have bought Facebook stock in 2012 and seen those gains" This isn't really true - FB is kind of an exception since it went down after IPO, but in the general case regular investors don't usually have the ability to get in at the initial price. Also later in a company's life employees are more likely to be granted RSUs instead of options. Holding RSUs is different than dumping in money on IPO day as an outsider (even exercising options gives you some buffer that makes it lower risk). I don't know what FB's 409a was in 2010, but I've had friends at FB, Snap, AirBnB, Slack, Palantir, Tesla all do extremely well from their pre-IPO equity and none (except for Snap) were super early employees. Yes there's risk in exercising options, you can mitigate that by choosing well. It's worth taking it seriously when evaluating comp. I'd also argue the opportunity cost/downside risk here is not so bad either. Salaries at modern VC startups are pretty good anyway. You can make the bet and just work at your preferred megacorp if it doesn't work out. Also - I appreciate the back and forth, the reason I push a little on this issue on HN is because I think it misleads new grads who read these comments into thinking they shouldn't value equity, I think the answer is more nuanced.
  - whakim 6y ago
    No worries, and I appreciate the back and forth as well. To be clear, I don't think that options have no value. I think that at a mature company they definitely have some value and you need to consider that. I think that as an early employee they have nonzero value, but I don't think they have a lot of value (this is where you and I mainly differ, I assume). > Well if there is a spread then you have some other options (second market, third party exercise) and you already have some return. If it's valued at significantly greater than when you joined you're in a decent position. IME this is true at more established private companies but not at most startups. I don't think it would be that easy at Stripe in 2012 or 2013, for instance. > Yes there's risk in exercising options, you can mitigate that by choosing well. It's worth taking it seriously when evaluating comp. With all due respect, I think that you may be letting hindsight get in the way of how difficult it is to pick which companies are going to be successful in 8-12 years' time. I certainly couldn't pick the Stripe, Slack or Palantir of 2030. But if you can, you are much more insightful than I am - although I think that my (limited) level of discernment may be more representative of the average person making these decisions. > I'd also argue the opportunity cost/downside risk here is not so bad either. Salaries at modern VC startups are pretty good anyway. You can make the bet and just work at your preferred megacorp if it doesn't work out. They're not bad, but you can easily pocket an additional $100k+/yr working at a big company, that money adds up when you invest it, and that money is guaranteed. (There are plenty of non-financial reasons to work at the startup, though, obviously.)