4 ms·

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 g

by 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

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.)