4 ms·

The other point here is that it's taking ~10 years to go from a company being started to going public. So most employees are going to have to make the decision

The other point here is that it's taking ~10 years to go from a company being started to going public. So most employees are going to have to make the decision to either cough up thousands to exercise their illiquid options and pay taxes on them or just have them expire worthless. At this point, joining as a seed-round or series A employee seems like a sucker's bet if you're expecting equity to be worth anything.

kevinmchugh 6y ago
Only if you think the exit must be an IPO. Acquisitions and mergers can happen a lot earlier than that. Though those don't always pay out, of course
- tkay2617 6y ago
  I think the catch with acquisitions is that founders and investors have liquidation preferences.
PragmaticPulp 6y ago
IPOs are rare. Most exits come in the form of private acquisitions. You don’t hear about the latter group in the news because they’re usually much smaller companies. Many IPO-track companies are growing fast and attracting serious investment, so they pay engineers top dollar. They want to maximize chances of getting to IPO so they don’t benefit from cutting corners on a few engineers. If you have The opportunity to join an actual IPO-track company then go for it. The catch is that many startups will claim to be headed for IPO, so you have to look at actual growth and TAM and make your own judgments.
rmk 6y ago
There are plenty of situations where there are down rounds or rounds where earlier investors are completely wiped out or diluted out of existence. In these cases, the early employees get screwed big-time. Even in the optimistic case of an exit, whether it be an acquisition or IPO, the risk incurred by the employees is way too high because of the lengthening of time towards the exit event. The lucky ones can get non-recourse loans and cash out with something to show for their efforts, but the overwhelming majority can't, and end up having to shell out real money for what are essentially rolls of the dice or losing that equity altogether. It's interesting that if a person has vested stock with nominal value of $100 and exercise price of $5, he can't use that stock in lieu of the $5! i.e., he can't walk away with $95 worth of his grant. I wonder if there are IRS regulations that bar this type of arrangement.

kevinmchugh 6y ago

Only if you think the exit must be an IPO. Acquisitions and mergers can happen a lot earlier than that. Though those don't always pay out, of course

tkay2617 6y ago
I think the catch with acquisitions is that founders and investors have liquidation preferences.

PragmaticPulp 6y ago

IPOs are rare. Most exits come in the form of private acquisitions. You don’t hear about the latter group in the news because they’re usually much smaller companies. Many IPO-track companies are growing fast and attracting serious investment, so they pay engineers top dollar. They want to maximize chances of getting to IPO so they don’t benefit from cutting corners on a few engineers. If you have The opportunity to join an actual IPO-track company then go for it. The catch is that many startups will claim to be headed for IPO, so you have to look at actual growth and TAM and make your own judgments.

rmk 6y ago

There are plenty of situations where there are down rounds or rounds where earlier investors are completely wiped out or diluted out of existence. In these cases, the early employees get screwed big-time. Even in the optimistic case of an exit, whether it be an acquisition or IPO, the risk incurred by the employees is way too high because of the lengthening of time towards the exit event. The lucky ones can get non-recourse loans and cash out with something to show for their efforts, but the overwhelming majority can't, and end up having to shell out real money for what are essentially rolls of the dice or losing that equity altogether. It's interesting that if a person has vested stock with nominal value of $100 and exercise price of $5, he can't use that stock in lieu of the $5! i.e., he can't walk away with $95 worth of his grant. I wonder if there are IRS regulations that bar this type of arrangement.