6 ms·

That's normal and is why I count startup stock and options as $0. Some recent threads: https://news.ycombinator.com/item?id=25487130 https://news.ycombinator.

That's normal and is why I count startup stock and options as $0. Some recent threads: https://news.ycombinator.com/item?id=25487130 https://news.ycombinator.com/item?id=25487130 https://news.ycombinator.com/item?id=25496166 https://news.ycombinator.com/item?id=25496166 https://news.ycombinator.com/item?id=25493646 https://news.ycombinator.com/item?id=25493646 https://news.ycombinator.com/item?id=25469435 https://news.ycombinator.com/item?id=25469435

totalZero 6y ago
So....what's the point of employee stock?
- projectileboy 6y ago
  In virtually every instance, the point of employee stock is for you to get played by founders to work longer hours at sub-standard compensation. In most cases the founders are cool with this because they’re sociopaths.
  - hodgesrm 6y ago
    This is unduly cynical. Many founders are happy to share the joy.
    - madamelic 6y ago
      Generally I think these scenarios happen because the founders get backed into a corner and forced to exit with a sub-optimal deal: Founders don't _want_ to screw over employees, but at the end of the day, they have a duty to their investors too and if the company is failing, the best thing can do is recoup something out of it.
      - hodgesrm 6y ago
        Outcomes for employees are based on decisions well before the exit. I suspect some founders just never really get around to the up-front tasks that are necessary to take care of employees. It takes significant effort to put together an employee option plan. You also have to go to the mat for employee equity in funding negotiations, for example to top up early employees. It's easy to slight these in favor of tasks that contribute more directly to company success.
- ForHackernews 6y ago
  To incentivize employees to work harder and/or for lower salary.
- austhrow743 6y ago
  Better value for money in compensation packages. Prospective employees value the stock compared to cash more than the company does, ergo the company gives it to them. Theoretically the idea is that if the company becomes a unicorn and has a huge IPO and becomes a new tech giant then employees will do really well financially. OP's story isn't that. If investors got "some" money back then it was a failure of business. Probably an acquihire. So neither investors or employees got the big success payout they were hoping for because it wasn't a big success. Investors got some money back and employees got paid a salary for however many years to work on what is probably a useless product.
- rmk 6y ago
  It's a tool to reduce cash expense on compensation. Many startups offer at or below market compensation, and attempt to make up the difference by granting stock options and RSUs. More often than not, it's a sucker's deal: the person who's taking real risk, including the possibility of losing all income and health coverage, perhaps jeopardizing mortgages and such in the process, is not getting a commensurate reward for that risk. It's never a good idea to take a pay cut (salary-wise) to work at a startup. Moneywise, it makes even less sense to leave public company stock (esp. FAANG whose stock is growing at a healthy clip with much lower risk) and salary compensation to go work at an early stage startup (e.g., pre series-D, let's say).
  - unishark 6y ago
    > More often than not, it's a sucker's deal: the person who's taking real risk, including the possibility of losing all income and health coverage, perhaps jeopardizing mortgages and such in the process, is not getting a commensurate reward for that risk. It's a sucker's deal because point-zero-whatever percent of some nondescript startup is not likely to compensate for the lower wages and benefits relative to larger companies. And there certainly are jobs where you can trade lower pay for higher stability (i.e. govt). But no one in the US tech industry (big or small) ever claimed to be about lifetime employment in recent times (well maybe some crazy outlier firm somewhere does). Your long-term financial stability is your responsibility, not theirs. The tech giants will have their layoffs sooner or later too. And if you're going to cite FAANG salaries and recent stock performance, then to be fair you need to compare it (also utilizing hindsight) to the fastest-growing startups with the best stock performance.
    - indigochill 6y ago
      > And if you're going to cite FAANG salaries and recent stock performance, then to be fair you need to compare it (also utilizing hindsight) to the fastest-growing startups with the best stock performance. I'm not sure this is the case, since if you made an employment decision, say, 1 year ago (or whatever), FAANG was a known quantity back then, too. You wouldn't know this year's FAANG performance, but you could arrive at reasonable-ish expectations based on previous years' performance, whereas a startup that was just getting off the ground at the time would be a total unknown even if it managed to make everybody rich in this past year. As is common knowledge, though, the startups that make everyone rich (let's ignore the moderately successful ones for the moment because we're talking about taking reduced pay in the hope of future stock performance) are the unicorns, so statistically you should not be expecting that yours will (particularly if you're an employee who doesn't have the business-level decision-making power to significantly impact that probability).
- enra 6y ago
  The point is to share success and incentivize for success. Secondly, public companies can give compensation packages with high base salary and equity grants. These packages for engineers could be in the range $200k-500k and the equity piece is pretty much liquid. Startups cannot pay $500k but they can pay reasonable salary (50-90th percentile of the market) and equity options with a huge upside multiplier. Startups are a venture. Join them if you want to join a venture. Don't join a startup for if you want stability or predictable outcomes. In the past 12 months, there has been probably 20 tech ipos or more. These IPOs have been in the range of $5B to $100B. Each of these outcomes might net early and late employees anything from few hundreds of thousands to several millions or tens of millions. The very first employees (first 1-5 employees) might get ~1-2% of the company for their 4 year vesting. That diluted over multiple rounds over the years might still mean the ownership is at least 0.1-0.2% or more. Company hitting $100B market cap after listing means the employee’s position is now worth $100-200M. That’s amount of money you can never earn with salaries. You can only earn it by starting a company or joining a startup early on with a good equity package. Both cases it's rare to achieve that but it does happen. Probably each IPO you see has a few of those. The reality is that VC funded businesses need to be massively successful with maybe 10-1000x the returns to be considered a success and return something to the employees. It’s called an option, so it’s an option for employees to buy the shares with ~1/5 of the preferred share price where it was when you joined the company. Investors pay higher price for the preferred shares and one of the things they get is the liquidation preference, so they get their money back first. Good rounds and VCs do 1x liquidation preference. Bad rounds or bad VCs companies might force company to n-x liquidation preference. As a founder, you don't lose with the liquidation preferences like everyone else, so it's not in your or in the company interest to do them. This is also where the valuation comes in. A hot startup might raise a lot of money and have a high valuation early on but won’t be able to execute and scale to the level to meet the expected valuation. Now everything below and level of that valuation is considered a failure. Then if the company cannot keep executing, raise more money or just generally lose steam, they might have to sell the company to get something. Honorable founders and management would try to help to employees to keep their jobs or even see if there is way to give any of the proceeds. Exercising options is always risky since the startup outcomes are risky. You shouldn’t exercise with money can't afford to lose. Savy companies and savy employees join companies with extended exercises where employees can keep their options up to 10 years without exercising. This avoids the downside risk for employee but unfortunately doesn’t help with taxes. Exercising early can start the clock for long term capital gains and some cases QSBS (tax free treatment up to $10M). Summary: options are definitely worth it if you join the right company. When considering joining the company, think how an investor would. Would you believe in team and business and invest? Check their investors, are they reputable? Join companies with extended exercise windows, exercise early if you have the means and belief the company will succeed.
- deleted 6y ago
  [deleted]
uncledave 6y ago
This. The only guaranteed cash is cash in hand. A lot of companies offer it in lieu of salary which is an insane proposition to take. Last place I wasn’t confident of their market position so I negotiated a better salary instead of stock. On acquisition I would have made around 6 months salary which I’d earned 3x more than already with a better salary negotiation and invested it elsewhere. YMMV but “fuck you money” stock and options payments are not the norm on startups.
nthngtshr 6y ago
As someone who recently got a decent chunk of money after a liquidity event as an early employee of a mildly successful startup I find this to be bad, borderline dangerous advice. It makes me very sad that this is such a common view on this topic. Evaluate a startup equity offer as an investor would. Ask about the cap table (you don't need to know names, just numbers), ask about the company's financials. Ask about growth plans. Don't work there if they don't tell you these things. Do some market analysis. Try to understand the motivations of different agents in the game (founders, VCs, potential acquirers). Watch some YC videos — they have great resources on youtube for both founders and angel investors. Understand how stock options work, there're whole guides on this stuff nowadays. Exercise early if you have capital and conviction about the future of the company. This stuff is complicated, might seem daunting, and will take a lot of time to really understand / master. But do this early in your career and it will pay off many times over.
- twelve40 6y ago
  > Evaluate a startup equity offer as an investor would this is not possible to do. Nth+ employee is almost nothing like an investor: no leverage, almost never access to the same amount of information and very last in line to cash out due to liquidation preferences. Basically, you have roughly 1/100th of leverage and information a typical company investor does so it's almost always a leap of faith, maybe based on some proxy observations. Sharing the cap table with an employee is something I've never heard of, unless maybe you're employee number 1 or so.
  - nthngtshr 6y ago
    I don't think we're in disagreement. The game is rigged against you. You do have a lot less information. My point is more like, don't just give up and instead try to understand and learn the game, try to improve your chances. I see so many people (friends, acquaintances, coworkers) making poor decisions with these things simply because they don't learn about them, and that makes me sad. So many smart people who are able to build all these complex systems, but can't be bothered to learn about how stock options work. Employment game is rigged from the beginning against employees. Recruiters do this stuff every day, they're way better negotiators than you. They talk to each other, they know all the tricks. They know what other companies pay in similar circumstances. Finding a good job is tough and can be pretty depressing honestly, but the worst thing you can do is give up. Learn the system, find weaknesses. Find those gems where you do get an edge. Maybe try to get a job at a small startup where you will be that #1-10 employee. Maybe the founders will be just as inexperienced as you and so you'll be able to get all this information and get a better equity deal. RE Cap table, you're right that no company will straight up tell you exact names and numbers. And that's fine. But you absolutely have to get at least a few of them: * how many shares are outstanding * what's the current fair market value for the shares If they don't tell you these two things, you can't evaluate the equity offer. If they are more open, try to get some info about founding rounds & liquidation preferences. The smaller the company is the more willing they should be to share this information with you.
Trias11 6y ago
>> That's normal and is why I count startup stock and options as $0. This absolutely need to be conveyed to every present and future employee of startup. Unless you're founder or investor taking a risk - startup shares worth nothing. I think startup hiring managers using worthless options as a negotiating tactic should be prosecuted for securities fraud. Misleading employees is no less crime as misleading investors.

totalZero 6y ago

So....what's the point of employee stock?

projectileboy 6y ago
In virtually every instance, the point of employee stock is for you to get played by founders to work longer hours at sub-standard compensation. In most cases the founders are cool with this because they’re sociopaths.
- hodgesrm 6y ago
  This is unduly cynical. Many founders are happy to share the joy.
  - madamelic 6y ago
    Generally I think these scenarios happen because the founders get backed into a corner and forced to exit with a sub-optimal deal: Founders don't _want_ to screw over employees, but at the end of the day, they have a duty to their investors too and if the company is failing, the best thing can do is recoup something out of it.
    - hodgesrm 6y ago
      Outcomes for employees are based on decisions well before the exit. I suspect some founders just never really get around to the up-front tasks that are necessary to take care of employees. It takes significant effort to put together an employee option plan. You also have to go to the mat for employee equity in funding negotiations, for example to top up early employees. It's easy to slight these in favor of tasks that contribute more directly to company success.
ForHackernews 6y ago
To incentivize employees to work harder and/or for lower salary.
austhrow743 6y ago
Better value for money in compensation packages. Prospective employees value the stock compared to cash more than the company does, ergo the company gives it to them. Theoretically the idea is that if the company becomes a unicorn and has a huge IPO and becomes a new tech giant then employees will do really well financially. OP's story isn't that. If investors got "some" money back then it was a failure of business. Probably an acquihire. So neither investors or employees got the big success payout they were hoping for because it wasn't a big success. Investors got some money back and employees got paid a salary for however many years to work on what is probably a useless product.
rmk 6y ago
It's a tool to reduce cash expense on compensation. Many startups offer at or below market compensation, and attempt to make up the difference by granting stock options and RSUs. More often than not, it's a sucker's deal: the person who's taking real risk, including the possibility of losing all income and health coverage, perhaps jeopardizing mortgages and such in the process, is not getting a commensurate reward for that risk. It's never a good idea to take a pay cut (salary-wise) to work at a startup. Moneywise, it makes even less sense to leave public company stock (esp. FAANG whose stock is growing at a healthy clip with much lower risk) and salary compensation to go work at an early stage startup (e.g., pre series-D, let's say).
- unishark 6y ago
  > More often than not, it's a sucker's deal: the person who's taking real risk, including the possibility of losing all income and health coverage, perhaps jeopardizing mortgages and such in the process, is not getting a commensurate reward for that risk. It's a sucker's deal because point-zero-whatever percent of some nondescript startup is not likely to compensate for the lower wages and benefits relative to larger companies. And there certainly are jobs where you can trade lower pay for higher stability (i.e. govt). But no one in the US tech industry (big or small) ever claimed to be about lifetime employment in recent times (well maybe some crazy outlier firm somewhere does). Your long-term financial stability is your responsibility, not theirs. The tech giants will have their layoffs sooner or later too. And if you're going to cite FAANG salaries and recent stock performance, then to be fair you need to compare it (also utilizing hindsight) to the fastest-growing startups with the best stock performance.
  - indigochill 6y ago
    > And if you're going to cite FAANG salaries and recent stock performance, then to be fair you need to compare it (also utilizing hindsight) to the fastest-growing startups with the best stock performance. I'm not sure this is the case, since if you made an employment decision, say, 1 year ago (or whatever), FAANG was a known quantity back then, too. You wouldn't know this year's FAANG performance, but you could arrive at reasonable-ish expectations based on previous years' performance, whereas a startup that was just getting off the ground at the time would be a total unknown even if it managed to make everybody rich in this past year. As is common knowledge, though, the startups that make everyone rich (let's ignore the moderately successful ones for the moment because we're talking about taking reduced pay in the hope of future stock performance) are the unicorns, so statistically you should not be expecting that yours will (particularly if you're an employee who doesn't have the business-level decision-making power to significantly impact that probability).
enra 6y ago
The point is to share success and incentivize for success. Secondly, public companies can give compensation packages with high base salary and equity grants. These packages for engineers could be in the range $200k-500k and the equity piece is pretty much liquid. Startups cannot pay $500k but they can pay reasonable salary (50-90th percentile of the market) and equity options with a huge upside multiplier. Startups are a venture. Join them if you want to join a venture. Don't join a startup for if you want stability or predictable outcomes. In the past 12 months, there has been probably 20 tech ipos or more. These IPOs have been in the range of $5B to $100B. Each of these outcomes might net early and late employees anything from few hundreds of thousands to several millions or tens of millions. The very first employees (first 1-5 employees) might get ~1-2% of the company for their 4 year vesting. That diluted over multiple rounds over the years might still mean the ownership is at least 0.1-0.2% or more. Company hitting $100B market cap after listing means the employee’s position is now worth $100-200M. That’s amount of money you can never earn with salaries. You can only earn it by starting a company or joining a startup early on with a good equity package. Both cases it's rare to achieve that but it does happen. Probably each IPO you see has a few of those. The reality is that VC funded businesses need to be massively successful with maybe 10-1000x the returns to be considered a success and return something to the employees. It’s called an option, so it’s an option for employees to buy the shares with ~1/5 of the preferred share price where it was when you joined the company. Investors pay higher price for the preferred shares and one of the things they get is the liquidation preference, so they get their money back first. Good rounds and VCs do 1x liquidation preference. Bad rounds or bad VCs companies might force company to n-x liquidation preference. As a founder, you don't lose with the liquidation preferences like everyone else, so it's not in your or in the company interest to do them. This is also where the valuation comes in. A hot startup might raise a lot of money and have a high valuation early on but won’t be able to execute and scale to the level to meet the expected valuation. Now everything below and level of that valuation is considered a failure. Then if the company cannot keep executing, raise more money or just generally lose steam, they might have to sell the company to get something. Honorable founders and management would try to help to employees to keep their jobs or even see if there is way to give any of the proceeds. Exercising options is always risky since the startup outcomes are risky. You shouldn’t exercise with money can't afford to lose. Savy companies and savy employees join companies with extended exercises where employees can keep their options up to 10 years without exercising. This avoids the downside risk for employee but unfortunately doesn’t help with taxes. Exercising early can start the clock for long term capital gains and some cases QSBS (tax free treatment up to $10M). Summary: options are definitely worth it if you join the right company. When considering joining the company, think how an investor would. Would you believe in team and business and invest? Check their investors, are they reputable? Join companies with extended exercise windows, exercise early if you have the means and belief the company will succeed.
deleted 6y ago
[deleted]

uncledave 6y ago

This. The only guaranteed cash is cash in hand. A lot of companies offer it in lieu of salary which is an insane proposition to take. Last place I wasn’t confident of their market position so I negotiated a better salary instead of stock. On acquisition I would have made around 6 months salary which I’d earned 3x more than already with a better salary negotiation and invested it elsewhere. YMMV but “fuck you money” stock and options payments are not the norm on startups.

nthngtshr 6y ago

As someone who recently got a decent chunk of money after a liquidity event as an early employee of a mildly successful startup I find this to be bad, borderline dangerous advice. It makes me very sad that this is such a common view on this topic. Evaluate a startup equity offer as an investor would. Ask about the cap table (you don't need to know names, just numbers), ask about the company's financials. Ask about growth plans. Don't work there if they don't tell you these things. Do some market analysis. Try to understand the motivations of different agents in the game (founders, VCs, potential acquirers). Watch some YC videos — they have great resources on youtube for both founders and angel investors. Understand how stock options work, there're whole guides on this stuff nowadays. Exercise early if you have capital and conviction about the future of the company. This stuff is complicated, might seem daunting, and will take a lot of time to really understand / master. But do this early in your career and it will pay off many times over.

twelve40 6y ago
> Evaluate a startup equity offer as an investor would this is not possible to do. Nth+ employee is almost nothing like an investor: no leverage, almost never access to the same amount of information and very last in line to cash out due to liquidation preferences. Basically, you have roughly 1/100th of leverage and information a typical company investor does so it's almost always a leap of faith, maybe based on some proxy observations. Sharing the cap table with an employee is something I've never heard of, unless maybe you're employee number 1 or so.
- nthngtshr 6y ago
  I don't think we're in disagreement. The game is rigged against you. You do have a lot less information. My point is more like, don't just give up and instead try to understand and learn the game, try to improve your chances. I see so many people (friends, acquaintances, coworkers) making poor decisions with these things simply because they don't learn about them, and that makes me sad. So many smart people who are able to build all these complex systems, but can't be bothered to learn about how stock options work. Employment game is rigged from the beginning against employees. Recruiters do this stuff every day, they're way better negotiators than you. They talk to each other, they know all the tricks. They know what other companies pay in similar circumstances. Finding a good job is tough and can be pretty depressing honestly, but the worst thing you can do is give up. Learn the system, find weaknesses. Find those gems where you do get an edge. Maybe try to get a job at a small startup where you will be that #1-10 employee. Maybe the founders will be just as inexperienced as you and so you'll be able to get all this information and get a better equity deal. RE Cap table, you're right that no company will straight up tell you exact names and numbers. And that's fine. But you absolutely have to get at least a few of them: * how many shares are outstanding * what's the current fair market value for the shares If they don't tell you these two things, you can't evaluate the equity offer. If they are more open, try to get some info about founding rounds & liquidation preferences. The smaller the company is the more willing they should be to share this information with you.

Trias11 6y ago

>> That's normal and is why I count startup stock and options as $0. This absolutely need to be conveyed to every present and future employee of startup. Unless you're founder or investor taking a risk - startup shares worth nothing. I think startup hiring managers using worthless options as a negotiating tactic should be prosecuted for securities fraud. Misleading employees is no less crime as misleading investors.