5 ms·
Ex-YC startup employee: Most of my equity was in the form of refreshers
- seattle_spring 5y agoWow that really sucks. It's insane how heavily stacked equity comp is against the rank and file, even if a non-trivial amount of them come out the other end a millionaire.
- qeternity 5y agoIt’s not radically better for founders, who often have larger opportunity cost than rank and file. This is just the harsh reality of venture backed startups.
- dmitrygr 5y agoFounders get stock, not options. They cannot end up underwater by definition
- laurencerowe 5y agoEspecially given that the opportunity cost of working for a startup (50%+ of liquid comp) is around million dollars after 4 or 5 years for a senior engineer.
- s1artibartfast 5y agoIS this in general, or situational? Not every every startup employee has FAANG as an alternative.
- laurencerowe 5y agoIt's situational to a point, but it's far from just FAANG companies paying that kind of money. Looking around on levels.fyi $350-$400k / year seems pretty standard for senior engineers at post-IPO companies in the Bay Area.
- 1cvmask 5y agoMoral of the story is that we overestimate good outcomes and underestimate bad outcomes. If people believed this then all rational folk (and by definition risk averse) would steer clear of startups. Maybe that's why startup folks are crazy and have a higher chance of winning the lottery.
- cyanydeez 5y agoIt's indistinguishable from gambling. A billion failed tickets never match a single winning story. But what's worse, like casinos, the whole system can be tuned to feel like "we are so close to winning". Slot machines are designed to make it look like you are "so close" to winning Do we really think the dark patterns employed by social networks are confined to the UI
- s1artibartfast 5y agoI wonder if the deal could have been restructured to avoid this situation. For example, the 3rd party does not loan the the funds to exercise, but directly pays the cost. The 3rd party would then own the stock, but pay the engineer a cut if they are in the money
- junar 5y ago> For example, the 3rd party does not loan the the funds to exercise, but directly pays the cost. That wouldn't work. "Paying the cost" would immediately result in taxable income to the employee, instead of realizing the income a few years down the line when the debt is canceled. There's no free lunch here. The 3rd party lost money too, because they couldn't collect the debt. If the 3rd party wanted to fully protect the employee, they could have sent an additional payment to cover the taxes. But that just means the 3rd party suffers a greater loss.
- s1artibartfast 5y ago>That wouldn't work. "Paying the cost" would immediately result in taxable income to the employee not to be combative, but why? I'm not talking about a free lunch. The options owner sells/trades the options for a future profit share. They don't make any income in this transaction (or receive any loan). The 3rd party holds the shares from the exercised options. If they sell the shares for a profit, both the 3rd and engineer see income and pay taxes at this time. If the shares are a loss, 3rd party has a loss and engineer sees nothing. Edit... Alternatively, the 3rd party and engineer make an s-corp and the 3rd party provides capital. S-corp loans the engineer cash and engineer sells shares to the S-corp. If the the shares sell below cost, the losses pass though to the engineer they can deduct the losses against the loan forgiveness
- junar 5y agoThe employee needed more cash to 1) exercise the options, and 2) pay the taxes on the income from the discount of the option. They weren't able to exercise at all without this extra money, so they necessarily need either immediate income or a loan. Also, private companies typically restrict an employee from transferring their stock. That's why employees are stuck waiting on an IPO, acquisition, etc. in the first place.
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