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> If you leave the company, your options will expire if you don’t exercise them. Let me repeat that: if you leave the company, your options will expire if you d

> If you leave the company, your options will expire if you don’t exercise them. Let me repeat that: if you leave the company, your options will expire if you don’t exercise them. The exact timeline of how quickly they expire depends on option type and company policy, but the termination window is commonly as short as 90 days. So, exercising your options enables you to actually own what you helped build. This is why I choose to not work for companies that do not have extended exercise windows -- and IMO neither should you. [1]: https://blog.samaltman.com/employee-equity#:~:text=2)%20Most%20employees,employee%20gets%20terminated https://blog.samaltman.com/employee-equity#:~:text=2)%20Most.... [2]: https://github.com/holman/extended-exercise-windows https://github.com/holman/extended-exercise-windows

lumost 4y ago
I only had options at one firm which was Series D and had ~300 employees. The company issued them at a price which was rich, then steadily issued new options at lower price points. The management made it a practice to have periodic calls which would talk about how they were 12-18 months away from IPO and the price target was going to be ~5x the rich price. Then there would be talks where engineering management would pitch fantasies about how stock pricing worked for IPOs. Meanwhile growth had stalled, and competition was getting stronger. I left all my options un-purchased. 6 years later when they had a Private Equity buyout I probably would have made somewhere between a -50% and 2x return (depending on liquidation preferences, subsequent issuance, and debt). At best.. I would have had an non-liquid 12% rate of return, losing out to the S&P500 over the last 6 years.
- dijonman2 4y ago
  Options are typically not profitable unless you win the lottery. I view them as a scam and RSUs are met with the same level of skepticism.
- sbierwagen 4y ago
  As you say when you mention liquidation preferences, I wouldn't be surprised if a PE buyout of a distressed company zeroed out employee equity.
  - lumost 4y ago
    Yeah, it’s tough to say. Company wasn’t distressed, but it “only” 2x’d over 8+ years. Pretty much a classic flat/no growth situation with modest profitability.
  - fatnoah 4y ago
    It wouldn't have to be a PE buyout for equity to be zeroed out. Any buyout could lead to this, even in a non-distressed company (as pointed out by another poster). Source: Me w/options in two startups that were acquired by public companies.
- ggm 4y ago
  long-term average is 6-7% in the big picture. 12% is good, even if it not S&P good.
  - lumost 4y ago
    Yes, however in a less aggressive tech market the return would have probably been 0. This was also the best case, the P/E buyout and subsequent funding injections may have diluted the value of those shares.
    - ggm 4y ago
      My point was to the people aiming for 100x or better gains. I didn't speak to the downside, you're correct of course: no specific vesting tends to the aggregate, and many are a long way adrift.
  - spookthesunset 4y ago
    Yes but remember to think in terms of expected value. Which is kind of the “average” value of all the different return values you might get. 12% is the high end, but what are the probabilities of smaller results? 12% might be the outlier and the expected value might be hovering around zero or less.
deleted 4y ago
[deleted]
enigmatic0202 4y ago
Yes, extended exercise window is preferable, but that also means the ISOs have to be converted into NSOs, which are less tax favorable assuming an exit happens. So while flexibility is nice, it's not a free gift either. What you can control though are: 1. Knowing your exercise cost in advance - sometimes you can negotiate for a bonus that can subsidize the cost 2. Getting a fair salary and equity cut based on the funding stage; even if you don't exercise all your equity, your package can at least be used in future negotiations: https://topstartups.io/startup-salary-equity-database/ https://topstartups.io/startup-salary-equity-database/ 3. Asking for the option to extend exercise windows if you choose, turning ISOs into NSOs
justin_oaks 4y ago
Any options a company offers me, I'll value at $0. That doesn't preclude my working for them if they have an otherwise compelling offer.
- d357r0y3r 4y ago
  All other things being held equal, a company choosing a longer exercise window says that they are employee-friendly in at least one respect. I know the conventional wisdom here is that options never matter, but the reality is that they sometimes do, especially for companies that are experiencing solid growth. I recently made several hundred thousand dollars off my options from a liquidity event, and I hadn't been at the company for a few years. It's a great perk, even if it doesn't end up amounting to anything.
  - ransom1538 4y ago
    Agreed. You would be surprised how much companies are worth on the market. Private liquidity events can cause whacky things outside the original conventional stock contracts. EG. "The acquiring company can also accelerate the vesting of options or awards, choosing to pay cash or shares, in exchange for the cancellation of outstanding grants". That can be serious cash for someone somewhat new to the company - eg 1 year in.
- bradlys 4y ago
  This is a bad take. If you truly value options at $0 then you’re often getting a garbage deal wherever you go. If you’re only negotiating over salary - you’re screwing yourself. Options is how you actually make money at startups. The salary is only enough to make sure you can afford to exercise your options regularly and not starve to death in an extremely HCOL area. If you value options at $0 - just join FAANG and never join a startup.
  - ptmcc 4y ago
    The vast, vast majority of startup options are worth less than toilet paper. To say nothing of the shenanigans like dilution and liquidation preferences that will screw you. They are lottery tickets at best. Yes, sure, someone sometimes wins big, but the odds are not in your favor.
bergenty 4y ago
Can someone explain to me why stock options are better than RSUs?
- caseysoftware 4y ago
  Generally, stock options are granted before the company is liquid (aka pre-IPO) and you pay $X with the hope that they're worth more and liquid someday. As you hit vesting dates, you can purchase more of them up to your total grant. (There's also stuff around early exercise, don't worry about that.) RSUs are just shares you don't own yet. When you hit your vesting dates, you don't have to DO anything, they just become yours. You don't have to pay anything to execute and often the company will sell some for you to pay the taxes on them. I wouldn't say one is definitively better.. there are tradeoffs: RSUs can be better because you don't have to spend money to get them and they're liquid immediately (or at least soon). Stock options can be better because your pre-IPO price may be better than the public price but you have no guarantee they'll ever be liquid.
- bpodgursky 4y ago
  - RSUs are taxable at vest, and if the shares aren't liquid, offloading enough of them to pay taxes is a huge headache (sometimes the company will help buy some back, but it's also a headache for a startup to do this, so they often don't) - Stock options are "cheaper" for a startup to give out than RSUs, so you get more shares, ie your equity is higher-leverage. So if things go well, you end up with much much more money than had you gotten RSUs (and yes obviously if things go terribly, you get nothing).
  - rrdharan 4y ago
    > Stock options are "cheaper" for a startup to give out than RSUs, so you get more shares, ie your equity is higher-leverage. So if things go well, you end up with much much more money than had you gotten RSUs (and yes obviously if things go terribly, you get nothing). Is this generally true? I’m not sure it applies for the typical engineer joining a larger company (a Databricks or Stripe, say) where you’re not really affecting the cap table all that much. Do companies really give out more options than RSUs? My one personal piece of anecdata here is when considering an offer from a startup (that I didn’t take), they offered during negotiations to change the mix of RSU+options into just all RSUs (same total number).
sunsunsunsun 4y ago
That first article sure is funny. 10% to the first 10 employees... my current employer gave me roughly 0.001% in stock options and I'm employee #5.
- 8note 4y ago
  That sounds like either they didn't need you or you made a poor choice? Or you were paid in cash instead?
  - brabel 4y ago
    Yeah, not OP that's my situation... they paid me way above market though :D so I am happy.
  - maerF0x0 4y ago
    or possibly it's an extremely capital intensive startup and sunsunsunsunsunsunsuns didnt put up any money.
- subroutine 4y ago
  Was that like 100 shares?
  - subroutine 4y ago
    Downvoted, but I'm genuinely curious. At that point (5 employees) the company probably had the standard 10 mil authorized stock. 10 mil * .001% = 100 shares
- dchftcs 4y ago
  If the company goes to a billion, you get 10000, and that's without dilution. Sounds like a really bad deal, unless you're already paid a lot of cash.
sbf501 4y ago
One step further: Options are just a way for companies to get out of paying you a salary. (I got them from Microsoft, and from Intel before they were offered to all employees.) Options = salary In other words: exercise them as SOON as they vest. I had two financial planners tell me that over 15 years (I fired the first one), and both were 100% correct in hindsight.
- bmitc 4y ago
  But how do you determine if (not when) you should exercise? I am trying to make this decision for a company I recently left. I don't know when they'll IPO. I know they wanted to, but the market is getting slammed, and they just announced layoffs. I don't have much confidence in the company, so I am having a hard time understanding the risk. I don't really even understand what happens if they don't ever IPO and I have purchased options.
  - sbf501 4y ago
    You are in a space I don't understand. (I don't even understand how/where you purchase options if it is not publicly traded and you are not an investor!) Sorry, that's a PhD-level question, I'm still at options 101. :(
    - bradstewart 4y ago
      The company itself issues you the options, usually as a form of compensation because you're an employee, etc. That option is a certificate that gives you the ability to purchase a share of the company at a specific price (the strike price). Usually when people say "buy their options" or "exercise their options", they are referring to buying the _stock_ that their options gave them the ability to purchase. So if I join a startup, they grant me 100 options with a strike price of $0.50, and I decide to exercise them, I would write the company a check for $50 and get 100 shares of the company in exchange.
  - bradstewart 4y ago
    It comes down to whether or not you think the company will have a successful liquidity event. If you think the company is going to shutdown, or sell at a lower valuation than your option's strike price, don't exercise them. Your shares will be worthless. If you think they'll succeed and IPO or get acquired at a higher price, buy them (factoring in any potential tax implications, like AMT). It is a risk.
xhrpost 4y ago
Tax benefits are still limited to 90 days. Personally I feel if the stock is really important to you, start saving into an "exercise fund" for yourself so that you're able to exercise when leaving rather than waiting for your next gig to start.
FatCat321 4y ago
What if you could evaluate a company in a way that you maximize your chances. So look at things like options expiration, founders. Kind of what VCs do. Maybe that's why you should assess the startup you want to work for.

lumost 4y ago

I only had options at one firm which was Series D and had ~300 employees. The company issued them at a price which was rich, then steadily issued new options at lower price points. The management made it a practice to have periodic calls which would talk about how they were 12-18 months away from IPO and the price target was going to be ~5x the rich price. Then there would be talks where engineering management would pitch fantasies about how stock pricing worked for IPOs. Meanwhile growth had stalled, and competition was getting stronger. I left all my options un-purchased. 6 years later when they had a Private Equity buyout I probably would have made somewhere between a -50% and 2x return (depending on liquidation preferences, subsequent issuance, and debt). At best.. I would have had an non-liquid 12% rate of return, losing out to the S&P500 over the last 6 years.

dijonman2 4y ago
Options are typically not profitable unless you win the lottery. I view them as a scam and RSUs are met with the same level of skepticism.
sbierwagen 4y ago
As you say when you mention liquidation preferences, I wouldn't be surprised if a PE buyout of a distressed company zeroed out employee equity.
- lumost 4y ago
  Yeah, it’s tough to say. Company wasn’t distressed, but it “only” 2x’d over 8+ years. Pretty much a classic flat/no growth situation with modest profitability.
- fatnoah 4y ago
  It wouldn't have to be a PE buyout for equity to be zeroed out. Any buyout could lead to this, even in a non-distressed company (as pointed out by another poster). Source: Me w/options in two startups that were acquired by public companies.
ggm 4y ago
long-term average is 6-7% in the big picture. 12% is good, even if it not S&P good.
- lumost 4y ago
  Yes, however in a less aggressive tech market the return would have probably been 0. This was also the best case, the P/E buyout and subsequent funding injections may have diluted the value of those shares.
  - ggm 4y ago
    My point was to the people aiming for 100x or better gains. I didn't speak to the downside, you're correct of course: no specific vesting tends to the aggregate, and many are a long way adrift.
- spookthesunset 4y ago
  Yes but remember to think in terms of expected value. Which is kind of the “average” value of all the different return values you might get. 12% is the high end, but what are the probabilities of smaller results? 12% might be the outlier and the expected value might be hovering around zero or less.

deleted 4y ago

[deleted]

enigmatic0202 4y ago

Yes, extended exercise window is preferable, but that also means the ISOs have to be converted into NSOs, which are less tax favorable assuming an exit happens. So while flexibility is nice, it's not a free gift either. What you can control though are: 1. Knowing your exercise cost in advance - sometimes you can negotiate for a bonus that can subsidize the cost 2. Getting a fair salary and equity cut based on the funding stage; even if you don't exercise all your equity, your package can at least be used in future negotiations: https://topstartups.io/startup-salary-equity-database/ https://topstartups.io/startup-salary-equity-database/ 3. Asking for the option to extend exercise windows if you choose, turning ISOs into NSOs

justin_oaks 4y ago

Any options a company offers me, I'll value at $0. That doesn't preclude my working for them if they have an otherwise compelling offer.

d357r0y3r 4y ago
All other things being held equal, a company choosing a longer exercise window says that they are employee-friendly in at least one respect. I know the conventional wisdom here is that options never matter, but the reality is that they sometimes do, especially for companies that are experiencing solid growth. I recently made several hundred thousand dollars off my options from a liquidity event, and I hadn't been at the company for a few years. It's a great perk, even if it doesn't end up amounting to anything.
- ransom1538 4y ago
  Agreed. You would be surprised how much companies are worth on the market. Private liquidity events can cause whacky things outside the original conventional stock contracts. EG. "The acquiring company can also accelerate the vesting of options or awards, choosing to pay cash or shares, in exchange for the cancellation of outstanding grants". That can be serious cash for someone somewhat new to the company - eg 1 year in.
bradlys 4y ago
This is a bad take. If you truly value options at $0 then you’re often getting a garbage deal wherever you go. If you’re only negotiating over salary - you’re screwing yourself. Options is how you actually make money at startups. The salary is only enough to make sure you can afford to exercise your options regularly and not starve to death in an extremely HCOL area. If you value options at $0 - just join FAANG and never join a startup.
- ptmcc 4y ago
  The vast, vast majority of startup options are worth less than toilet paper. To say nothing of the shenanigans like dilution and liquidation preferences that will screw you. They are lottery tickets at best. Yes, sure, someone sometimes wins big, but the odds are not in your favor.

bergenty 4y ago

Can someone explain to me why stock options are better than RSUs?

caseysoftware 4y ago
Generally, stock options are granted before the company is liquid (aka pre-IPO) and you pay $X with the hope that they're worth more and liquid someday. As you hit vesting dates, you can purchase more of them up to your total grant. (There's also stuff around early exercise, don't worry about that.) RSUs are just shares you don't own yet. When you hit your vesting dates, you don't have to DO anything, they just become yours. You don't have to pay anything to execute and often the company will sell some for you to pay the taxes on them. I wouldn't say one is definitively better.. there are tradeoffs: RSUs can be better because you don't have to spend money to get them and they're liquid immediately (or at least soon). Stock options can be better because your pre-IPO price may be better than the public price but you have no guarantee they'll ever be liquid.
bpodgursky 4y ago
- RSUs are taxable at vest, and if the shares aren't liquid, offloading enough of them to pay taxes is a huge headache (sometimes the company will help buy some back, but it's also a headache for a startup to do this, so they often don't) - Stock options are "cheaper" for a startup to give out than RSUs, so you get more shares, ie your equity is higher-leverage. So if things go well, you end up with much much more money than had you gotten RSUs (and yes obviously if things go terribly, you get nothing).
- rrdharan 4y ago
  > Stock options are "cheaper" for a startup to give out than RSUs, so you get more shares, ie your equity is higher-leverage. So if things go well, you end up with much much more money than had you gotten RSUs (and yes obviously if things go terribly, you get nothing). Is this generally true? I’m not sure it applies for the typical engineer joining a larger company (a Databricks or Stripe, say) where you’re not really affecting the cap table all that much. Do companies really give out more options than RSUs? My one personal piece of anecdata here is when considering an offer from a startup (that I didn’t take), they offered during negotiations to change the mix of RSU+options into just all RSUs (same total number).

sunsunsunsun 4y ago

That first article sure is funny. 10% to the first 10 employees... my current employer gave me roughly 0.001% in stock options and I'm employee #5.

8note 4y ago
That sounds like either they didn't need you or you made a poor choice? Or you were paid in cash instead?
- brabel 4y ago
  Yeah, not OP that's my situation... they paid me way above market though :D so I am happy.
- maerF0x0 4y ago
  or possibly it's an extremely capital intensive startup and sunsunsunsunsunsunsuns didnt put up any money.
subroutine 4y ago
Was that like 100 shares?
- subroutine 4y ago
  Downvoted, but I'm genuinely curious. At that point (5 employees) the company probably had the standard 10 mil authorized stock. 10 mil * .001% = 100 shares
dchftcs 4y ago
If the company goes to a billion, you get 10000, and that's without dilution. Sounds like a really bad deal, unless you're already paid a lot of cash.

sbf501 4y ago

One step further: Options are just a way for companies to get out of paying you a salary. (I got them from Microsoft, and from Intel before they were offered to all employees.) Options = salary In other words: exercise them as SOON as they vest. I had two financial planners tell me that over 15 years (I fired the first one), and both were 100% correct in hindsight.

bmitc 4y ago
But how do you determine if (not when) you should exercise? I am trying to make this decision for a company I recently left. I don't know when they'll IPO. I know they wanted to, but the market is getting slammed, and they just announced layoffs. I don't have much confidence in the company, so I am having a hard time understanding the risk. I don't really even understand what happens if they don't ever IPO and I have purchased options.
- sbf501 4y ago
  You are in a space I don't understand. (I don't even understand how/where you purchase options if it is not publicly traded and you are not an investor!) Sorry, that's a PhD-level question, I'm still at options 101. :(
  - bradstewart 4y ago
    The company itself issues you the options, usually as a form of compensation because you're an employee, etc. That option is a certificate that gives you the ability to purchase a share of the company at a specific price (the strike price). Usually when people say "buy their options" or "exercise their options", they are referring to buying the _stock_ that their options gave them the ability to purchase. So if I join a startup, they grant me 100 options with a strike price of $0.50, and I decide to exercise them, I would write the company a check for $50 and get 100 shares of the company in exchange.
- bradstewart 4y ago
  It comes down to whether or not you think the company will have a successful liquidity event. If you think the company is going to shutdown, or sell at a lower valuation than your option's strike price, don't exercise them. Your shares will be worthless. If you think they'll succeed and IPO or get acquired at a higher price, buy them (factoring in any potential tax implications, like AMT). It is a risk.

xhrpost 4y ago

Tax benefits are still limited to 90 days. Personally I feel if the stock is really important to you, start saving into an "exercise fund" for yourself so that you're able to exercise when leaving rather than waiting for your next gig to start.

FatCat321 4y ago

What if you could evaluate a company in a way that you maximize your chances. So look at things like options expiration, founders. Kind of what VCs do. Maybe that's why you should assess the startup you want to work for.