3 ms·

I'm genuinely curious why you say this. Could you please elaborate? I've only worked at publicly traded companies. I don't understand how this wouldn't be the

I'm genuinely curious why you say this. Could you please elaborate? I've only worked at publicly traded companies. I don't understand how this wouldn't be the exact situation you'd want to be in. my understanding is this: 1. If you're granted options at price X, and the new share price is lower than X, you're under no obligation to exercise your options. So no real financial loss or cost to you. 2. If you're granted options at price X, and the new share price is higher than X, you're still under no obligation to exercise your options. So it's up to you now. 3. You've exercised options at price X and now it's less than that. Well that sucks. No significant different from publicly traded shares being bought and suffering a price drop. Granted, it's easier to sell your public shares at a loss for reducing tax liability on other capital gains. 4. If you exercised options at price X and it went up then yay, you're winning. 5. If you are ensured to have been given $X worth of options, and your options have dropped to $Y, and now you'll be granted options to cover the difference of $X and $Y, these latest options will be granted at a lower price, $Z, and therefore will be better priced overall. Which would mean you could now exercise the options granted at the higher price or the ones granted at the lower price. Doesn't seem like it really matters or affects anything since the net gain is the same for the year.

anonymouse008 4y ago
Think preferences - there’s no way a vc is getting diluted on the back end
- Brystephor 4y ago
  I'm not familiar with this. Are you referring to common vs preferred shares?
  - anonymouse008 4y ago
    Preferred shares, covenants, etc - there’s no way you can guarantee an employee static dollars without finessing the cap table. The things that keep the compensation static on paper are usually tested and stressed during an acquisition, and a public offering at a valuation lower than the highest priced round - additional terms begin at those points: clawbacks, earn outs, lockups, tips, first rights of refusal, and new things fresh mbas dream up…
    - jssssa 4y ago
      I don't know how stripe does it , but employees want to know what his stock is worth and the company needs to know how much stock to give. Since we are private we just say "our internal best guess for our evaluation is $XXmillion therefore we will give you X number of shares worth $200k at this valuation. There is no finessing of the cap table. We have pre allocated a certain percentage of stock for employees, we issue out of that allocation. I don't see an answer here for why reducing the unofficial internal valuation is bad except for the fact that they are saying we might not sell for as much anymore which affects all current stock holders if it ends up being true.
      - anonymouse008 4y ago
        If they’re able to keep all things equal, with your example in mind, then they cushioned the employee pool at an earlier round and are burning through the shares faster than when the round closed. It’s a bandaid, the real hope hope is that the injury in terms of valuation is truly a scratch that won’t leave a scar.
- dalyons 4y ago
  They’re not taking new funding though?
- JohnJamesRambo 4y ago
  Maybe it’s time they did.
junofan 4y ago
One, why would you ever want more of a growth company that is shrinking 13 years in with no exit in sight. Two, you miss out on 3 years of upside relative to a 4-year grant. It’s a terrible deal, but I see why they’d want to give it.
- Brystephor 4y ago
  > One, why would you ever want more of a growth company that is shrinking 13 years in with no exit in sight. Because if your given a fixed dollar amount of shares, and the overall evaluation goes down, you get a higher percentage of ownership. Why would you want this? In the event that there is an exit, I presume the payout is better. Public companies are also declining currently if you're using valuation to determine growth. And some of these are 20+ year old companies. > Two, you miss out on 3 years of upside relative to a 4-year grant. It’s a terrible deal, but I see why they’d want to give it. This only true assuming things keep going up. Which as we can see, is not true. It's not a "terrible deal". It's a more risk averse deal. If you started a new job at a company in the last 6-12 months and were granted 4 years of stock at a higher price, then stripes offering probably looks pretty good right now.
gonehome 4y ago
It's designed to screw employees out of upside and they sell it pretending it's employee favorable. If you reprice equity comp each year then you lose most of the upside. Compare the two following equity plans: Example Year 1: --- PLAN 1 FMV: $1 Strike: $1 Total #: 40k ISOs Vesting: 4yrs --- PLAN 2 FMV: $1 Strike: $1 Total #: 10k ISOs Vesting: 1yr --- In the second plan you get granted new equity per year targeting some total comp. This means if the equity goes up in value a lot in the first year, when your new amount is recalculated it'll be way less than 10k. Example Year 2: --- PLAN 1 FMV: $2 Strike: $1 Total #: 40k ISOs (10k vesting in year 2) Vesting: 1yr into 4yr period --- PLAN 2 FMV: $2 Strike: $2 (new grant) Total #: 5k ISOs (The 10k from the first year, and now half that # determined by new FMV for a cumulative total of 15k instead of 20k ISOs). Vesting: 1yr on new grant --- This lets the company keep the majority of the upside, taking it away from employees. It also hurts employees that stay longer or have a longer term interest in the company from capturing the value they helped create. And the more the company goes up in value, the worse the trade off becomes. Sure in the case of a crash you may get more stock (maybe assuming they don't reduce that given hard times, target comp is just a target after all - I don't think they commit to it). Typically companies regrant underwater equity in the case of a crash anyway (see peloton). Even in the best case, I'd guess it's unlikely the grants during a down year make up for being excluded from being able to get more at a lower price 5yrs out.
- zlast 4y ago
  In the case of a crash, "typical" companies do not re-grant equity. Look at your typical big tech company, did they regrant equity? All of tech is down -- few tech companies have granted additional equity.
  - gonehome 4y ago
    Depends on the crash and if employees are underwater or not. In this case Stripe cut their validation by 28% and may give more stock based on that price. Assuming they do, will employees come out ahead when compared to if they had been able to lock in 5yrs of equity up front at whatever the price was when they started? You can always negotiate for more if your locked equity becomes worth a lot less, it's a stronger position to be in as an employee. The equity is a bet on capturing value of large upside imo, their structure limits that.
seanhunter 4y ago
> 1. If you're granted options at price X, and the new share price is lower than X, you're under no obligation to exercise your options. So no real financial loss or cost to you. > 2. If you're granted options at price X, and the new share price is higher than X, you're still under no obligation to exercise your options. So it's up to you now. The payout on a call option is min(exercise - strike, 0). If you are granted options and X and the new share price is lower than X your options are now worth 0[1]. If the price is higher than X, you have lost some function of the volatility, time to expiry and Price_new - Price_old. In both cases there is a real mark to market financial loss to you even if you haven't yet crystallized that loss by exercising (which of course you would never exercise if the value was zero). [1] Actually very close to but not exactly zero because of the vol and the time to expiry. They could get above water again.

anonymouse008 4y ago

Think preferences - there’s no way a vc is getting diluted on the back end

Brystephor 4y ago
I'm not familiar with this. Are you referring to common vs preferred shares?
- anonymouse008 4y ago
  Preferred shares, covenants, etc - there’s no way you can guarantee an employee static dollars without finessing the cap table. The things that keep the compensation static on paper are usually tested and stressed during an acquisition, and a public offering at a valuation lower than the highest priced round - additional terms begin at those points: clawbacks, earn outs, lockups, tips, first rights of refusal, and new things fresh mbas dream up…
  - jssssa 4y ago
    I don't know how stripe does it , but employees want to know what his stock is worth and the company needs to know how much stock to give. Since we are private we just say "our internal best guess for our evaluation is $XXmillion therefore we will give you X number of shares worth $200k at this valuation. There is no finessing of the cap table. We have pre allocated a certain percentage of stock for employees, we issue out of that allocation. I don't see an answer here for why reducing the unofficial internal valuation is bad except for the fact that they are saying we might not sell for as much anymore which affects all current stock holders if it ends up being true.
    - anonymouse008 4y ago
      If they’re able to keep all things equal, with your example in mind, then they cushioned the employee pool at an earlier round and are burning through the shares faster than when the round closed. It’s a bandaid, the real hope hope is that the injury in terms of valuation is truly a scratch that won’t leave a scar.
dalyons 4y ago
They’re not taking new funding though?
JohnJamesRambo 4y ago
Maybe it’s time they did.

junofan 4y ago

One, why would you ever want more of a growth company that is shrinking 13 years in with no exit in sight. Two, you miss out on 3 years of upside relative to a 4-year grant. It’s a terrible deal, but I see why they’d want to give it.

Brystephor 4y ago
> One, why would you ever want more of a growth company that is shrinking 13 years in with no exit in sight. Because if your given a fixed dollar amount of shares, and the overall evaluation goes down, you get a higher percentage of ownership. Why would you want this? In the event that there is an exit, I presume the payout is better. Public companies are also declining currently if you're using valuation to determine growth. And some of these are 20+ year old companies. > Two, you miss out on 3 years of upside relative to a 4-year grant. It’s a terrible deal, but I see why they’d want to give it. This only true assuming things keep going up. Which as we can see, is not true. It's not a "terrible deal". It's a more risk averse deal. If you started a new job at a company in the last 6-12 months and were granted 4 years of stock at a higher price, then stripes offering probably looks pretty good right now.

gonehome 4y ago

It's designed to screw employees out of upside and they sell it pretending it's employee favorable. If you reprice equity comp each year then you lose most of the upside. Compare the two following equity plans: Example Year 1: --- PLAN 1 FMV: $1 Strike: $1 Total #: 40k ISOs Vesting: 4yrs --- PLAN 2 FMV: $1 Strike: $1 Total #: 10k ISOs Vesting: 1yr --- In the second plan you get granted new equity per year targeting some total comp. This means if the equity goes up in value a lot in the first year, when your new amount is recalculated it'll be way less than 10k. Example Year 2: --- PLAN 1 FMV: $2 Strike: $1 Total #: 40k ISOs (10k vesting in year 2) Vesting: 1yr into 4yr period --- PLAN 2 FMV: $2 Strike: $2 (new grant) Total #: 5k ISOs (The 10k from the first year, and now half that # determined by new FMV for a cumulative total of 15k instead of 20k ISOs). Vesting: 1yr on new grant --- This lets the company keep the majority of the upside, taking it away from employees. It also hurts employees that stay longer or have a longer term interest in the company from capturing the value they helped create. And the more the company goes up in value, the worse the trade off becomes. Sure in the case of a crash you may get more stock (maybe assuming they don't reduce that given hard times, target comp is just a target after all - I don't think they commit to it). Typically companies regrant underwater equity in the case of a crash anyway (see peloton). Even in the best case, I'd guess it's unlikely the grants during a down year make up for being excluded from being able to get more at a lower price 5yrs out.

zlast 4y ago
In the case of a crash, "typical" companies do not re-grant equity. Look at your typical big tech company, did they regrant equity? All of tech is down -- few tech companies have granted additional equity.
- gonehome 4y ago
  Depends on the crash and if employees are underwater or not. In this case Stripe cut their validation by 28% and may give more stock based on that price. Assuming they do, will employees come out ahead when compared to if they had been able to lock in 5yrs of equity up front at whatever the price was when they started? You can always negotiate for more if your locked equity becomes worth a lot less, it's a stronger position to be in as an employee. The equity is a bet on capturing value of large upside imo, their structure limits that.

seanhunter 4y ago

> 1. If you're granted options at price X, and the new share price is lower than X, you're under no obligation to exercise your options. So no real financial loss or cost to you. > 2. If you're granted options at price X, and the new share price is higher than X, you're still under no obligation to exercise your options. So it's up to you now. The payout on a call option is min(exercise - strike, 0). If you are granted options and X and the new share price is lower than X your options are now worth 0[1]. If the price is higher than X, you have lost some function of the volatility, time to expiry and Price_new - Price_old. In both cases there is a real mark to market financial loss to you even if you haven't yet crystallized that loss by exercising (which of course you would never exercise if the value was zero). [1] Actually very close to but not exactly zero because of the vol and the time to expiry. They could get above water again.