4 ms·

Whoa no. Absolutely no telling employees the details. The whole point of stock options is that employees can't value them accurately and you probably don't have

Whoa no. Absolutely no telling employees the details. The whole point of stock options is that employees can't value them accurately and you probably don't have to pay them. That's the whole magic trick. Come work for us! We can only pay $50k in boring everyday money, but here's some tokens. We don't know what they're worth, and you can't spend them for many years or maybe not at all, but look at this picture suggesting they might be worth lots! Works really well on people new to the workforce. Actually giving employees a means of valuing it, notably that their options turn into a class of shares that get paid after lots of other people and a sketch of how dilution works out in the meantime, stops them thinking it's a lottery ticket. It becomes a very low chance of winning less money than the opportunity cost relative to working elsewhere. Much more fun for employees are RSUs. They have the same nice trick of becoming free when people quit. They let you adjust people's pay without annoying them as much as a salary freeze or reduction. A three or four year vesting period with roughly annual grants is near perfect as a salary retention tool. Also rsu induced pay inflation has really hurt the startup recruitment pitch which helps defang an existential threat to your public company. Not really what I want as an engineer but the incentive gradient is very clear.

rustcleaner 3y ago
>That's the whole magic trick. Come work for us! We can only pay $50k in boring everyday money, but here's some tokens. We don't know what they're worth, and you can't spend them for many years or maybe not at all, but look at this picture suggesting they might be worth lots! Works really well on people new to the workforce. If I have to be short theta, at least be a [company] man and make it something like 75-delta >720 DTE calls. Ideally let me sell 50-delta <360 DTEs to the new on-boards as well! :^) Long longer dated ITM calls protect downside in IV spike, and being short shorter (relatively) dated ATM calls pays me more theta than I pay for the ITM while the ITM gives me much needed vanna if the underlying shits the bed on my spread (assuming skew exists).
- rustcleaner 3y ago
  The above is a diagonal. Another option could be to be in an equivalent vertical (both shorter expiry) and then long a 2-5 delta back-dated put to get vanna for downside protection.
jjav 3y ago
There are IMO two points in time where joining a startup makes sense. One is very early, iff the startup supports early exercise. Join, immediately do an early exercise of all your options and file an 83(b). This only makes sense if you join so early that you can afford to exercise all those options for an amount of money that you won't mind losing if the company goes nowhere. Typically this only makes sense if the exercise price is in the few pennies range (but depends on your finances). So before a series A at the very latest. This is good because you can now work there are long as you want but you are also free to leave if things become unpleasant. As long as you spent at least a year there, any shares you vested prior to leaving are yours for good. If the company IPOs many years after you leave, you still get something. The other good time is when the company is already large and well-known and clearly on the path to an IPO. You'll get far less ownership obviously, but probabily of success is much higher. The worst time to join a startup is anywhere in between. The exercise price of your options is too high on day 1 you can't afford to buy them, then you work there for years and become vested on paper but can't do anything about it, then you leave prior to an IPO and you still can't afford to buy the options so they cancel and you are left with nothing. I've done each of these scenarios, some more than once.
- robocat 3y ago
  If you want to spend money on startup shares, why wouldn't you buy preferential shares? The median value of common shares is muck - converting options buys you risky common shares and causes tax liabilities. Angel investing is extremely risky, and converting options is riskier than that! Common shares are much much higher risk than preferential shares. Plus diversification is good. Concentrating your assets and job into one investment is speculation: great when you win but terrible when you lose. I reckon we are conceited to think we can invest smarter than professional VCs? They lose all the time even though it is their fulltime job and they are insiders on the rules of the game.
  - Glyptodon 3y ago
    There really isn't much tax liability for exercising options when the fair market price is still minimal unless you have an awful lot of them.
nilram 3y ago
Any more, I'd rather they just gave me lottery tickets. My payout rate has been the same.
tossandthrow 3y ago
Tbh, I would never go below market rate in real money indifferent to what equity deals I am provided. But a nice, liveable, just above market rate salary + some stock. I don't shy back from that.

rustcleaner 3y ago

>That's the whole magic trick. Come work for us! We can only pay $50k in boring everyday money, but here's some tokens. We don't know what they're worth, and you can't spend them for many years or maybe not at all, but look at this picture suggesting they might be worth lots! Works really well on people new to the workforce. If I have to be short theta, at least be a [company] man and make it something like 75-delta >720 DTE calls. Ideally let me sell 50-delta <360 DTEs to the new on-boards as well! :^) Long longer dated ITM calls protect downside in IV spike, and being short shorter (relatively) dated ATM calls pays me more theta than I pay for the ITM while the ITM gives me much needed vanna if the underlying shits the bed on my spread (assuming skew exists).

rustcleaner 3y ago
The above is a diagonal. Another option could be to be in an equivalent vertical (both shorter expiry) and then long a 2-5 delta back-dated put to get vanna for downside protection.

jjav 3y ago

There are IMO two points in time where joining a startup makes sense. One is very early, iff the startup supports early exercise. Join, immediately do an early exercise of all your options and file an 83(b). This only makes sense if you join so early that you can afford to exercise all those options for an amount of money that you won't mind losing if the company goes nowhere. Typically this only makes sense if the exercise price is in the few pennies range (but depends on your finances). So before a series A at the very latest. This is good because you can now work there are long as you want but you are also free to leave if things become unpleasant. As long as you spent at least a year there, any shares you vested prior to leaving are yours for good. If the company IPOs many years after you leave, you still get something. The other good time is when the company is already large and well-known and clearly on the path to an IPO. You'll get far less ownership obviously, but probabily of success is much higher. The worst time to join a startup is anywhere in between. The exercise price of your options is too high on day 1 you can't afford to buy them, then you work there for years and become vested on paper but can't do anything about it, then you leave prior to an IPO and you still can't afford to buy the options so they cancel and you are left with nothing. I've done each of these scenarios, some more than once.

robocat 3y ago
If you want to spend money on startup shares, why wouldn't you buy preferential shares? The median value of common shares is muck - converting options buys you risky common shares and causes tax liabilities. Angel investing is extremely risky, and converting options is riskier than that! Common shares are much much higher risk than preferential shares. Plus diversification is good. Concentrating your assets and job into one investment is speculation: great when you win but terrible when you lose. I reckon we are conceited to think we can invest smarter than professional VCs? They lose all the time even though it is their fulltime job and they are insiders on the rules of the game.
- Glyptodon 3y ago
  There really isn't much tax liability for exercising options when the fair market price is still minimal unless you have an awful lot of them.

nilram 3y ago

Any more, I'd rather they just gave me lottery tickets. My payout rate has been the same.

tossandthrow 3y ago

Tbh, I would never go below market rate in real money indifferent to what equity deals I am provided. But a nice, liveable, just above market rate salary + some stock. I don't shy back from that.