3 ms·

I guess you're equating being an early employee to being an angel investor in that startup? In some sense, that's kind of true. But still, not how most employee

by jjav 3y ago

I guess you're equating being an early employee to being an angel investor in that startup? In some sense, that's kind of true. But still, not how most employees of the company are going to think about it. You have to work somewhere. > If exercising your shares is a trivial cost, then it doesn't matter. Well yes, that was my point. That's why you'd ideally join very early, so you can early exercise and buy all the options up front for very little money.

robocat 3y ago
> early exercise This article argues the opposite using financial arguments: https://www.investopedia.com/articles/optioninvestor/09/get-more-out-of-your-esos.asp https://www.investopedia.com/articles/optioninvestor/09/get-... It is a bit technical for my level of ignorance: and it seems irrelevant. Interesting how it points out that companies get a financial advantage on their books if you early exercise. I think it is saying that optionality has a value to the person that owns the option and that early exercise loses that value. I think you are saying that in the winning case, you are better off if you have exercised early. Perhaps you are not costing the losing case properly? Lottery tickets! Thank you. I appreciate learning from you and I hope I have learnt something from that article which I wouldn't have done otherwise (even if I don't understand the pricing details). My eyes tend to glaze over whenever volatility is mentioned. Relevant to public stocks and options in public markets. I suspect volatility is not a useful measure looking at investing in early-stage startups since value tends towards all or nothing. The distribution of returns for a single startup seems fairly wacko - hard to model.
- jjav 3y ago
  > I think you are saying that in the winning case, you are better off if you have exercised early. Perhaps you are not costing the losing case properly? That's why I'm emphasizing the part about joining very early. Early exercise is ideal when you join when the stock is worth basically nothing, but doesn't make sense later in the startup's life. Which is why in the original post I say that IMO you don't want to join a startup in the middle of its growth. Only very early, or very late. For example: I joined one very early startup where my option price was a small fraction of a penny. I early exercised and bought many hundred thousand shares for less than $20. There's no downside, worst case I lose less than the price of lunch. The other reason to early exercise is freedom. You can leave without angst about losing your unexercised options. There are no golden handcuffs, you're free to move jobs.
  - robocat 3y ago
    > I early exercised and bought many hundred thousand shares for less than $20 Right. This is what has confused me. I had presumed that the options were a much more valuable part of your pay package (like tens of thousands to exercise early). Yeah, $20 is a good price for a lottery ticket! I would presume few VC run companies would give away shares that cheaply now?
    - jjav 3y ago
      > I would presume few VC run companies would give away shares that cheaply now? You have to join early, before VCs get involved. After a funding round prices spike 1000x or more. > options were a much more valuable part of your pay package This sort of makes no sense. Options are not part of the pay package per se because they are worth nothing. In some far future they might be worth something (or rarely, a lot).
      - robocat 3y ago
        You recommend joining a company that sells shares ridiculously cheaply (the legal and accounting costs to process options and shares would easily be more than $20) and lets ignore that companies don't want more shareholders with costs of voting to the existing shareholders (and neither do companies want employees to be able to see the books or interfere with negotiations). And choose to be an early employee at a place that somehow gets a 1000x valuation boost between Angel and Round A. $100k would be a small Angel round so round A would be $100 million (rather an outlier). 1000x boosts are simply not easy to find. Your facts just don't line up: if you got lucky then your advice simplifies down to "get lucky".
        jjav 3y ago
        How many very early startups have you joined? The language you use to describe option grants suggests you haven't. A startup does not "sell shares" "ridiculously cheaply". They grant options and the valuation is what it is at the moment. Here's an article that might help: https://startuplawyer.com/incorporation/par-value-for-a-startup-companys-stock https://startuplawyer.com/incorporation/par-value-for-a-star... Note this quote: "I typically recommend that a startup corporation’s Common Stock par value be set at $0.00001 and no higher than $0.0001 per share."

by jjav 3y ago

robocat 3y ago

> early exercise This article argues the opposite using financial arguments: https://www.investopedia.com/articles/optioninvestor/09/get-more-out-of-your-esos.asp https://www.investopedia.com/articles/optioninvestor/09/get-... It is a bit technical for my level of ignorance: and it seems irrelevant. Interesting how it points out that companies get a financial advantage on their books if you early exercise. I think it is saying that optionality has a value to the person that owns the option and that early exercise loses that value. I think you are saying that in the winning case, you are better off if you have exercised early. Perhaps you are not costing the losing case properly? Lottery tickets! Thank you. I appreciate learning from you and I hope I have learnt something from that article which I wouldn't have done otherwise (even if I don't understand the pricing details). My eyes tend to glaze over whenever volatility is mentioned. Relevant to public stocks and options in public markets. I suspect volatility is not a useful measure looking at investing in early-stage startups since value tends towards all or nothing. The distribution of returns for a single startup seems fairly wacko - hard to model.

jjav 3y ago
> I think you are saying that in the winning case, you are better off if you have exercised early. Perhaps you are not costing the losing case properly? That's why I'm emphasizing the part about joining very early. Early exercise is ideal when you join when the stock is worth basically nothing, but doesn't make sense later in the startup's life. Which is why in the original post I say that IMO you don't want to join a startup in the middle of its growth. Only very early, or very late. For example: I joined one very early startup where my option price was a small fraction of a penny. I early exercised and bought many hundred thousand shares for less than $20. There's no downside, worst case I lose less than the price of lunch. The other reason to early exercise is freedom. You can leave without angst about losing your unexercised options. There are no golden handcuffs, you're free to move jobs.
- robocat 3y ago
  > I early exercised and bought many hundred thousand shares for less than $20 Right. This is what has confused me. I had presumed that the options were a much more valuable part of your pay package (like tens of thousands to exercise early). Yeah, $20 is a good price for a lottery ticket! I would presume few VC run companies would give away shares that cheaply now?
  - jjav 3y ago
    > I would presume few VC run companies would give away shares that cheaply now? You have to join early, before VCs get involved. After a funding round prices spike 1000x or more. > options were a much more valuable part of your pay package This sort of makes no sense. Options are not part of the pay package per se because they are worth nothing. In some far future they might be worth something (or rarely, a lot).
    - robocat 3y ago
      You recommend joining a company that sells shares ridiculously cheaply (the legal and accounting costs to process options and shares would easily be more than $20) and lets ignore that companies don't want more shareholders with costs of voting to the existing shareholders (and neither do companies want employees to be able to see the books or interfere with negotiations). And choose to be an early employee at a place that somehow gets a 1000x valuation boost between Angel and Round A. $100k would be a small Angel round so round A would be $100 million (rather an outlier). 1000x boosts are simply not easy to find. Your facts just don't line up: if you got lucky then your advice simplifies down to "get lucky".
      - jjav 3y ago
        How many very early startups have you joined? The language you use to describe option grants suggests you haven't. A startup does not "sell shares" "ridiculously cheaply". They grant options and the valuation is what it is at the moment. Here's an article that might help: https://startuplawyer.com/incorporation/par-value-for-a-startup-companys-stock https://startuplawyer.com/incorporation/par-value-for-a-star... Note this quote: "I typically recommend that a startup corporation’s Common Stock par value be set at $0.00001 and no higher than $0.0001 per share."