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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" "ridiculous

by 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."

robocat 3y ago
I'm a successful founder in New Zealand that bootstrapped. You are correct that I'm unfamiliar with employee options: that is why I'm asking what you are saying because it just doesn't make any sense to me (looking at it as a founder). I'm trying to understand but failing and your explanations feel to me like they go left-field every time. The VC culture here is rather thin and options are not commonly used. > par value be set at $0.00001 and no higher than $0.0001 per share Sure, that is at inception. If you are getting shares at inception you are one of the first employees. One Angel investor and the shares get a valuation and that valuation is nothing like par value. Money for early employees often comes from investors. I guess the founders could be paying you but that would be less common. When your options convert you pay the option strike price, not the par value. Setting the options at a price close to par would be extremely strange because they would dilute the founders. I guess I'm saying that I don't understand because the financial incentives seem wrong and everything you've said doesn't seem to fit together to me: including your comment on par value. "The exercise price may never be less than the fair market value (FMV) of the underlying stock on the date the option is granted." Fair market value shouldn't be anywhere near the initial par value (unless the business is close to worthless). I guess it could make sense if the founders decided they were giving you x% of stock, and they used options as an intermediate step to do that for some reason (e.g. vesting).
- jjav 3y ago
  > If you are getting shares at inception you are one of the first employees. Yes. Going back to the very top of the thread, that's what I said. The best time to join a startup is very early (or very late). > (unless the business is close to worthless) Yes. A new startup is basically worthless, it's just a piece of paper and they haven't built anything yet. That's a good time to join. > I guess it could make sense if the founders decided they were giving you x% of stock, and they used options as an intermediate step to do that for some reason (e.g. vesting). Yes, of course. That's literally what joining a startup is all about! I guess the market is different in NZ. You said "The VC culture here is rather thin and options are not commonly used." It is all about the options in the US (or SV at least). If founders didn't give you x% of the company via vesting options, why would anyone ever join a startup?

by jjav 3y ago

robocat 3y ago

I'm a successful founder in New Zealand that bootstrapped. You are correct that I'm unfamiliar with employee options: that is why I'm asking what you are saying because it just doesn't make any sense to me (looking at it as a founder). I'm trying to understand but failing and your explanations feel to me like they go left-field every time. The VC culture here is rather thin and options are not commonly used. > par value be set at $0.00001 and no higher than $0.0001 per share Sure, that is at inception. If you are getting shares at inception you are one of the first employees. One Angel investor and the shares get a valuation and that valuation is nothing like par value. Money for early employees often comes from investors. I guess the founders could be paying you but that would be less common. When your options convert you pay the option strike price, not the par value. Setting the options at a price close to par would be extremely strange because they would dilute the founders. I guess I'm saying that I don't understand because the financial incentives seem wrong and everything you've said doesn't seem to fit together to me: including your comment on par value. "The exercise price may never be less than the fair market value (FMV) of the underlying stock on the date the option is granted." Fair market value shouldn't be anywhere near the initial par value (unless the business is close to worthless). I guess it could make sense if the founders decided they were giving you x% of stock, and they used options as an intermediate step to do that for some reason (e.g. vesting).

jjav 3y ago
> If you are getting shares at inception you are one of the first employees. Yes. Going back to the very top of the thread, that's what I said. The best time to join a startup is very early (or very late). > (unless the business is close to worthless) Yes. A new startup is basically worthless, it's just a piece of paper and they haven't built anything yet. That's a good time to join. > I guess it could make sense if the founders decided they were giving you x% of stock, and they used options as an intermediate step to do that for some reason (e.g. vesting). Yes, of course. That's literally what joining a startup is all about! I guess the market is different in NZ. You said "The VC culture here is rather thin and options are not commonly used." It is all about the options in the US (or SV at least). If founders didn't give you x% of the company via vesting options, why would anyone ever join a startup?