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As our 30 person startup has grown, I made a conscious decision to stop pitching stock options as a primary component of compensation. Which means the job offe

by cj 2y ago

As our 30 person startup has grown, I made a conscious decision to stop pitching stock options as a primary component of compensation. Which means the job offer still includes stock options, but during the job offer call we don’t talk up the future value of the stock options. We don’t create any expectation that the options will be worth anything. Upside from a founder perspective is we end up giving away less equity than we otherwise might. Downside from a founder perspective is you need up increase cash compensation to close the gap in some cases, where you might otherwise talk up the value of options. Main upside for the employee is they don’t need to worry too much about stock options intricacies because they don’t view them as a primary aspect of their compensation. In my experience, almost everyone prefers cash over startup stock options. And from an employee perspective, it’s almost always the right decision to place very little value ($0) on the stock option component of your offer. The vast majority of cases stock options end up worthless.

Swizec 2y ago
> The vast majority of cases stock options end up worthless My fav manager had a great way of phrasing this: "There are more ways for your options to be worthless than to make you rich" But I also personally know plenty of people who made off great with their startup equity. They're def not worthless. Ultimately I think you should never take an uncomfortable pay-cut to join a company and you should maximize your stock compensation on top of that. Don't forget other types of equity – brand, exposure to good problems, network.
- awesome_dude 2y ago
  > But I also personally know plenty of people who made off great with their startup equity. They're def not worthless. I personally view Stock Options in the same way as lottery tickets - sure they might pay out big sometimes, and people do win lotteries, but, for the most part, they're going to be losers. There might be argument about the difference in how often stock options lose compared to lottery tickets, but that's missing the point.
  - fragmede 2y ago
    Sorta. You could definitely go in on something worthless that never gets any traction and end up with less than zero, as in, you owe money after the experience. But for every Stripe or Airbnb there's 100 more lesser known names that still pay out, not in the millions, but a couple hundred thousand dollars range, which is still enough to change most people's situation. Definitely look at them as worthless untill they're worth something, but the untold secret is the secondary and private market. SpaceX employees have gone that route and some are quite rich despite there not being an IPO. Again, the failure mode to be aware of is you could end up in debt and owe money which is worse than if you'd never played.
    - cj 2y ago
      > Definitely look at them as worthless untill they're worth something One (of numerous) problems with stock options is almost all stock option contracts require you to exercise within 90 days of leaving the company. Often times employees leave a company, and then need to decide within 90 days whether they will spend anywhere from $5-50k+ to exercise the options to keep the stock, otherwise you forfeit the options after 90 days. The stars really have to align for you to make money with options without risking/gambling your own capital by exercising them. Unfortunately secondary markets only exist for very large companies like Stripe. I’m not aware of secondary markets for small < 100 person companies, which is where you see the most blatant hyping up of stock option value.
      - dgunay 2y ago
        There are companies that will finance your options exercise in exchange for a cut of the earnings in the event of an exit. I haven't personally used one, but they do exist.
        dilyevsky 2y ago
        There’s a much better option - simply offer nso conversion with much longer exercise window
        2y ago
- crote 2y ago
  I think the main thing to remember is that you should assume they are worthless. There's probably something like a 99% chance they are worthless, a 0.9% chance they are worth a decent holiday, a 0.09% chance it'll let you retire early, and a 0.01% it'll make you somewhat rich. Worst of all, unless you're the CxO you have very little control over the outcome. Equity is a nice bonus, but you might just as well treat it like the company giving you a lottery ticket for Christmas. Nobody is going to take a significant pay cut or work 80 hours a week for a lottery ticket, so don't do it solely for the stock options either.
  - sharkweek 2y ago
    I’m 0 for 3 on startup equity being worth anything and have since left the industry. One of the startups I did some time at was as close to a sure thing as one can hope for (unicorn valuation at one point) but it still went to zero in a very public flame out. It’s still impossible not to get imaginative about what could have been as I was a very early employee… such is life. The most lucrative stretch of my career was working for a big company that paid good base salaries.
    - datadrivenangel 2y ago
      Same. 1 startup is dead-dead. 1 startup is now a husk of itself used by the CEO for fractional CxO consulting, and 1 is down from unicorn status to limping along with 1/5th the staff. The primary benefit of startups is getting to do more work to learn more faster and not deal with Process.
  - aetherson 2y ago
    I've worked at 8 companies, 3 have resulted in value from equity (all granted pre-IPO), all of them in certainly much larger than "a decent holiday" level. I think people have updated to be much too negative on the prospect of equity paying out. It's obviously much better than 1%, at least if you work at anything other than extremely early-stage companies.
    - cyanydeez 2y ago
- candiddevmike 2y ago
  Pre/post pandemic startup equity seem to have wildly different outcomes
__turbobrew__ 2y ago
Even if the company has a successful exit lots of times the founders have different stock class than employees which allows them to cook the books in creative ways where employee stocks are devalued without affecting founder stocks. I personally went through a successful exit of a company where I was one of the early engineers and was privy to orchestrating the sale (working with potential buyers and consultants) and saw this happen. I now am granted stocks which are traded on the NYSE so nobody can cook the books without commiting securities fraud.
- carimura 2y ago
  "Cooking the books" could mean many things but most people would interpret this as fraud. There are many exit scenarios that aren't fraud but rather stacks of preferential stock that get paid before common, who usually get paid last. What happened in your exit scenario?
  - __turbobrew__ 2y ago
    See my comment further down. Im not going to go into any more details than that as the details of the sale are not public.
  - awesome_dude 2y ago
    My read is that the poster felt that the accounting practices, which were likely legal and commonplace, violated implied contractual obligations.
    - Viliam1234 2y ago
      It's technically legal -- the best kind of legal!
      - fragmede 2y ago
        No. Fuck that shit. When the spirit of the law and the letter of the law conflict, I want us as humans to be able to step back and say that, hey, it doesn't make sense when you put it that way, and ignore the rules and do what's actually right.
yieldcrv 2y ago
> In my experience, almost everyone prefers cash over startup stock options. Good to know, because its common for the founder and hiring manager guilt trips to be insane.
- grandempire 2y ago
  Startups have this weird psychological purity testing I have never seen outside of religious groups. Effective organizations understand you actually don’t need to look inside the box. If someone is continuing to do good work for you it’s working. You don’t need to second guess their reasons why, or give them a reason to question their commitment.
  - yieldcrv 2y ago
    It’s a basic lack of empathy. Many founders do have the privilege of choosing opportunities and seemingly cant or are unwilling to relate to people just working with integrity and sometimes being fulfilled by their choice of trade, without needing to be married to someone else’s idea and cause. Also most founders ideas aren't unique and there is often a tone deafness there. Employees with experience have already seen their idea even if it was in a prior cycle.
    - hnbad 2y ago
      "Believing in the mission" requires a suspension of disbelief that can reduce the impact of various factors that would otherwise decrease morale (e.g. lower cash compensation, fewer benefits, unfair working conditions, longer hours, etc). There's a reason many startups are built on hordes of college kids and it's not that they "have more energy" or "are more willing to think outside the box". They're less experienced and thus easier to manipulate. They're also less likely to have dependents they need to take into consideration, don't understand their limits or trade-offs between short-term performance and long-term endurance (e.g. burnout), and are more likely to be naive about their place in the company and the effect/function of the company. Plus, of course, they're "less risk-averse" which is another way of saying bad at judging the odds of certain outcomes.
blitzar 2y ago
As your 30 person startup has grown, the (future) value of the stock has gone from $0.00 to not $0. When the value was zero, of course you had to talk up future value - you were selling something worth $0 for $1,000's. Now that it is worth something, it represents actual value for the employees to swap for salary, which is why you no longer offer as much!
- cj 2y ago
  That’s not really how it works, though. The price of your options is set based on when you join the company. If the company is already valuable by the time you join, you’re essentially buying in at the current valuation with the hope that the valuation will continue to increase. You make money on the amount the company value increases starting the day the options were granted. (This comment isn’t 100% technically accurate, but gets the point across in fewer words)
  - ikiris 2y ago
    Almost always stock options at a startup are the equivalent of an unsecured iou. Even if there is a conversion at some point due to a buyout, common employee stock rarely ever sees any of that money. If anything they’re often negative value because you pay taxes on their claimed value at assignment.
Aurornis 2y ago
> In my experience, almost everyone prefers cash over startup stock options. My experience has been a little different. We had a lot of people demanding both very high cash comp and then demanding very high equity packages on top. Giving people a sliding scale option did put some of the control back in their hands, but it also produced an analysis paralysis for some where they couldn’t decide what to pick. > And from an employee perspective, it’s almost always the right decision to place very little value ($0) on the stock option component of your offer. The vast majority of cases stock options end up worthless. Much of this is due to startups failing. Every random “startup” trying to pay people with options because the founders have no hope of success inflates this statistic. However another driver of this statistic is the extremely short exercise window upon quitting. People may work somewhere for 1-3 years but the company could be 5-10 years away from acquisition. Employees have to give the company money at time of quitting to get any equity, which few want to do. I know the common wisdom, but I also know that there are a couple local technology centered private Slack groups in my area where people will eagerly try to evaluate and possibly buy your options for local startups. They don’t buy everything, obviously, but there is demand for the few cases where contracts allow transfer of the resulting equity.
- fnbr 2y ago
  This is why I will never work somewhere with a short post termination exercise period (PTEP). If it’s not at least 5 years, ideally 10, they don’t seriously consider equity something that employees are owed.
- pm90 2y ago
  > but I also know that there are a couple local technology centered private Slack groups in my area where people will eagerly try to evaluate and possibly buy your options for local startups. They don’t buy everything, obviously, but there is demand for the few cases where contracts allow transfer of the resulting equity. isn’t this illegal? private stock ownership needs approval from company/BoD to change hands, no?
  - toomuchtodo 2y ago
    While board approval can be a condition of transfer (consult the options agreement), forward contacts can be used (with counterparty, liquidity, and price risk) when transfer conditions cannot be met to effectuate a de jure transfer.
babl-yc 2y ago
So would you trade your founder equity for a fixed salary? My guess is probably not. Equity is an extremely important factor for many candidates, especially more senior ones and executives. I would not pitch it as future value, and instead pitch as % of company. If it's a minuscule amount that doesn't move the needle in offer conversations, than perhaps you are not offering enough, or you're identifying candidates who value more predictable income than investment in the company.
- parpfish 2y ago
  the founder has so much more control over the direction of the company and what an exit looks like that it makes sense for them to want equity. As an IC, there’s little I can do to affect the company valuation because I’m just executing the CEOs vision. And there’s nothing I can do to affect their decisions about potential exits.
- paxys 2y ago
  Exactly. If I'm joining a 30 person startup it's not because of the size of the paycheck. Any larger company will obvioulsy be able to easily beat the offer. I want a significant amount of equity. I want to see the cap table. I want to see details about funding rounds, finances, available runway. I want to see MRR/ARR, recently closed deals. If founders dance around these questions and say "equity is not imporant, see how much we are paying you" then I'm walking out the door.
  - cyanydeez 2y ago
    Reading through the thread, the point is the startups arn't providing transparent accounts of what the equity is and how it can be diluted and reduced over the life time and sale of the company. That's all the debate. Many people have seen those options become worthless because of legalistic maneuvers and violate what's said in the initial options. So this tangent isn't really clarifying anything. Some people would simply want larger salaries and options be valued as 0$ for evaluating compensation because how easy Capitalists have made it to screw over classes of options/share holders.
Alex3917 2y ago
> And from an employee perspective, it’s almost always the right decision to place very little value ($0) on the stock option component of your offer. The vast majority of cases stock options end up worthless. This isn't actually true from a historical perspective. The primary reason why the gap between the wealthy and and everyone is increasing is that employees started preferring cash compensation over equity. Joseph Blasi documented this in his book The Citizen's Share, and that book is why Elizabeth Warren recently passed legislation making it easier for employers to give equity to their employees.
- hnbad 2y ago
  > The primary reason why the gap between the wealthy and and everyone is increasing is that employees started preferring cash compensation over equity. You're making it sound like equity turns companies into co-ops when in reality most equity remains unexercised (because that literally involves paying your then likely former employer money) or ends up being worthless for all the reasons others have explained. The gap between the wealthy and everyone else has been sharply increasing ever since Reagan[0]. CEO pay alone has massively skyrocketed, detached from all other economic growth factors (most of the growth occurred in the 1990s)[1]: > From 1978 to 2020, CEO pay based on realized compensation grew by 1,322%, far outstripping S&P stock market growth (817%) and top 0.1% earnings growth (which was 341% between 1978 and 2019, the latest data available). In contrast, compensation of the typical worker grew by just 18.0% from 1978 to 2020. The reason workers prefer cash compensation is that you can't use equity to pay your bills. Cost of living has increased since the 1970s[2], housing costs and college tuition have become a lot more expensive[3]. While electronics may have gotten cheaper, the day to day expenses have gone up and those in lower income brackets will necessarily spend more of their income on things like groceries and rent. Standards of living increasing with income may increase those expenses but there's a cut-off point where those increases no longer track linearly even if you throw in money sinks like private yachts. If you want to reduce cash preference, you'd need to first address the underlying socioeconomic insecurities that drive the real need for cash that this preference comes downstream from. You can't have multi-billionaires (or even near-trillionaires) and a steady socio-economic progression to them from sub-minimum wage. Multi-billionaires can only exist in a system that allows for disproportionate amounts of wealth to be drained out of the system into a minute fraction of the top percentile. The gap is a necessary conclusion of a system that allows multi-billionaires to exist. Thinking this can be fixed by "making it easier" for corporations to give workers equity not only ignores why workers prefer cash (and why they're more likely to do so now than decades ago) but also why corporations want to use equity for compensation (i.e. because it usually reduces cash compensation while coming with very low (and in any case: delayed) risk due to workers not exercising options or shares becoming worthless or near-worthless due to the way preferential shares are usually structured). If we were talking about actual worker ownership (or at least revenue sharing) things would look very different, but that's not something most corporations want and definitely something most investors/VCs would reject outright. [0]: Reagan cut the top marginal income tax rate by 20% to a mere 50%, after it had already previously been cut sharply by Johnson from 91% to 70%[a]. He also slashed capital gains tax on dividends by 20%[b]. The 1980s also saw the rise of Financialization[c], i.e. the rise of the finance economy (rapidly eclipsing the real economy), and a sharp decline in the already scarce labor union participation[d]. It's also worth pointing out that the response to Republican neoconservatism from the Democratic Party was (like in much of the West - possibly due to the Cold War hard line against socialism) not a stronger leftist opposition but instead a shift towards Third Way[e] politics and neoliberalism, i.e. while Reagan may have been the starting point, the widening of the wealth gap was a bipartisan effort. [a]: https://taxpolicycenter.org/statistics/historical-highest-marginal-income-tax-rates https://taxpolicycenter.org/statistics/historical-highest-ma... [b]: https://www.forbestadvice.com/Money/Taxes/Federal-Tax-Rates/Historical_Federal_Capital_Gains_Tax_Rates_History.html https://www.forbestadvice.com/Money/Taxes/Federal-Tax-Rates/... [c]: https://en.wikipedia.org/wiki/Financialization https://en.wikipedia.org/wiki/Financialization [d]: https://www.imf.org/external/pubs/ft/fandd/2015/03/jaumotte.htm https://www.imf.org/external/pubs/ft/fandd/2015/03/jaumotte.... [e]: https://en.wikipedia.org/wiki/Third_Way https://en.wikipedia.org/wiki/Third_Way [1]: https://www.epi.org/publication/ceo-pay-in-2020/ https://www.epi.org/publication/ceo-pay-in-2020/ [2]: https://www.investopedia.com/ask/answers/101314/what-does-current-cost-living-compare-20-years-ago.asp https://www.investopedia.com/ask/answers/101314/what-does-cu... [3]: https://www.consumeraffairs.com/finance/comparing-the-costs-of-generations.html https://www.consumeraffairs.com/finance/comparing-the-costs-...
grandempire 2y ago
I often had startups offer me a number of shares with no explanation for the percentage ownership or the number of total shares. I said I have to value them at zero without more information and they would act all offended when I asked for more (happened at least 3 times). This suggests to me that founders either don’t understand the mechanics themselves or are preying on lack of financial understanding.
- dymk 2y ago
  It’s the latter.
  - grandempire 2y ago
    Ignorance is a big problem too. One time I had someone offended when I asked if their insurance plan qualified as a high deductible - they didn’t know it was a legal classification and thought I was accusing it of being expensive. I’m not anti-startup but the VC backed startup culture of the last 10 years or so has been pretty souring.
  - avn2109 2y ago
    It's kinda both sometimes haha
Jasonhhh2 2y ago
That mindset can definitely simplify negotiations, but I’ve noticed that removing equity from the perceived value stack can change how people show up. Some folks who might've gone the extra mile with even a slim shot at ownership now treat the role more like a job than a mission. I’m curious—have you seen any shifts in long-term engagement or retention since downplaying equity?
- 9283409232 2y ago
  It is a job, no matter how you pitch it. Equity is not real ownership and doesn't come with any real decision making power. It is a slim chance at a big bonus. I've had equity in most of my jobs and the job sucks then I'll leave before my stock vests which I've done twice.
  - jackcosgrove 2y ago
    > I've had equity in most of my jobs and the job sucks then I'll leave before my stock vests which I've done twice. Sometimes you can't tell how it will be from the outside. You only know whether you'll like the job, or whether it has prospects, after trying it. Bouncing isn't a bad move. In fact it's smart from a diversification perspective. Once you realize a company has no future, just get out and try again. As an employee, choosing whom to work for is one of the few ways you can diversify against risk.
immibis 2y ago
Isn't that the point of equity compensation? I don't care about owning a percentage of the company - that just sounds complicated. I care about converting it into cash later. To compensate for the small chance that will be able to happen, you better make it seem like a lot more cash than the alternative cash compensation you're offering. The upside to you is that you don't have to pay that bundle of cash for a while, and you only have to pay it if you have it. And not you personally, but all investors indirectly.
goldchainposse 2y ago
I was a hired early to a startup (my hiring manager was the CEO) that's now public and worth $10B+ that you've heard of. It took them over 10 years to go public, and I would have done just as well putting my money in FAANG, but with lower risk and more liquidity.
- LPisGood 2y ago
  Well to be fair 10+ years ago it’s hard to find too many dollar for dollar investments that beat MAAMA.
  - goldchainposse 2y ago
    True! But it's crazy that the risk, successful startup didn't even beat established tech for returns.
    - ikiris 2y ago
      It isn’t crazy, it’s that startups are just that bad of an investment when averaged out. You have better odds playing the lottery.
ein0p 2y ago
This is the way. Options aren't really worth much for the rank and file startup employees after about 7-10 hires. That fraction of a percent is just not going to be life changing unless it's the next OpenAI or something. For very early employees it's different, but even for them some founders will assign far too little equity to really make a difference.
deleted 2y ago
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marssaxman 2y ago
I would have ignored anything you said about the value of stock options anyway, having many years ago learned that they are practically always worthless, so making me a straightforward, honest, non-speculative offer would make me more interested in working for your company, not less. Kudos. Keep it up!
choppaface 2y ago
A candidate wants a _competitive_ offer. While stock is almost impossible to compare across offers, candidates can at least stack-rank the company’s funding and check to see how the proffered percentage compares to the mean for the funding round. So if a company has high-percentile funding, and gives a high-percentile equity fraction, it’s a good sign to the candidate. But of course, the company could be WeWork, or even OpenAI could get risky if the tender offers stop (which will happen when/if the market crashes). At the end of the day, it means a lot to the candidate if the company _wants to compete_ for a hire, especially in the current economy (layoff-friendly and SWE saturated, especially versus 10 years ago). A story like “your options could be worth $XXX in 4 years” I hope is not seen as competitive today.
apwell23 2y ago
> t’s almost always the right decision to place very little value ($0) on the stock option component of your offer one of my coworkers at databricks say their TC is like 900k or something based on some BS imaginary options value. lol .
- disgruntledphd2 2y ago
  I mean, dbx will probably be worth something but unless he or she has been there 10+ years, it's unlikely to be life-changing. And honestly, a company of that size giving huge option packages would make me suspicious (I'm a very suspicious person though ;) ).
- ikiris 2y ago
  People offering stock comp in an unlisted private are the moral equivalent of Jeff foxworthy’s “oh you’ll take a cheque? Hell I’ll pay the whole damn thing off then. I didn’t know you’d take a check I thought you wanted real money.”
m12k 2y ago
> The vast majority of cases stock options end up worthless Also, even if the company ends up worth a lot of money, there's no guarantee that a way to liquidate, such as an IPO, exit or secondary market, will become available in any reasonable time frame. And as a regular employee you have exceedingly little to say in bringing about such events. There's not much fun in having a winning lottery ticket that can't be cashed in, in fact it's highly stressful.
balalayuki 2y ago
I find it refreshing that you prioritize cash compensation over stock options. Many employees may feel more secure with a higher salary rather than relying on uncertain equity.
- stingraycharles 2y ago
  The hiring managers / founders equating the stock options to real money is actually a red flag to me. It’s super unlikely that a cash-out event ever happens for a startup, so until then, it’s just fake money to me. And I say this having owned and exited my own 8-employee startup and continued to work for startups for the last 15 years. I work for cash, not imaginary future profits.
mbesto 2y ago
I'm not saying this is right or wrong. But, if you're ventured backed, then this strategy is usually at odds with your investors. The reason stock options were used in the past was because you were signaling to everyone (you, your family, your grandma, your early employees, your current investors, your advisors, your future investors, etc.) that you were strapping on to a rocket ship. By paying them more and giving less stock, this means your capital raises don't stretch as far (from a perspective of time). This in turn will be a signal to your investors that you may take the $1M and not the $3B deal (see Google/Yahoo), which they may not like.

by cj 2y ago

Swizec 2y ago

> The vast majority of cases stock options end up worthless My fav manager had a great way of phrasing this: "There are more ways for your options to be worthless than to make you rich" But I also personally know plenty of people who made off great with their startup equity. They're def not worthless. Ultimately I think you should never take an uncomfortable pay-cut to join a company and you should maximize your stock compensation on top of that. Don't forget other types of equity – brand, exposure to good problems, network.

awesome_dude 2y ago
> But I also personally know plenty of people who made off great with their startup equity. They're def not worthless. I personally view Stock Options in the same way as lottery tickets - sure they might pay out big sometimes, and people do win lotteries, but, for the most part, they're going to be losers. There might be argument about the difference in how often stock options lose compared to lottery tickets, but that's missing the point.
- fragmede 2y ago
  Sorta. You could definitely go in on something worthless that never gets any traction and end up with less than zero, as in, you owe money after the experience. But for every Stripe or Airbnb there's 100 more lesser known names that still pay out, not in the millions, but a couple hundred thousand dollars range, which is still enough to change most people's situation. Definitely look at them as worthless untill they're worth something, but the untold secret is the secondary and private market. SpaceX employees have gone that route and some are quite rich despite there not being an IPO. Again, the failure mode to be aware of is you could end up in debt and owe money which is worse than if you'd never played.
  - cj 2y ago
    > Definitely look at them as worthless untill they're worth something One (of numerous) problems with stock options is almost all stock option contracts require you to exercise within 90 days of leaving the company. Often times employees leave a company, and then need to decide within 90 days whether they will spend anywhere from $5-50k+ to exercise the options to keep the stock, otherwise you forfeit the options after 90 days. The stars really have to align for you to make money with options without risking/gambling your own capital by exercising them. Unfortunately secondary markets only exist for very large companies like Stripe. I’m not aware of secondary markets for small < 100 person companies, which is where you see the most blatant hyping up of stock option value.
    - dgunay 2y ago
      There are companies that will finance your options exercise in exchange for a cut of the earnings in the event of an exit. I haven't personally used one, but they do exist.
      - dilyevsky 2y ago
        There’s a much better option - simply offer nso conversion with much longer exercise window
      - 2y ago
crote 2y ago
I think the main thing to remember is that you should assume they are worthless. There's probably something like a 99% chance they are worthless, a 0.9% chance they are worth a decent holiday, a 0.09% chance it'll let you retire early, and a 0.01% it'll make you somewhat rich. Worst of all, unless you're the CxO you have very little control over the outcome. Equity is a nice bonus, but you might just as well treat it like the company giving you a lottery ticket for Christmas. Nobody is going to take a significant pay cut or work 80 hours a week for a lottery ticket, so don't do it solely for the stock options either.
- sharkweek 2y ago
  I’m 0 for 3 on startup equity being worth anything and have since left the industry. One of the startups I did some time at was as close to a sure thing as one can hope for (unicorn valuation at one point) but it still went to zero in a very public flame out. It’s still impossible not to get imaginative about what could have been as I was a very early employee… such is life. The most lucrative stretch of my career was working for a big company that paid good base salaries.
  - datadrivenangel 2y ago
    Same. 1 startup is dead-dead. 1 startup is now a husk of itself used by the CEO for fractional CxO consulting, and 1 is down from unicorn status to limping along with 1/5th the staff. The primary benefit of startups is getting to do more work to learn more faster and not deal with Process.
- aetherson 2y ago
  I've worked at 8 companies, 3 have resulted in value from equity (all granted pre-IPO), all of them in certainly much larger than "a decent holiday" level. I think people have updated to be much too negative on the prospect of equity paying out. It's obviously much better than 1%, at least if you work at anything other than extremely early-stage companies.
  - cyanydeez 2y ago
candiddevmike 2y ago
Pre/post pandemic startup equity seem to have wildly different outcomes

__turbobrew__ 2y ago

Even if the company has a successful exit lots of times the founders have different stock class than employees which allows them to cook the books in creative ways where employee stocks are devalued without affecting founder stocks. I personally went through a successful exit of a company where I was one of the early engineers and was privy to orchestrating the sale (working with potential buyers and consultants) and saw this happen. I now am granted stocks which are traded on the NYSE so nobody can cook the books without commiting securities fraud.

carimura 2y ago
"Cooking the books" could mean many things but most people would interpret this as fraud. There are many exit scenarios that aren't fraud but rather stacks of preferential stock that get paid before common, who usually get paid last. What happened in your exit scenario?
- __turbobrew__ 2y ago
  See my comment further down. Im not going to go into any more details than that as the details of the sale are not public.
- awesome_dude 2y ago
  My read is that the poster felt that the accounting practices, which were likely legal and commonplace, violated implied contractual obligations.
  - Viliam1234 2y ago
    It's technically legal -- the best kind of legal!
    - fragmede 2y ago
      No. Fuck that shit. When the spirit of the law and the letter of the law conflict, I want us as humans to be able to step back and say that, hey, it doesn't make sense when you put it that way, and ignore the rules and do what's actually right.

yieldcrv 2y ago

> In my experience, almost everyone prefers cash over startup stock options. Good to know, because its common for the founder and hiring manager guilt trips to be insane.

grandempire 2y ago
Startups have this weird psychological purity testing I have never seen outside of religious groups. Effective organizations understand you actually don’t need to look inside the box. If someone is continuing to do good work for you it’s working. You don’t need to second guess their reasons why, or give them a reason to question their commitment.
- yieldcrv 2y ago
  It’s a basic lack of empathy. Many founders do have the privilege of choosing opportunities and seemingly cant or are unwilling to relate to people just working with integrity and sometimes being fulfilled by their choice of trade, without needing to be married to someone else’s idea and cause. Also most founders ideas aren't unique and there is often a tone deafness there. Employees with experience have already seen their idea even if it was in a prior cycle.
  - hnbad 2y ago
    "Believing in the mission" requires a suspension of disbelief that can reduce the impact of various factors that would otherwise decrease morale (e.g. lower cash compensation, fewer benefits, unfair working conditions, longer hours, etc). There's a reason many startups are built on hordes of college kids and it's not that they "have more energy" or "are more willing to think outside the box". They're less experienced and thus easier to manipulate. They're also less likely to have dependents they need to take into consideration, don't understand their limits or trade-offs between short-term performance and long-term endurance (e.g. burnout), and are more likely to be naive about their place in the company and the effect/function of the company. Plus, of course, they're "less risk-averse" which is another way of saying bad at judging the odds of certain outcomes.

blitzar 2y ago

As your 30 person startup has grown, the (future) value of the stock has gone from $0.00 to not $0. When the value was zero, of course you had to talk up future value - you were selling something worth $0 for $1,000's. Now that it is worth something, it represents actual value for the employees to swap for salary, which is why you no longer offer as much!

cj 2y ago
That’s not really how it works, though. The price of your options is set based on when you join the company. If the company is already valuable by the time you join, you’re essentially buying in at the current valuation with the hope that the valuation will continue to increase. You make money on the amount the company value increases starting the day the options were granted. (This comment isn’t 100% technically accurate, but gets the point across in fewer words)
- ikiris 2y ago
  Almost always stock options at a startup are the equivalent of an unsecured iou. Even if there is a conversion at some point due to a buyout, common employee stock rarely ever sees any of that money. If anything they’re often negative value because you pay taxes on their claimed value at assignment.

Aurornis 2y ago

> In my experience, almost everyone prefers cash over startup stock options. My experience has been a little different. We had a lot of people demanding both very high cash comp and then demanding very high equity packages on top. Giving people a sliding scale option did put some of the control back in their hands, but it also produced an analysis paralysis for some where they couldn’t decide what to pick. > And from an employee perspective, it’s almost always the right decision to place very little value ($0) on the stock option component of your offer. The vast majority of cases stock options end up worthless. Much of this is due to startups failing. Every random “startup” trying to pay people with options because the founders have no hope of success inflates this statistic. However another driver of this statistic is the extremely short exercise window upon quitting. People may work somewhere for 1-3 years but the company could be 5-10 years away from acquisition. Employees have to give the company money at time of quitting to get any equity, which few want to do. I know the common wisdom, but I also know that there are a couple local technology centered private Slack groups in my area where people will eagerly try to evaluate and possibly buy your options for local startups. They don’t buy everything, obviously, but there is demand for the few cases where contracts allow transfer of the resulting equity.

fnbr 2y ago
This is why I will never work somewhere with a short post termination exercise period (PTEP). If it’s not at least 5 years, ideally 10, they don’t seriously consider equity something that employees are owed.
pm90 2y ago
> but I also know that there are a couple local technology centered private Slack groups in my area where people will eagerly try to evaluate and possibly buy your options for local startups. They don’t buy everything, obviously, but there is demand for the few cases where contracts allow transfer of the resulting equity. isn’t this illegal? private stock ownership needs approval from company/BoD to change hands, no?
- toomuchtodo 2y ago
  While board approval can be a condition of transfer (consult the options agreement), forward contacts can be used (with counterparty, liquidity, and price risk) when transfer conditions cannot be met to effectuate a de jure transfer.

babl-yc 2y ago

So would you trade your founder equity for a fixed salary? My guess is probably not. Equity is an extremely important factor for many candidates, especially more senior ones and executives. I would not pitch it as future value, and instead pitch as % of company. If it's a minuscule amount that doesn't move the needle in offer conversations, than perhaps you are not offering enough, or you're identifying candidates who value more predictable income than investment in the company.

parpfish 2y ago
the founder has so much more control over the direction of the company and what an exit looks like that it makes sense for them to want equity. As an IC, there’s little I can do to affect the company valuation because I’m just executing the CEOs vision. And there’s nothing I can do to affect their decisions about potential exits.
paxys 2y ago
Exactly. If I'm joining a 30 person startup it's not because of the size of the paycheck. Any larger company will obvioulsy be able to easily beat the offer. I want a significant amount of equity. I want to see the cap table. I want to see details about funding rounds, finances, available runway. I want to see MRR/ARR, recently closed deals. If founders dance around these questions and say "equity is not imporant, see how much we are paying you" then I'm walking out the door.
- cyanydeez 2y ago
  Reading through the thread, the point is the startups arn't providing transparent accounts of what the equity is and how it can be diluted and reduced over the life time and sale of the company. That's all the debate. Many people have seen those options become worthless because of legalistic maneuvers and violate what's said in the initial options. So this tangent isn't really clarifying anything. Some people would simply want larger salaries and options be valued as 0$ for evaluating compensation because how easy Capitalists have made it to screw over classes of options/share holders.

Alex3917 2y ago

> And from an employee perspective, it’s almost always the right decision to place very little value ($0) on the stock option component of your offer. The vast majority of cases stock options end up worthless. This isn't actually true from a historical perspective. The primary reason why the gap between the wealthy and and everyone is increasing is that employees started preferring cash compensation over equity. Joseph Blasi documented this in his book The Citizen's Share, and that book is why Elizabeth Warren recently passed legislation making it easier for employers to give equity to their employees.

hnbad 2y ago
> The primary reason why the gap between the wealthy and and everyone is increasing is that employees started preferring cash compensation over equity. You're making it sound like equity turns companies into co-ops when in reality most equity remains unexercised (because that literally involves paying your then likely former employer money) or ends up being worthless for all the reasons others have explained. The gap between the wealthy and everyone else has been sharply increasing ever since Reagan[0]. CEO pay alone has massively skyrocketed, detached from all other economic growth factors (most of the growth occurred in the 1990s)[1]: > From 1978 to 2020, CEO pay based on realized compensation grew by 1,322%, far outstripping S&P stock market growth (817%) and top 0.1% earnings growth (which was 341% between 1978 and 2019, the latest data available). In contrast, compensation of the typical worker grew by just 18.0% from 1978 to 2020. The reason workers prefer cash compensation is that you can't use equity to pay your bills. Cost of living has increased since the 1970s[2], housing costs and college tuition have become a lot more expensive[3]. While electronics may have gotten cheaper, the day to day expenses have gone up and those in lower income brackets will necessarily spend more of their income on things like groceries and rent. Standards of living increasing with income may increase those expenses but there's a cut-off point where those increases no longer track linearly even if you throw in money sinks like private yachts. If you want to reduce cash preference, you'd need to first address the underlying socioeconomic insecurities that drive the real need for cash that this preference comes downstream from. You can't have multi-billionaires (or even near-trillionaires) and a steady socio-economic progression to them from sub-minimum wage. Multi-billionaires can only exist in a system that allows for disproportionate amounts of wealth to be drained out of the system into a minute fraction of the top percentile. The gap is a necessary conclusion of a system that allows multi-billionaires to exist. Thinking this can be fixed by "making it easier" for corporations to give workers equity not only ignores why workers prefer cash (and why they're more likely to do so now than decades ago) but also why corporations want to use equity for compensation (i.e. because it usually reduces cash compensation while coming with very low (and in any case: delayed) risk due to workers not exercising options or shares becoming worthless or near-worthless due to the way preferential shares are usually structured). If we were talking about actual worker ownership (or at least revenue sharing) things would look very different, but that's not something most corporations want and definitely something most investors/VCs would reject outright. [0]: Reagan cut the top marginal income tax rate by 20% to a mere 50%, after it had already previously been cut sharply by Johnson from 91% to 70%[a]. He also slashed capital gains tax on dividends by 20%[b]. The 1980s also saw the rise of Financialization[c], i.e. the rise of the finance economy (rapidly eclipsing the real economy), and a sharp decline in the already scarce labor union participation[d]. It's also worth pointing out that the response to Republican neoconservatism from the Democratic Party was (like in much of the West - possibly due to the Cold War hard line against socialism) not a stronger leftist opposition but instead a shift towards Third Way[e] politics and neoliberalism, i.e. while Reagan may have been the starting point, the widening of the wealth gap was a bipartisan effort. [a]: https://taxpolicycenter.org/statistics/historical-highest-marginal-income-tax-rates https://taxpolicycenter.org/statistics/historical-highest-ma... [b]: https://www.forbestadvice.com/Money/Taxes/Federal-Tax-Rates/Historical_Federal_Capital_Gains_Tax_Rates_History.html https://www.forbestadvice.com/Money/Taxes/Federal-Tax-Rates/... [c]: https://en.wikipedia.org/wiki/Financialization https://en.wikipedia.org/wiki/Financialization [d]: https://www.imf.org/external/pubs/ft/fandd/2015/03/jaumotte.htm https://www.imf.org/external/pubs/ft/fandd/2015/03/jaumotte.... [e]: https://en.wikipedia.org/wiki/Third_Way https://en.wikipedia.org/wiki/Third_Way [1]: https://www.epi.org/publication/ceo-pay-in-2020/ https://www.epi.org/publication/ceo-pay-in-2020/ [2]: https://www.investopedia.com/ask/answers/101314/what-does-current-cost-living-compare-20-years-ago.asp https://www.investopedia.com/ask/answers/101314/what-does-cu... [3]: https://www.consumeraffairs.com/finance/comparing-the-costs-of-generations.html https://www.consumeraffairs.com/finance/comparing-the-costs-...

grandempire 2y ago

I often had startups offer me a number of shares with no explanation for the percentage ownership or the number of total shares. I said I have to value them at zero without more information and they would act all offended when I asked for more (happened at least 3 times). This suggests to me that founders either don’t understand the mechanics themselves or are preying on lack of financial understanding.

dymk 2y ago
It’s the latter.
- grandempire 2y ago
  Ignorance is a big problem too. One time I had someone offended when I asked if their insurance plan qualified as a high deductible - they didn’t know it was a legal classification and thought I was accusing it of being expensive. I’m not anti-startup but the VC backed startup culture of the last 10 years or so has been pretty souring.
- avn2109 2y ago
  It's kinda both sometimes haha

Jasonhhh2 2y ago

That mindset can definitely simplify negotiations, but I’ve noticed that removing equity from the perceived value stack can change how people show up. Some folks who might've gone the extra mile with even a slim shot at ownership now treat the role more like a job than a mission. I’m curious—have you seen any shifts in long-term engagement or retention since downplaying equity?

9283409232 2y ago
It is a job, no matter how you pitch it. Equity is not real ownership and doesn't come with any real decision making power. It is a slim chance at a big bonus. I've had equity in most of my jobs and the job sucks then I'll leave before my stock vests which I've done twice.
- jackcosgrove 2y ago
  > I've had equity in most of my jobs and the job sucks then I'll leave before my stock vests which I've done twice. Sometimes you can't tell how it will be from the outside. You only know whether you'll like the job, or whether it has prospects, after trying it. Bouncing isn't a bad move. In fact it's smart from a diversification perspective. Once you realize a company has no future, just get out and try again. As an employee, choosing whom to work for is one of the few ways you can diversify against risk.

immibis 2y ago

Isn't that the point of equity compensation? I don't care about owning a percentage of the company - that just sounds complicated. I care about converting it into cash later. To compensate for the small chance that will be able to happen, you better make it seem like a lot more cash than the alternative cash compensation you're offering. The upside to you is that you don't have to pay that bundle of cash for a while, and you only have to pay it if you have it. And not you personally, but all investors indirectly.

goldchainposse 2y ago

I was a hired early to a startup (my hiring manager was the CEO) that's now public and worth $10B+ that you've heard of. It took them over 10 years to go public, and I would have done just as well putting my money in FAANG, but with lower risk and more liquidity.

LPisGood 2y ago
Well to be fair 10+ years ago it’s hard to find too many dollar for dollar investments that beat MAAMA.
- goldchainposse 2y ago
  True! But it's crazy that the risk, successful startup didn't even beat established tech for returns.
  - ikiris 2y ago
    It isn’t crazy, it’s that startups are just that bad of an investment when averaged out. You have better odds playing the lottery.

ein0p 2y ago

This is the way. Options aren't really worth much for the rank and file startup employees after about 7-10 hires. That fraction of a percent is just not going to be life changing unless it's the next OpenAI or something. For very early employees it's different, but even for them some founders will assign far too little equity to really make a difference.

deleted 2y ago

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marssaxman 2y ago

I would have ignored anything you said about the value of stock options anyway, having many years ago learned that they are practically always worthless, so making me a straightforward, honest, non-speculative offer would make me more interested in working for your company, not less. Kudos. Keep it up!

choppaface 2y ago

A candidate wants a _competitive_ offer. While stock is almost impossible to compare across offers, candidates can at least stack-rank the company’s funding and check to see how the proffered percentage compares to the mean for the funding round. So if a company has high-percentile funding, and gives a high-percentile equity fraction, it’s a good sign to the candidate. But of course, the company could be WeWork, or even OpenAI could get risky if the tender offers stop (which will happen when/if the market crashes). At the end of the day, it means a lot to the candidate if the company _wants to compete_ for a hire, especially in the current economy (layoff-friendly and SWE saturated, especially versus 10 years ago). A story like “your options could be worth $XXX in 4 years” I hope is not seen as competitive today.

apwell23 2y ago

> t’s almost always the right decision to place very little value ($0) on the stock option component of your offer one of my coworkers at databricks say their TC is like 900k or something based on some BS imaginary options value. lol .

disgruntledphd2 2y ago
I mean, dbx will probably be worth something but unless he or she has been there 10+ years, it's unlikely to be life-changing. And honestly, a company of that size giving huge option packages would make me suspicious (I'm a very suspicious person though ;) ).
ikiris 2y ago
People offering stock comp in an unlisted private are the moral equivalent of Jeff foxworthy’s “oh you’ll take a cheque? Hell I’ll pay the whole damn thing off then. I didn’t know you’d take a check I thought you wanted real money.”

m12k 2y ago

> The vast majority of cases stock options end up worthless Also, even if the company ends up worth a lot of money, there's no guarantee that a way to liquidate, such as an IPO, exit or secondary market, will become available in any reasonable time frame. And as a regular employee you have exceedingly little to say in bringing about such events. There's not much fun in having a winning lottery ticket that can't be cashed in, in fact it's highly stressful.

balalayuki 2y ago

I find it refreshing that you prioritize cash compensation over stock options. Many employees may feel more secure with a higher salary rather than relying on uncertain equity.

stingraycharles 2y ago
The hiring managers / founders equating the stock options to real money is actually a red flag to me. It’s super unlikely that a cash-out event ever happens for a startup, so until then, it’s just fake money to me. And I say this having owned and exited my own 8-employee startup and continued to work for startups for the last 15 years. I work for cash, not imaginary future profits.

mbesto 2y ago

I'm not saying this is right or wrong. But, if you're ventured backed, then this strategy is usually at odds with your investors. The reason stock options were used in the past was because you were signaling to everyone (you, your family, your grandma, your early employees, your current investors, your advisors, your future investors, etc.) that you were strapping on to a rocket ship. By paying them more and giving less stock, this means your capital raises don't stretch as far (from a perspective of time). This in turn will be a signal to your investors that you may take the $1M and not the $3B deal (see Google/Yahoo), which they may not like.