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> 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 worthl

by 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
      - fragmede 2y ago
        and the most important thing someone told me is that 100% of $0 is $0. x% of a big number > $0
        dgunay 2y ago
        Yeah, but you should try to shop for a deal where 100 - x is as big a number as you can negotiate.
        fragmede 2y ago
        Oh absolutely, the important bit is that 100% of $0 is $0.
    - fragmede 2y ago
      I can't speak to their individual deals, but Hiiive, Forge, and ESO fund are all working with companies that aren't stripe sized. But absolutely no one should read this and think anyone's paper valuation is worth actual dollars until the money hits your bank account.
    - est31 2y ago
      > without risking/gambling your own capital by exercising them. Many companies offer early exercise, so you can reduce the amount you gamble by a lot. Also, you already "pay" in terms of opportunity costs by being at that startup vs something more established where you get RSUs of a public company. So using some of the money from the startup in order to exercise the shares is really useful. If the startup's cash compensation is just enough to pay your bills, then of course it's different.
  - awesome_dude 2y ago
    > You could definitely go in on something worthless that never gets any traction and end up with less than zero Absolutely agree > Lesser known names that still pay out, not in the millions, but a couple hundred thousand dollars range FTR This is the same for lottery tickets, they don't all win the top prize (or a share of it), most will win a few dollars, some tens of thousands, and so on.
- ants_everywhere 2y ago
  The main difference is that people often think they share a fate as a startup. They all have the same lottery tickets (in varying amounts) that pay out under the same conditions. After all, that's how managers often motivate the early employees. But since there are different classes of lottery tickets, the payouts can change arbitrarily at the last minute depending on the specifics of the deals. So even after accounting for the fact that most lottery tickets don't pay out, you need to account for the fact that some within the same startup might pay out while yours don't. And there's no perfect way of knowing ahead of time.
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

by Swizec 2y ago

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
    - fragmede 2y ago
      and the most important thing someone told me is that 100% of $0 is $0. x% of a big number > $0
      - dgunay 2y ago
        Yeah, but you should try to shop for a deal where 100 - x is as big a number as you can negotiate.
        fragmede 2y ago
        Oh absolutely, the important bit is that 100% of $0 is $0.
  - fragmede 2y ago
    I can't speak to their individual deals, but Hiiive, Forge, and ESO fund are all working with companies that aren't stripe sized. But absolutely no one should read this and think anyone's paper valuation is worth actual dollars until the money hits your bank account.
  - est31 2y ago
    > without risking/gambling your own capital by exercising them. Many companies offer early exercise, so you can reduce the amount you gamble by a lot. Also, you already "pay" in terms of opportunity costs by being at that startup vs something more established where you get RSUs of a public company. So using some of the money from the startup in order to exercise the shares is really useful. If the startup's cash compensation is just enough to pay your bills, then of course it's different.
- awesome_dude 2y ago
  > You could definitely go in on something worthless that never gets any traction and end up with less than zero Absolutely agree > Lesser known names that still pay out, not in the millions, but a couple hundred thousand dollars range FTR This is the same for lottery tickets, they don't all win the top prize (or a share of it), most will win a few dollars, some tens of thousands, and so on.
ants_everywhere 2y ago
The main difference is that people often think they share a fate as a startup. They all have the same lottery tickets (in varying amounts) that pay out under the same conditions. After all, that's how managers often motivate the early employees. But since there are different classes of lottery tickets, the payouts can change arbitrarily at the last minute depending on the specifics of the deals. So even after accounting for the fact that most lottery tickets don't pay out, you need to account for the fact that some within the same startup might pay out while yours don't. And there's no perfect way of knowing ahead of time.

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