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5% is IMO extremely generous. Basically what that means is that there is a 5% chance that: 1 - Your options will fully vest before you leave the company due to

5% is IMO extremely generous. Basically what that means is that there is a 5% chance that: 1 - Your options will fully vest before you leave the company due to internal or external factors 2 - The company will reach an exit (as opposed to flop over and die) 3 - The company will reach an exit sizable enough that after accounting for cut price, your options are still worth the value when you got them (accounting for inflation, of course) 4 - That #3 is still true after accounting for dilution 5 - You will successfully be able to exercise and exit your position without running into restrictions like this scenario. Personally, the odds of all 5 points being hit for a particular company is a lot lower than 5%. It may be worth doing the math, but almost all of the time the number is so close to 0 that it's useful just to value all options at $0. tl;dr: Never take a pay cut for options. Good God.

opendais 12y ago
I wasn't advocating you take a pay cut for options. ;) But I think $0 is wrong as well. http://online.wsj.com/news/articles/SB10000872396390443720204578004980476429190 http://online.wsj.com/news/articles/SB1000087239639044372020... 75% fail. 11% go public or acquired. It is a lottery ticket but those don't sell at $0.
- potatolicious 12y ago
  A lot of those 11% are still "failures" for the employees though - IPOs almost always are positive for employees, but acquisitions are not. It is common for floundering companies to sell or go for acquihires, in which case your options are most certainly underwater and worthless. Even in small acquisitions (that aren't just a fire-sale in disguise) it's quite possible for the investors and founders to get paid, but leave employees with little to no payout as well (certainly not the tune the options were originally valued). Considering how difficult it is to differentiate between a "real" acquisition (with requisite payouts for all involved) and desperation acquisitions/acquihires, I doubt we'll ever see the true percentage. In any case, as an employee holding options, you are the last in line to get paid, never forget that. My personal, unscientific ballpark is that the odds of exiting your options for at least the same amount as the original grant valuation is somewhere in the sub-1% range.
  - opendais 12y ago
    > A lot of those 11% are still "failures" for the employees though - IPOs almost always are positive for employees, but acquisitions are not. > My personal, unscientific ballpark is that the odds of exiting your options for at least the same amount as the original grant valuation is somewhere in the sub-1% range. Fair enough, but lets call it .5%. Maybe I was off a decimal place. ;) .5% of a chance at $200,000 is still worth something.
    - potatolicious 12y ago
      It's worth $1000 ;) Of course, the entire intent of options in startups is to convince you that it's worth much more than $1000. Best not be fooled.
      - opendais 12y ago
        Oh, I am sure. ;) I just would go with my valuation of the total compensation, not theirs. Same as I would do selling/buying a car.
  - danielweber 12y ago
    I know a number of places where the acquisition price was enough to perfectly cover whatever amount was needed to cover a majority of VCs on the board. I.e., five people on a board, from VC group 1, VC group 2, VC group 3, the founder, and someone else. The VCs invested $44,140,000 into the company and get that at a minimum from any acquisition. Then the company gets acquired for $44,140,000. I'm 99% sure this violates the fiduciary responsibilities a board of directors has, but, who the hell is going to sue?
    - opendais 12y ago
      The minority VC that gets left out in the cold? ;)

opendais 12y ago

I wasn't advocating you take a pay cut for options. ;) But I think $0 is wrong as well. http://online.wsj.com/news/articles/SB10000872396390443720204578004980476429190 http://online.wsj.com/news/articles/SB1000087239639044372020... 75% fail. 11% go public or acquired. It is a lottery ticket but those don't sell at $0.

potatolicious 12y ago
A lot of those 11% are still "failures" for the employees though - IPOs almost always are positive for employees, but acquisitions are not. It is common for floundering companies to sell or go for acquihires, in which case your options are most certainly underwater and worthless. Even in small acquisitions (that aren't just a fire-sale in disguise) it's quite possible for the investors and founders to get paid, but leave employees with little to no payout as well (certainly not the tune the options were originally valued). Considering how difficult it is to differentiate between a "real" acquisition (with requisite payouts for all involved) and desperation acquisitions/acquihires, I doubt we'll ever see the true percentage. In any case, as an employee holding options, you are the last in line to get paid, never forget that. My personal, unscientific ballpark is that the odds of exiting your options for at least the same amount as the original grant valuation is somewhere in the sub-1% range.
- opendais 12y ago
  > A lot of those 11% are still "failures" for the employees though - IPOs almost always are positive for employees, but acquisitions are not. > My personal, unscientific ballpark is that the odds of exiting your options for at least the same amount as the original grant valuation is somewhere in the sub-1% range. Fair enough, but lets call it .5%. Maybe I was off a decimal place. ;) .5% of a chance at $200,000 is still worth something.
  - potatolicious 12y ago
    It's worth $1000 ;) Of course, the entire intent of options in startups is to convince you that it's worth much more than $1000. Best not be fooled.
    - opendais 12y ago
      Oh, I am sure. ;) I just would go with my valuation of the total compensation, not theirs. Same as I would do selling/buying a car.
- danielweber 12y ago
  I know a number of places where the acquisition price was enough to perfectly cover whatever amount was needed to cover a majority of VCs on the board. I.e., five people on a board, from VC group 1, VC group 2, VC group 3, the founder, and someone else. The VCs invested $44,140,000 into the company and get that at a minimum from any acquisition. Then the company gets acquired for $44,140,000. I'm 99% sure this violates the fiduciary responsibilities a board of directors has, but, who the hell is going to sue?
  - opendais 12y ago
    The minority VC that gets left out in the cold? ;)