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> Think about working for equity vs. salary It's really common for people to drastically overestimate the value of startup equity, or to just not understand th

> Think about working for equity vs. salary It's really common for people to drastically overestimate the value of startup equity, or to just not understand the basic mechanics of it at all. In my experience people look at the face value of their options and are pretty clueless about how taxes (or even their strike price!) affect what they might actually wind up with.

steven2012 12y ago
I agree. It's easy for Matt Cutts to say that you should take more equity, because he has only seen massive success. I've been in the Bay Area exactly as long as he has, and I've had 1 company out of 6 where my options actually made me money. The rest were all worthless.
- nikcub 12y ago
  If you're exchanging salary for equity you have to look at taking a job at a startup like an investment decision. I don't know what the broader startup stats are now, but 1 in 6 sounds about average. It means you should negotiate down vesting periods and try and spend a few years at each startup before figuring out if it will succeed or not. My anecdotal opinion is that more startups are cashing out for at least something because of acquihires and low-end mergers. I had a friend whose startup ran out of money, he accepted a few points of another startup in exchange for the assets of his failed startup and that startup that bought his assets ended up selling for $100M+ after less than a year earning him a decent return. On another note - it would be pretty cool if someone did the equivalent of an index fund but for employee options. Get together with 5-6 of your friends at different startups and exchange options with each other to hedge the risk. Another way to diversify your exposure is to get advisory roles at startups and pick up 25-100 b.p from 4-5 different companies for helping them out. This has worked out pretty well for myself. There are some VCs who will also invest a small slice on your behalf if you introduce them to a deal they end up investing in, which can also work out pretty well if you are able to spot good investment deals, know the founders, etc. For a culture where stock options, M&A and investing is so prevalent there really isn't much information out there in terms of making the right investment decisions and how to handle and work with money.
  - ryandrake 12y ago
    > On another note - it would be pretty cool if someone did the equivalent of an index fund but for employee options. Get together with 5-6 of your friends at different startups and exchange options with each other to hedge the risk. This is a pretty cool idea, but you'll have to find a lot of friends for it to work. Chances are, your 5-6 friends' options will also end up worthless. Then again, if we're talking about a pool of maybe 1,000 start-ups, then you need to believe that a diverse bundle of start-ups will outperform the S&P500 on average, otherwise it's pointless.
    - nikcub 12y ago
      or create a web-based matchmaking market. I think the reason why it may not have happen already is because of regulations shrug - i'll ask the next time i'm speaking to a lawyer
- Matt_Cutts 12y ago
  You're completely right that I was very fortunate. All I'm saying is that if your goal is financial independence, it can be hard to get there on a straight salary, and that trying to get some sliver of equity can radically increase your odds of financial success. With that specific piece of advice, I'm trying to catch folks in Nebraska or Cleveland who are thinking about accepting a 9-5 job, not folks who are already in the Bay Area and familiar with buying a ticket in the startup lottery.
  - walshemj 12y ago
    It does depend even in mature boring companies you can make a nice return I made a fair bit on BT.A and REL (Elsevier) Of course when I worked for poptel (.5%) I would have been able to retire if we had been brought out by the co-op BTW in the UK BT 's latest employee 5 year share save returned £60k tax free and that is a scheme available to every one.
phamilton 12y ago
I've seen more than once that in a acqui-hire situation employees are left with very little value in their options and lots of value in their retention package. Not always the case, but it adds to my opinion that equity is really impossible to value.
phamilton 12y ago
I've seen more than once that in a acqui-hire situation employees are left with very little value in their options and lots of value in their retention package. Not always the case, but it adds to my opinion that equity is really impossible to value.
Matt_Cutts 12y ago
Great point. I'd recommend the book "Consider your Options" when you're accepting a job with stock options: http://www.amazon.com/Consider-Your-Options-Equity-Compensation/dp/0979224896 http://www.amazon.com/Consider-Your-Options-Equity-Compensat... It can be dense reading, but no one cares about your money more than you do, so it's your responsibility to make sure you understand what's going on. Doing that research saved me making more mistakes down the road. Another common mistake with pre-IPO companies is to say "Wow, I get X thousand options!!" But you have to ask how many outstanding shares the company has. What really matters is what percentage of the company (your shares divided by total outstanding shares) is being offered to you.
- mcfunley 12y ago
  Exactly--a company I worked for did a stock split that was at least partially rationalized by being able to offer candidates higher share counts. Companies also hand out explainer sheets with their grants that don't really help, inasmuch as they seem to be intended to get you excited about the value of the shares disregarding the exercise price (and the fact that in most scenarios, you're paying normal tax rates on what's left).
prostoalex 12y ago
I had a friend of a friend quote me the value of his "options package" once (was high six figures), and only after drilling down I discovered this was the amount of ISOs multiplied by his strike price, i.e. a price that he would have to pay up to exercise it.
- g_mifo 12y ago
  I once had a VP of Engineering quote me the "value" of my options using that calculation. I declined the offer. Ironically, it was a Lisp startup, and Lispers "know the value of everything and the cost of nothing."

steven2012 12y ago

I agree. It's easy for Matt Cutts to say that you should take more equity, because he has only seen massive success. I've been in the Bay Area exactly as long as he has, and I've had 1 company out of 6 where my options actually made me money. The rest were all worthless.

nikcub 12y ago
If you're exchanging salary for equity you have to look at taking a job at a startup like an investment decision. I don't know what the broader startup stats are now, but 1 in 6 sounds about average. It means you should negotiate down vesting periods and try and spend a few years at each startup before figuring out if it will succeed or not. My anecdotal opinion is that more startups are cashing out for at least something because of acquihires and low-end mergers. I had a friend whose startup ran out of money, he accepted a few points of another startup in exchange for the assets of his failed startup and that startup that bought his assets ended up selling for $100M+ after less than a year earning him a decent return. On another note - it would be pretty cool if someone did the equivalent of an index fund but for employee options. Get together with 5-6 of your friends at different startups and exchange options with each other to hedge the risk. Another way to diversify your exposure is to get advisory roles at startups and pick up 25-100 b.p from 4-5 different companies for helping them out. This has worked out pretty well for myself. There are some VCs who will also invest a small slice on your behalf if you introduce them to a deal they end up investing in, which can also work out pretty well if you are able to spot good investment deals, know the founders, etc. For a culture where stock options, M&A and investing is so prevalent there really isn't much information out there in terms of making the right investment decisions and how to handle and work with money.
- ryandrake 12y ago
  > On another note - it would be pretty cool if someone did the equivalent of an index fund but for employee options. Get together with 5-6 of your friends at different startups and exchange options with each other to hedge the risk. This is a pretty cool idea, but you'll have to find a lot of friends for it to work. Chances are, your 5-6 friends' options will also end up worthless. Then again, if we're talking about a pool of maybe 1,000 start-ups, then you need to believe that a diverse bundle of start-ups will outperform the S&P500 on average, otherwise it's pointless.
  - nikcub 12y ago
    or create a web-based matchmaking market. I think the reason why it may not have happen already is because of regulations shrug - i'll ask the next time i'm speaking to a lawyer
Matt_Cutts 12y ago
You're completely right that I was very fortunate. All I'm saying is that if your goal is financial independence, it can be hard to get there on a straight salary, and that trying to get some sliver of equity can radically increase your odds of financial success. With that specific piece of advice, I'm trying to catch folks in Nebraska or Cleveland who are thinking about accepting a 9-5 job, not folks who are already in the Bay Area and familiar with buying a ticket in the startup lottery.
- walshemj 12y ago
  It does depend even in mature boring companies you can make a nice return I made a fair bit on BT.A and REL (Elsevier) Of course when I worked for poptel (.5%) I would have been able to retire if we had been brought out by the co-op BTW in the UK BT 's latest employee 5 year share save returned £60k tax free and that is a scheme available to every one.

phamilton 12y ago

I've seen more than once that in a acqui-hire situation employees are left with very little value in their options and lots of value in their retention package. Not always the case, but it adds to my opinion that equity is really impossible to value.

phamilton 12y ago

Matt_Cutts 12y ago

Great point. I'd recommend the book "Consider your Options" when you're accepting a job with stock options: http://www.amazon.com/Consider-Your-Options-Equity-Compensation/dp/0979224896 http://www.amazon.com/Consider-Your-Options-Equity-Compensat... It can be dense reading, but no one cares about your money more than you do, so it's your responsibility to make sure you understand what's going on. Doing that research saved me making more mistakes down the road. Another common mistake with pre-IPO companies is to say "Wow, I get X thousand options!!" But you have to ask how many outstanding shares the company has. What really matters is what percentage of the company (your shares divided by total outstanding shares) is being offered to you.

mcfunley 12y ago
Exactly--a company I worked for did a stock split that was at least partially rationalized by being able to offer candidates higher share counts. Companies also hand out explainer sheets with their grants that don't really help, inasmuch as they seem to be intended to get you excited about the value of the shares disregarding the exercise price (and the fact that in most scenarios, you're paying normal tax rates on what's left).

prostoalex 12y ago

I had a friend of a friend quote me the value of his "options package" once (was high six figures), and only after drilling down I discovered this was the amount of ISOs multiplied by his strike price, i.e. a price that he would have to pay up to exercise it.

g_mifo 12y ago
I once had a VP of Engineering quote me the "value" of my options using that calculation. I declined the offer. Ironically, it was a Lisp startup, and Lispers "know the value of everything and the cost of nothing."