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In New York, people have given up on equity. I hear this time and again in the NYC tech scene - building a company is hard in NYC because people don't believe e

In New York, people have given up on equity. I hear this time and again in the NYC tech scene - building a company is hard in NYC because people don't believe equity is worth anything because of the bullshit that happened in the first bubble. In New York especially, there were a lot of shenanigans with equity in 99/00 bubble/crash era where companies got sold and employees got nothing because of liquidation preferences and other things. The eco-system has not regained its trust and the mythos of worthless equity persists. Your point about "what is that compared to the person next to you" reflects this: you're thinking about equity relative to others as important, vs. the odds that 1% turns into various amounts of money. YC companies get soft landings/acquihires at a high rate and also often become worth a lot. 1% equity in a YC company you believe in is equity worth having. (key words: you believe in).

hyperpape 12y ago
What is the average exit for a YC company, and how many years will that early employee need to work to keep their payout? Saying it's worth having is pretty vague.
sillysaurus3 12y ago
1% equity in a company that exits for $10M or less probably isn't worth having. Since many companies exit for $10M or less, that means getting 1% equity usually isn't worthwhile. 1% equity in a $10M exit would net you $100k. Given a four year vesting schedule, that's $25k/yr. Since you're working for a startup, your salary might very well be much less than $25k/yr of what you're normally worth at other companies. Aggressively negotiating your salary at a non-startup company can get you that much and then some. So it's about whether you believe the company will make a >$10M exit, knowing that most companies die and many exit for $10M or less. It's also about other factors. For example, whether you get paid depends on liquidation preferences, and how much you get paid depends on dilution and taxes. Also cost of living. I've heard that decent apartments in SF can go for $3k. (Zillow seems to confirm that many apartments are around $3k.) Compared to a $1,500 apartment in a place with reasonable cost of living, that's an extra $18k/yr that you'll need to pay just to live there. Actually, that's $18k/yr of post-tax salary, so more like $36k/yr of salary.
- SeoxyS 12y ago
  Not to mention that you'll probably have to pay for those options at a strike price equivalent to a valuation of $3M+. You only make money on the difference. You'd end up with a sub-100k pay day.
  - artemk 12y ago
    That's where the options vs RSUS comes in. There's a high chance of RSU at early stage start ups
    - burger_moon 12y ago
      Can you explain this further? I'm not familiar with those terms?
      - RickS 12y ago
        >The main difference between an RSU and a stock option is that the former may result in a direct cash outlay, whereas, in the latter case, you get shares. Of course, if you have a stock option you can choose to turn the stock into cash when you receive the option. If you have an RSU, depending on the agreement, you may not be able to receive stock, as the company may restrict you to receiving cash. via: http://finance.zacks.com/stock-options-vs-rsus-3356.html http://finance.zacks.com/stock-options-vs-rsus-3356.html
      - deleted 12y ago
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      - deleted 12y ago
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      - sliverstorm 12y ago
        I'm more familiar with RSU's, but my layman's understanding is: RSU is a direct grant of shares, not dissimilar from a cash bonus. Stock options are the opportunity to purchase shares at a set price, which as I understand it will be lower than market value. If stock price remains stable, you have essentially been granted the difference between the market price and the set price.
negrit 12y ago
Looking at the list: http://yclist.com http://yclist.com There are not so much YC companies that have exits. Having equity in bigger ones like airbnb, dropbox or stripe is worth peanuts until they either go public or get acquired YC company or not, taking a lot of equity for a lower salary it's still a gamble. At the end it's a matter of you believing the team you're joining can make it big or not.
- tomasien 12y ago
  That list is not accurate for what it's worth - several notable exits missing (justin.tv a huge one). Also bear in mind the data you're missing on that is how fast the "dead" startups died. Startups that died quickly didn't have a big impact on the employees lost opportunity cost.
- pbreit 12y ago
  There's a pretty good market for non-public equity these days.
  - kasey_junk 12y ago
    Unless I am a severe outlier I'd take that with a giant bit of skepticism. I've never had an options agreement that didn't require company approval to sell & I've never seen that given except for specific restructuring reasons.
    - pbreit 12y ago
      Most billion dollar companies can be traded without much difficulty. I've done 3 txns.
- maaku 12y ago
  > YC company or not, taking a lot of equity for a lower salary it's still a gamble. At the end it's a matter of you believing the team you're joining can make it big or not. Thanks to Second Market this is no longer true.
BrainInAJar 12y ago
> The eco-system has not regained its trust and the mythos of worthless equity persists. That would be because the ecosystem hasn't given any reason for developers to trust it and the equity is, in fact, largely worthless.

hyperpape 12y ago

What is the average exit for a YC company, and how many years will that early employee need to work to keep their payout? Saying it's worth having is pretty vague.

sillysaurus3 12y ago

1% equity in a company that exits for $10M or less probably isn't worth having. Since many companies exit for $10M or less, that means getting 1% equity usually isn't worthwhile. 1% equity in a $10M exit would net you $100k. Given a four year vesting schedule, that's $25k/yr. Since you're working for a startup, your salary might very well be much less than $25k/yr of what you're normally worth at other companies. Aggressively negotiating your salary at a non-startup company can get you that much and then some. So it's about whether you believe the company will make a >$10M exit, knowing that most companies die and many exit for $10M or less. It's also about other factors. For example, whether you get paid depends on liquidation preferences, and how much you get paid depends on dilution and taxes. Also cost of living. I've heard that decent apartments in SF can go for $3k. (Zillow seems to confirm that many apartments are around $3k.) Compared to a $1,500 apartment in a place with reasonable cost of living, that's an extra $18k/yr that you'll need to pay just to live there. Actually, that's $18k/yr of post-tax salary, so more like $36k/yr of salary.

SeoxyS 12y ago
Not to mention that you'll probably have to pay for those options at a strike price equivalent to a valuation of $3M+. You only make money on the difference. You'd end up with a sub-100k pay day.
- artemk 12y ago
  That's where the options vs RSUS comes in. There's a high chance of RSU at early stage start ups
  - burger_moon 12y ago
    Can you explain this further? I'm not familiar with those terms?
    - RickS 12y ago
      >The main difference between an RSU and a stock option is that the former may result in a direct cash outlay, whereas, in the latter case, you get shares. Of course, if you have a stock option you can choose to turn the stock into cash when you receive the option. If you have an RSU, depending on the agreement, you may not be able to receive stock, as the company may restrict you to receiving cash. via: http://finance.zacks.com/stock-options-vs-rsus-3356.html http://finance.zacks.com/stock-options-vs-rsus-3356.html
    - deleted 12y ago
      [deleted]
    - deleted 12y ago
      [deleted]
    - sliverstorm 12y ago
      I'm more familiar with RSU's, but my layman's understanding is: RSU is a direct grant of shares, not dissimilar from a cash bonus. Stock options are the opportunity to purchase shares at a set price, which as I understand it will be lower than market value. If stock price remains stable, you have essentially been granted the difference between the market price and the set price.

negrit 12y ago

Looking at the list: http://yclist.com http://yclist.com There are not so much YC companies that have exits. Having equity in bigger ones like airbnb, dropbox or stripe is worth peanuts until they either go public or get acquired YC company or not, taking a lot of equity for a lower salary it's still a gamble. At the end it's a matter of you believing the team you're joining can make it big or not.

tomasien 12y ago
That list is not accurate for what it's worth - several notable exits missing (justin.tv a huge one). Also bear in mind the data you're missing on that is how fast the "dead" startups died. Startups that died quickly didn't have a big impact on the employees lost opportunity cost.
pbreit 12y ago
There's a pretty good market for non-public equity these days.
- kasey_junk 12y ago
  Unless I am a severe outlier I'd take that with a giant bit of skepticism. I've never had an options agreement that didn't require company approval to sell & I've never seen that given except for specific restructuring reasons.
  - pbreit 12y ago
    Most billion dollar companies can be traded without much difficulty. I've done 3 txns.
maaku 12y ago
> YC company or not, taking a lot of equity for a lower salary it's still a gamble. At the end it's a matter of you believing the team you're joining can make it big or not. Thanks to Second Market this is no longer true.

BrainInAJar 12y ago

> The eco-system has not regained its trust and the mythos of worthless equity persists. That would be because the ecosystem hasn't given any reason for developers to trust it and the equity is, in fact, largely worthless.