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Worth pointing out that when people throw numbers around the stock value alone may sound impressive but that has to be compared against the opportunity cost tha

Worth pointing out that when people throw numbers around the stock value alone may sound impressive but that has to be compared against the opportunity cost that's usually associated with that route. Usually those options are handed out because the employee is accepting less cash or other compensation than another employer might pay then for similar work. Walking away with $750k after 5 years might sound fantastic, but in some cases the person might actually be worse off relative to someone (say a senior role at an established firm) that had a package of higher salary, sizeable annual cash bonus and other perks often not found at startups. One needs to study the whole picture, not just some cash out amount at a liquidity event.

ritchiea 12y ago
I would argue there is value in the bubble payout itself. Even if you're good at saving & investing over the course of many years the assets and liquidity you have when you cash in your equity gives you a chance to take risks and meet potential business partners that you don't have as a salaryman who's good with his money.
- breischl 12y ago
  That might be true as a rule of thumb for the general population. Although historically people who get large payouts (eg, lottery winners) tend to do very poorly with them. And for someone who is truly "good with money" to the extent of avoiding all lifestyle inflation and investing as much as possible, the periodic payouts are definitely better. For the sake of argument, let's say that you have two positions which will pay the same total cash compensation. BigCorp's job will pay it out in equal amounts over 5 years, whereas NewCo's job will pay out 10% each year for 4 years, and then 60% in year 5. BigCorp will almost certainly result in a lower overall tax bill because much of each year's income is taxed at lower rates. NewCo will result in a lower tax bill for 4 years due to the lower income, but year 5 will probably put a large amount of compensation in the top marginal tax bracket. Also, the BigCorp job will afford more opportunities for outside investing (stock market, real estate, whatever) and possibly more free time to do it in. So with BigCo you'll have had four years of compounding investment growth before NewCo really gets started on it.
  - ritchiea 12y ago
    Realistically do you think a lottery winner is comparable to a successful startup employee? Lottery winners are entirely random while startup successes comes after years of working in a structured business environment with a built in community of successful business people. A lottery winner could be a guy in small town Tennessee who got lucky while he worked at the local corner store and has a group of friends & family asking for his money. A startup success is one or two social ties away from Sequoia or Peter Thiel, has meaningful work experience and has a group of friends actively trying to make him more money. There's a huge difference. And I honestly don't mean this to be dismissive of a "typical lottery winner." The social environment you live in is a huge deal. Being in the SV community is going to lead you down a path of investments that typical lottery winners don't have immediate access to. If you win the lottery and Warren Buffet is a family friend you're much more likely to do well than if you win the lottery and your mother was receiving food stamps when you were in elementary school. Business people will answer your email, almost anyone's email, I'm not a big deal by any stretch of the imagination but I've chatted with Gary V and exchanged emails with Paul Graham. If lightning struck and I had a suddenly had a bunch of money to invest I could ask for powerful, connected help and there's a good chance I would get it from someone because no one cares how you made the money in your bank account. But at the very least I know where to look for that help, random lottery player guy doesn't necessarily have that and that's just his environment not anything inherent about him. Startup employee who cashed out is probably a lot more like me than typical lottery winner.
    - breischl 12y ago
      >>Realistically do you think a lottery winner is comparable to a successful startup employee? In some ways, yes. Certainly there are difference, but people are people. How many college grads get their first job that pays real money and immediately throw themselves into debt for new cars and nice condos? How many people cash out of a startup and plow the proceeds into another one, effectively doubling down on that particular lottery? Clearly there are differences between the groups, so the average outcomes could definitely be different. But I don't think it's obviously true. It would be interesting to see a longitudinal study of people who cashed out significant amounts from startups. I'm sure they do better than the average lottery winner - but then they were probably doing better before the windfall as well. The interesting question would be whether the windfall changed their trajectory, or was just a blip.

ritchiea 12y ago

I would argue there is value in the bubble payout itself. Even if you're good at saving & investing over the course of many years the assets and liquidity you have when you cash in your equity gives you a chance to take risks and meet potential business partners that you don't have as a salaryman who's good with his money.

breischl 12y ago
That might be true as a rule of thumb for the general population. Although historically people who get large payouts (eg, lottery winners) tend to do very poorly with them. And for someone who is truly "good with money" to the extent of avoiding all lifestyle inflation and investing as much as possible, the periodic payouts are definitely better. For the sake of argument, let's say that you have two positions which will pay the same total cash compensation. BigCorp's job will pay it out in equal amounts over 5 years, whereas NewCo's job will pay out 10% each year for 4 years, and then 60% in year 5. BigCorp will almost certainly result in a lower overall tax bill because much of each year's income is taxed at lower rates. NewCo will result in a lower tax bill for 4 years due to the lower income, but year 5 will probably put a large amount of compensation in the top marginal tax bracket. Also, the BigCorp job will afford more opportunities for outside investing (stock market, real estate, whatever) and possibly more free time to do it in. So with BigCo you'll have had four years of compounding investment growth before NewCo really gets started on it.
- ritchiea 12y ago
  Realistically do you think a lottery winner is comparable to a successful startup employee? Lottery winners are entirely random while startup successes comes after years of working in a structured business environment with a built in community of successful business people. A lottery winner could be a guy in small town Tennessee who got lucky while he worked at the local corner store and has a group of friends & family asking for his money. A startup success is one or two social ties away from Sequoia or Peter Thiel, has meaningful work experience and has a group of friends actively trying to make him more money. There's a huge difference. And I honestly don't mean this to be dismissive of a "typical lottery winner." The social environment you live in is a huge deal. Being in the SV community is going to lead you down a path of investments that typical lottery winners don't have immediate access to. If you win the lottery and Warren Buffet is a family friend you're much more likely to do well than if you win the lottery and your mother was receiving food stamps when you were in elementary school. Business people will answer your email, almost anyone's email, I'm not a big deal by any stretch of the imagination but I've chatted with Gary V and exchanged emails with Paul Graham. If lightning struck and I had a suddenly had a bunch of money to invest I could ask for powerful, connected help and there's a good chance I would get it from someone because no one cares how you made the money in your bank account. But at the very least I know where to look for that help, random lottery player guy doesn't necessarily have that and that's just his environment not anything inherent about him. Startup employee who cashed out is probably a lot more like me than typical lottery winner.
  - breischl 12y ago
    >>Realistically do you think a lottery winner is comparable to a successful startup employee? In some ways, yes. Certainly there are difference, but people are people. How many college grads get their first job that pays real money and immediately throw themselves into debt for new cars and nice condos? How many people cash out of a startup and plow the proceeds into another one, effectively doubling down on that particular lottery? Clearly there are differences between the groups, so the average outcomes could definitely be different. But I don't think it's obviously true. It would be interesting to see a longitudinal study of people who cashed out significant amounts from startups. I'm sure they do better than the average lottery winner - but then they were probably doing better before the windfall as well. The interesting question would be whether the windfall changed their trajectory, or was just a blip.