5 ms·
I think that if you held a secret poll of founders of these companies, the majority of them would say they don't want this to change. Retention is really hard,
by birken 11y ago
I think that if you held a secret poll of founders of these companies, the majority of them would say they don't want this to change. Retention is really hard, and this is an incredibly powerful retention device at a fast growing company.
As an employee though, you can always vote with your feet. When considering a job at a startup, you should go over the stock option plan and ask hard questions. Remember... the founders (generally) don't have stock options. So sometimes founders at small startups don't even know the implications of the stock option plan they've created, and might be open to changing it if it means the difference between hiring you and not hiring you.
And for the larger companies that have thought about it, you can always pick the ones with more employee friendly plans. The higher the initial value of the company when joining, the harder it is to exercise options if you can't sell the stock immediately (because you have both a high exercise price and taxes on gains). So this can be a non-trivial difference between compensation offers at bigger companies.
- iaw 11y agoI think what's challenging in the current environment is that the most vested employees came on to a set of implicit promises made in the early stages of the company about long-term exit strategies. A decade ago the idea of a unicorn was unheard of so the equity grants seemed to have a closer date of execution than it was in reality.
- somic 11y agoExactly.
- birken 11y agoThe truth is that most companies in the unicorn zone will probably have some sort of stock sales plans set up that go through the company. It isn't black and white between private/no liquidity and public/full liquidity. However, the private market liquidity is always controlled by the company, and that can create artificial boundaries on timing and volume, which can be trouble if an employee wants to leave on their own schedule.
- mahyarm 11y agoIt's often only %10 of vested equity, once every one or 2 years. Also remember that if your $5mm company becomes a $1b unicorn after 4 years, and you got %0.5 at the start, then through dilution your %0.5 stake can become a %0.05 stake. Which means you get $500k / 4 years = $125k/yr in stock. But you cannot sell that stock, so it would of been better to go work at apple. It's very rare that a startup will pay better for an employee better than the big cos.
- birken 11y agoYour dilution math is pretty pessimistic. Even if you are diluted by 30% 5 times (which would be extremely uncommon for a company that grows so successfully), you'd go from 0.5% to 0.1% of the company in your example. More realistically, you'd probably expect to have around ~%0.15. So now you'd be looking at 1 or 1.5MM in a probably still-growing company, which compares much more favorably. Yes, as I noted above I do agree that volume constraints are an issue and are pretty annoying. Even in the examples where you get to hold options for 7 years, you wouldn't get the ability to sell at the "peak" (if you think there is one) unless the company was public. There are many things you have to take into account when valuing stock options, and from a purely compensation basis I agree that Apple/Google/Facebook are going to be tough to beat.
- mahyarm 11y agoI was using dilution math from my personal experience.
- angersock 11y agoWould you (or anyone else so inclined) mind just spelling out a list of these "hard questions" in a reply here? I, for example, actually didn't know about the 83b stuff.
- birken 11y agoI'd read this: http://www.scribd.com/doc/55945011/An-Introduction-to-Stock-Options-for-the-Tech-Entrepreneur-or-Startup-Employee http://www.scribd.com/doc/55945011/An-Introduction-to-Stock-... The "summary" section had a good list of questions, and if you read the document you'll have all the background necessary to understand their importance.
- crucini 11y agoI don't think it's possible for a candidate to properly value the options part of an offer. Not only is too much information withheld in the beginning, but the picture changes several times through the life of the startup, and employees are generally not informed. There was a good thread or subthread on this recently - can't find it. The company has a large bag of tricks to dilute your options, if desired. I had this discussion in depth with a Valley CEO a few years back. The best indicator you get as a candidate is that the CEO has rewarded employees in past exits. Now focusing on the numbers could theoretically prove you're getting a bad deal, but it can never prove you're getting a good deal. (I'm guessing the "hard questions" start with total shares/options outstanding, valuation, and liquidation preferences).