5 ms·

A lot of great suggestions. I'd consider lack of #1 and #2 as dealbreakers. Any company that doesn't allow early exercise is being unfair to early employees f

by birken 11y ago

A lot of great suggestions. I'd consider lack of #1 and #2 as dealbreakers. Any company that doesn't allow early exercise is being unfair to early employees for no reason, and not providing basic cap table information makes stock options numbers impossible to value. #3 is great, but it is much more progressive. I'd value a company's offer more highly if they offered this, but it wouldn't be a dealbreaker if the company didn't. As for number #4, I think 10/20/30/40 vesting is way too bottom heavy. The problem is the employer can always fire you if they want, and if the company blows way up in value in 2-3 years, they might prefer to fire you than give you so much stock. This reportedly happened at Zynga so it isn't unheard of. You'd hope to never join a company with this type of leadership, but as an employee you don't have much power so it is good to be defensive about it. Maybe I wouldn't mind a minor tweak like 20%/25%/25%/30%, but I'd prefer 25%/25%/25%/25% with a culture of refresher grants to high performers (which accomplishes the same thing). The difference between founder stock and employee stock options is already so large, I don't think option holders really need to make any concessions (like bottom heavy vesting) to get some common sense benefits to stock options. It also is important to educate people about these differences. I hope that companies that do #1, #2 and #3 have a nice guide on their offer letters explaining why this is beneficial to potential employees.

hermanmerman 11y ago
I don't really think it's 10/20/30/40, one year cliff means they get 25% after a year but then the schedule is monthly. See it as a salary: you get some every month, it stops when you get fired.
SeoxyS 11y ago
The problem with refresher grants (and the thing that people don't understand) is that they tend to be near worthless due to the strike price. If the company is doing well, and you've stuck around for several year, the price on the options is probably so high you're unlikely to make much money off of it.
- tdumitrescu 11y ago
  "Near worthless" is an entirely overblown characterization. The central factor is not the strike price, but the spread between your strike price and what you can eventually sell at (which should hopefully be higher than any strike price set at the last 409A). If you get an initial grant at $1/share, and then a later grant of the same number of options at $5/share, then is the later grant worth 1/5 of the initial one? No - if you end up selling for $15/share, then it's a difference between getting $14/share and $10/share pre-tax. It only ends up being a much worse deal if the strike price of the later grant is very close to what you later sell at, in which case your company is flatlining.
  - SeoxyS 11y ago
    The real problem comes from the fact that any amount of stock that would generate significant return becomes prohibitively expensive to exercise. If you're granted 100k shares at $5/share, and they could eventually sell at $15/share; it does you very little good, because there's no way you can swing the half a million bucks it'll take to exercise in order to make your uncertain $1M profit. On the other hand, if it's an amount of options you can afford to exercise (e.g. 1k shares @ $5 = $5k… most people could scrap together the funds for that.), your profit is unlikely to be more that 2-5x, which likely would return $10k, and at the most $25k on your $5k investment. A lot of risk and trouble to go through for very little gain… That said, with a 7+ year time period to exercise after leaving the company, it's not an issue
- birken 11y ago
  In comparison to an early grant a refresher grant will be smaller and worth less, but that doesn't make it "near" worthless. First, if you have 7 years to decide if you want to exercise it, then every stock option has risk-free upside regardless of the strike price. Without the 7-year rule then the upside isn't so clear cut, but that doesn't mean they are near worthless at all. Second, companies really don't grow that quickly. Over a 1 or 2 year time horizon, even a really successful company will 2x-4x in value (and the common stock might grow even less than this). If the strike price was low on the original grant, the strike price will also probably be pretty low on the refresher grant. Especially at early stages of a company's life when the options are priced at essentially zero, even if you 5 or 10x the value, the strike price will still be very low. When you have more established companies and higher strikes prices, it is less of an issue because there might be a shorter term path to liquidity which takes away risk of exercising without being able to sell the stock.
beninato 11y ago
Great points!
- beninato 11y ago
  Here are some of Sam Altman's thoughts http://blog.samaltman.com/employee-equity http://blog.samaltman.com/employee-equity

by birken 11y ago

hermanmerman 11y ago

I don't really think it's 10/20/30/40, one year cliff means they get 25% after a year but then the schedule is monthly. See it as a salary: you get some every month, it stops when you get fired.

SeoxyS 11y ago

The problem with refresher grants (and the thing that people don't understand) is that they tend to be near worthless due to the strike price. If the company is doing well, and you've stuck around for several year, the price on the options is probably so high you're unlikely to make much money off of it.

tdumitrescu 11y ago
"Near worthless" is an entirely overblown characterization. The central factor is not the strike price, but the spread between your strike price and what you can eventually sell at (which should hopefully be higher than any strike price set at the last 409A). If you get an initial grant at $1/share, and then a later grant of the same number of options at $5/share, then is the later grant worth 1/5 of the initial one? No - if you end up selling for $15/share, then it's a difference between getting $14/share and $10/share pre-tax. It only ends up being a much worse deal if the strike price of the later grant is very close to what you later sell at, in which case your company is flatlining.
- SeoxyS 11y ago
  The real problem comes from the fact that any amount of stock that would generate significant return becomes prohibitively expensive to exercise. If you're granted 100k shares at $5/share, and they could eventually sell at $15/share; it does you very little good, because there's no way you can swing the half a million bucks it'll take to exercise in order to make your uncertain $1M profit. On the other hand, if it's an amount of options you can afford to exercise (e.g. 1k shares @ $5 = $5k… most people could scrap together the funds for that.), your profit is unlikely to be more that 2-5x, which likely would return $10k, and at the most $25k on your $5k investment. A lot of risk and trouble to go through for very little gain… That said, with a 7+ year time period to exercise after leaving the company, it's not an issue
birken 11y ago
In comparison to an early grant a refresher grant will be smaller and worth less, but that doesn't make it "near" worthless. First, if you have 7 years to decide if you want to exercise it, then every stock option has risk-free upside regardless of the strike price. Without the 7-year rule then the upside isn't so clear cut, but that doesn't mean they are near worthless at all. Second, companies really don't grow that quickly. Over a 1 or 2 year time horizon, even a really successful company will 2x-4x in value (and the common stock might grow even less than this). If the strike price was low on the original grant, the strike price will also probably be pretty low on the refresher grant. Especially at early stages of a company's life when the options are priced at essentially zero, even if you 5 or 10x the value, the strike price will still be very low. When you have more established companies and higher strikes prices, it is less of an issue because there might be a shorter term path to liquidity which takes away risk of exercising without being able to sell the stock.

beninato 11y ago

Great points!

beninato 11y ago
Here are some of Sam Altman's thoughts http://blog.samaltman.com/employee-equity http://blog.samaltman.com/employee-equity