Introduction
Introduction Statistics Contact Development Disclaimer Help
_______ __ _______
| | |.---.-..----.| |--..-----..----. | | |.-----..--.--.--..-----.
| || _ || __|| < | -__|| _| | || -__|| | | ||__ --|
|___|___||___._||____||__|__||_____||__| |__|____||_____||________||_____|
on Gopher (inofficial)
Visit Hacker News on the Web
COMMENT PAGE FOR:
Startup Equity 101
fathermarz wrote 1 hour 27 min ago:
Depending on the structure of the legal entity, even when the company
you work for gets acquired, it may be an asset purchase for the IP and
team instead of a stock purchase. I went through this last year and my
options became worthless. It’s unfortunate because it came down to
decisions made years prior that affected the outcome at exit time.
gorgoiler wrote 17 hours 48 min ago:
I know too many people who’ve had their stock zeroed out through
dilution, preference vs common, partial buyouts where only some
founders and investors get to sell, spurious “bad leaver” status
for people who work for so-called competitors, forced resignations
within particular timeframes that cause stock forfeiture, and on and on
and on.
It would be an interesting addition to this guid to see these scenarios
collected and enumerated with some tips around how to get caught out.
leguy wrote 15 hours 54 min ago:
I would have loved to see such a list when I joined a startup. I'm
not sure it's possible to make a comprehensive list, given all the
various startup structures and agreements, but still a "top 10" list
with some guidance on how to protect yourself would be valuable.
Or... an SLM where you feed the model your contract and it provides a
list with recommendations tailored to your situation.
windowshopping wrote 17 hours 58 min ago:
This guide leaves out something extremely important that just fucked
over a friend of mine: double-trigger RSUs. My friend thought he was
getting a certain amount of stock annually, but in fact he only got it
if he was still employed there when the company went public. So after
six years they fired him right before going public a month later, and
he got nothing. And in order to get any severance, he had to sign an
agreement giving up any right to pursue any legal claims against them.
I didn't even believe this was possible at first. Almost no startup
equity guides mention this. Read your contracts very carefully, people!
semitones wrote 16 hours 22 min ago:
The guide mentions double-trigger RSUs
windowshopping wrote 9 hours 57 min ago:
> If you have restricted stock units (RSUs), everything is pretty
straightforward. You do not have to purchase RSUs. You just get
them at no cost as they vest. Most private companies do something
called double-trigger vesting. That just means you are also not
taxed as they vest. Instead, you get taxed for your RSUs at some
second trigger date, which is usually set to be the date of the
future big liquidity event (at ordinary income). One big drawback
with double-trigger RSUs is that you are not really able to sell
them in tender offers or other pre-going-public liquidity events.
Doesn't exactly mention the important part, that you don't
necessarily get anything, does it?
atemerev wrote 19 hours 24 min ago:
So basically being a startup employee is a very bad deal, and you
should either be employed at big tech, or be a founder yourself.
But how startups find early employees then?
dgunay wrote 9 hours 15 min ago:
There are some non financial benefits.
Many early stage startups are a low oversight environment. This can
mean lots of things, beneficial to certain kinds of people: easily
push code to prod, touch production databases directly, work weird
hours, fix almost any problem you want yourself, know how everything
fits together, have more control over your work machine, etc.
Not all startups are grueling to work for. I've been at startups
where I barely worked 4 hours a day at times. Results matter more.
Finally, if you just really hate the big tech interview process, you
can get into many startups with minimal prep. Not saying it's a
financially optimal use of one's time, but it is a thing some people
value.
xboxnolifes wrote 12 hours 42 min ago:
Some people don't like the environment of big companies. There are
finite positions at big companies, not everyone can be there. Not
everyone is a founder.
arealaccount wrote 13 hours 31 min ago:
In my experience certain people enjoy working at startups. There are
benefits to them outside of max comp that make it desirable.
mvkel wrote 1 day ago:
So what is your equity really worth?
"The difference between the most recent FMV (409A) valuation and your
exercise price."
This will almost never be the case. This doesn't account for different
share classes, liquidation preferences, preferred stock, all of which
get exercised before common shares.
A better description would be "the most recent 409A valuation, minus
preferred treatment, and your exercise price."
All of that is moot though, as an employee wouldn't have access to the
cap table or liquidation stack. The short answer is you'll have no idea
how much your equity is worth until you get the wire transfer into your
bank account.
Equity as an incentive truly favors the employer. With vesting, equity
rarely works out to be better than having a market rate salary, unless
the company becomes a household name.
fatnoah wrote 14 hours 15 min ago:
>This will almost never be the case. This doesn't account for
different share classes, liquidation preferences, preferred stock,
all of which get exercised before common shares.
>Equity as an incentive truly favors the employer. With vesting,
equity rarely works out to be better than having a market rate
salary, unless the company becomes a household name
I've worked at 4 different startups. Two were acquired and two are
still going, with one making a small profit and being a lifestyle
business for the founder, and the other having a great product and
still growing.
For the two acquisitions, one of which I held 1% equity in, the value
of my options was $0, which was very disappointing. In that case, I
did get a cash bonus as the VP Engineering and an offer from the
acquiring company that was 3X my cash comp, but the stock was
worthless.
At this point in my career, I value stock in private companies at
exactly $0 and treat it like a nice bonus should it ever amount to
anything.
phonon wrote 1 day ago:
409a valuations explicitly take into account share
classes/liquidation preferences. That's kind of the point. If the
Preferred last sold for $1.00, the 409a might value the Common at
$0.10 per share, which would then typically be the FMV strike price
set in the next round of issued options.
If the Common FMV has been steadily increasing from when you received
your options, that would typically be a positive sign. Of course,
409a valuations are based on mathematical models. Since Common shares
are so illiquid in a private start-up, you don't "really" know what
they're worth until a liquidity event.
mvkel wrote 2 hours 53 min ago:
Until the next financing round which might include more liq pref,
full-ratchet anti-dilution, new shares issued, etc.
Ultimately the 409a is for the IRS, not a mark for employees
fluorinerocket wrote 1 day ago:
I've concluded that options are a scam after owning them in many
companies. It's never amounted to anything
bravesoul2 wrote 1 day ago:
Sometimes they are not. I think for post startup companies it is
somewhat possible to put a value on ESOP then risk adjust for you
losing the job, leaving etc. I have been paid out but think bonus
cash for a holiday money not life changing. I kept it in post IPO and
got more but then anyone could have done that post IPO.
duped wrote 1 day ago:
We still get paid obscene salaries fucking around with the bonus of a
shot to make even more obscene money.
For all the complaining about options there's little acknowledgement
of how little startup work contributes to society relative to the
money we rake in from people willing to fund it.
ipaddr wrote 1 day ago:
Startup positions vs regular positions often pay much lower.
Obscene salaries and startups (which are mostly bootstrapped) don't
go hand in hand.
Startup founder who raises gets to play with obscene money.
If you come across obscene money startup jobs share them. Tons of
unemployed developers lurking who would take % of obscene.
duped wrote 14 hours 33 min ago:
Startup positions pay significantly better than everything but
FAANG and are easier to get than FAANG.
ipaddr wrote 1 hour 35 min ago:
Where would be a good place to look for these type of startups?
bravesoul2 wrote 1 day ago:
Obscene salary is almost an oxymoron.
Maybe CEOs get that. Most people who get obscene money get it from
some kind of investment.
lotsofpulp wrote 1 day ago:
Options at non publicly traded companies are worth zero. Or should
be valued the same as a lottery ticket.
duped wrote 1 day ago:
Tell that to the IRS
koolba wrote 1 day ago:
What’s there to tell? Option grants that are not exercised have
no tax consequence.
dilyevsky wrote 17 hours 22 min ago:
There's a 10y max ttl on ISOs to exercise or lose it. Also if
you leave the company it's 90d. You typically can convert ISOs
to NSOs but you lose some of the tax advantages of ISO (not a
tax/investment advice, etc etc)
wslh wrote 1 day ago:
They play their own game like a boss.
hamburglar wrote 1 day ago:
What you should understand is that they are a longshot. Like, worse
than 10 to 1. I’ve gotten lucky and made a truckload of money on
them, and know many people who have done the same. I’ve also had
them be an utter waste of money. It’s very much a gamble and
it’s unlikely to pay off. This doesn’t make it a scam.
fluorinerocket wrote 1 day ago:
A lottery ticket is legal but expected value is negative. Same with
casino games. Sure it's legal and sometimes people win but in my
book it's a scam, even if not technically one.
What I particularly resent is the pretence from companies that a
lower salary can be compensated by options. Such BS
bravesoul2 wrote 1 day ago:
No need to resent. Just don't take the job. There are jobs that
pay the low salary and no magic beans either!
takklz wrote 1 day ago:
Just something I’ve seen lately at all of the startups I’ve worked
at…
The founders, early investors, etc., will cash out way before you do
and you will not have the same ability to sell as they did. I’ve seen
it tear companies apart. YMMV
fluorinerocket wrote 1 day ago:
Yes in my experience they made out like bandits while employees were
locked out for a while after IPO.
vrosas wrote 1 day ago:
One thing I've learned working for startups is if you're working for a
founder who's already had a previous successful startup exit(s), two
things are true:
1. the founder already has generational wealth and this current company
means practically nothing to them.
2. they've already learned every trick in the book to keep the
company's value in their own pocket and out of the hands of their
employees.
tptacek wrote 14 hours 23 min ago:
I'm working for a founder with a previous successful exit and neither
of those statements are true of him.
spyspy wrote 9 hours 10 min ago:
OP is making broad statements, and you might even be right about
your guy. But even if your founder is not super wealthy from the
first exit, your current startup could go under and if that happens
employees will be left with absolutely nothing. Him, on the other
hand, will probably have a golden parachute to land with. Either
way he will be now be a "serial entrepreneur" and will be able to
utilize his VC friends to start the next thing in no time. He's
going to be fine.
And there's no telling what he will do if your startup does
actually end up being worth something. Transfer the IP to a new
company and fire everyone? Introduce new share classes for
investors and dilute everyone else to zero? Sell the employees
(acquihire) to some horrible BigCorp™ and then retire to Hawaii?
No shortage of stunts they could pull once real money is on the
table.
tptacek wrote 7 hours 23 min ago:
I've been on HN since 2007 and believe I have seen literally
every possible permutation of this particular debate, and I don't
have a stake in it. Value your equity at $0 unless you have a
very good reason not to. The comment I replied to make
falsifiable claim, and I felt it was worth falsifying, so that's
what I did.
semitones wrote 16 hours 23 min ago:
This seems highly cynical. If the current company means practically
nothing to them, why would they be bothering with it at all,
especially given that they could be doing almost anything else they
wanted, given their generational wealth?
dymk wrote 15 hours 29 min ago:
They’re doing it for fun / dick waving contest / it’s all they
know / “sigma grindset” mentality
Why do dogs chase frisbees?
throwawaythekey wrote 1 day ago:
The first time founders I had couldn't keep 100% of the equity out of
the VCs pockets, so YMMV.
bravesoul2 wrote 1 day ago:
A special case of early stage share options aren't worth shit.
bradlys wrote 1 day ago:
> If you join an early stage company and you have a decent amount of
excess capital, early exercise everything and file an 83(b) election.
The reasons for doing this: starting the QSBS clock, starting the long
term capital gains clock, not needing to worry about your options
expiring.
I don't think this is ever worth the risk. If you're even thinking of
doing this for QSBS purposes... the amount of tax you'd incur is way
too much. Even if you have "excess" capital, you may as well put the
$50k+ into a shitcoin and you'd see a much quicker return (or lack
thereof). For most people where $50-100k+ in tax is a trivial amount to
worry about, why are you joining as an employee? Clearly you've made a
lot of money in the past... Just be a founder instead. You're taking on
just as much risk.
> If you join an early stage company and you don’t have much
capital, don’t do anything just yet. Try to negotiate for an extended
post termination exercise window.
For 99%+ of people joining startups as regular employees, this is what
you should be doing. If you leave the company before it becomes liquid,
exercising the shares can be super risky. We've been waiting on several
very well known companies to go public for a long time now. Who knows
when they'll go public. At that point, you've spent possibly hundreds
of thousands to exercise your shares, hundreds of thousands more in
taxes... and they might be worthless and you can maybe deduct $3,000/yr
for who knows how long.
> If you can get liquidity at some point, and you think liquidity
would improve your life, you probably should.
It is unlikely though.
IMO, until tax law (and especially market conditions) changes - I do
not believe in joining any private company unless you are convinced
they will IPO within the year. This is assuming you care about
compensation significantly.
woodrow wrote 1 day ago:
FYI the whole point of early exercise + 83b election is that you
"pay" all tax due, but the tax due is $0, so you don't pay anything.
There _is_ non-trivial risk of sinking liquid cash into illiquid
startup stock, but this risk has nothing to do with tax.
bradlys wrote 15 hours 44 min ago:
If you’re joining after there’s been any money raised, you’…
likely triggering some taxes.
How many people are joining startups that haven’t had a 409A yet?
I’ve joined seed stage companies and even then - there’s a FMV
that would trigger taxes.
My more general point is that you should be a founder (cause it’s
what you want to do) or join a pre-ipo (cause you need
employment/money).
TuringNYC wrote 1 day ago:
>> So what is your equity really worth?...
>> ...
>> The difference between the most recent FMV (409A) valuation and your
exercise >> price. ...
>> The difference between the Preferred Price and your exercise
price....
The real answer is that it is probably not worth anything unless they
have stock liquidity events that only a handful of large startups have
(e.g. Stripe.)
If you dont have that, the price is purely theoretical. Further, if you
cannot see the cap table and the preference overhang -- and most
startups wont let you see it -- then you have no idea what the real
price is regardeless of a theoretical 409A value.
Even if you can see the cap table, spending today-dollars and
exercising options for the right to sell stock 5 or 10yrs into the
future almost never works out -- the cone of uncertainty across 5 or
10yrs is far too great. The better move would probably to be to use
that money to purchase long-dated LEAP call options on the Nasdaq
Composite
CGMthrowaway wrote 14 hours 15 min ago:
> The real answer is that it is probably not worth anything unless
they have stock liquidity events that only a handful of large
startups have (e.g. Stripe.) If you dont have that, the price is
purely theoretical.
This is not true in Australia, where they are proposing a new 15% tax
on gains attributed to the portion of an individual's retirement
account larger than $3 million, including unrealized gains. That
means people must put a dollar value on each asset at the end of each
income year, including startup shares or venture fund interests.
Eridrus wrote 1 day ago:
I think the main takeaway from any startup stock advice is what this
article starts with: you need to pick a good startup.
The details all matter, but they all matter far less than that fact.
People shouldn't lump all startups together and should have a long
think about whether they actually believe in the startup they're
joining.
gen220 wrote 15 hours 3 min ago:
I don't think that's the main takeaway. IMO, the main takeaway is
there are, in the best case (exit for >100% of latest 409a), ~three
classes of shareholder in a startup: those with preferred shares
(investors, occasionally founders if they have a lot of leverage),
those with >=1% fully diluted common shares, and everyone else.
In the most common positive case (i.e. sale price is <100% of
invested capital), or negative cases, the three collapses into into
preferred holders vs common holders.
If you're in the lower class, you should assume your equity is
worth zero. No matter what startup you're joining. You're here for
the cash comp and to be surrounded by a growing cast of ambitious,
upwardly-mobile people.
If you're in the "middle" class and highly value future wealth over
present matters, you should act "like a founder" (sacrificing your
life to, one day, make 1s or 10s of millions) if the company is on
the ups, and you should act "like a mercenary" (leaving to some
place where you can resume acting "like a founder") if the company
is permanently plateauing or on the downs.
If you're in the "upper" class it's a different game entirely.
That's not really the subject of this thread (valuing equity from a
typical prospective employee's POV), so I won't go there.
Whether a "good startup" (great founders, great business, great
investors) results in "a meaningful outcome for holders of <1% of
common shares" involves so much luck and non-determinism that's
beyond your influence as a <1% employee that you would be foolish
to write it off to anything other than zero. The same is not true
for >=1% and founders, of course, so they should value their equity
differently.
Edit: the "magic" that many startups try to get away with is
convincing people in class X that they're actually in class X+1
(even X+2!) and that, you should therefore act like it!! Be wary.
achillesheels wrote 14 hours 58 min ago:
Don’t take a salary if you’re in the upper. Live for the
equity as a price of the pain of solving a real world problem.
Not the vanity of launch parties or bell-rings X-D //that’s
meant to be an emoji
davedx wrote 16 hours 1 min ago:
IME picking a good startup is extremely difficult, because even the
ones with PMF and growing customers can so easily fail at
execution: the human factors are so huge there. You can definitely
narrow the field (use common sense: evaluate their business), but
long term it’s impossible to know.
andrew_lettuce wrote 16 hours 41 min ago:
Ok, now tell us how we differentiate across 10-person, pre-revenue
startups. This advice is like buy low, sell high. Thanks.
bix6 wrote 15 hours 15 min ago:
You conduct your own due diligence and make an educated decision.
You won’t necessarily pick a successful one but you can avoid
an obvious failure.
jiveturkey wrote 23 hours 13 min ago:
Not sure if you mean that seriously, or with tongue in cheek. It
takes a very healthy dose of luck and market timing to be
successful. Even the VCs, the experts, don't know how to pick
winners. They expect a 90% failure rate, and this is among the ones
they picked!
As an employee you don't have the same profit structure in play --
you can only work at one startup at a time. You cannot spread your
bets around and let that one winner make the math work. You have to
be 10x better at selecting a startup than the experts, probably
100x better if you expect to beat a big tech salary.
usrnm wrote 19 hours 54 min ago:
That all is correct and leads to a very simple conclusion:
working for a startup has a very low probability of making you
rich. Doesn't mean that people shouldn't do it, but it's better
to have healthy expectations.
mlinhares wrote 15 hours 48 min ago:
I still think its good for college grads, gives you a lot of
leeway and space to play around with many different hats and
find one that fits you better.
Incredibly lousy way to make money though, odds you will hit
jackpot are none unless you're one of the founders and even
then odds are still small.
dml2135 wrote 13 hours 18 min ago:
I mean, it's still a pretty good way to make money, when
compared to other fields and not to other engineers at FAANG.
bradlys wrote 15 hours 39 min ago:
If a college grad is choosing between faang and no-name
startup, their career will likely go over much better than
no-name startup. Having the big name on your resume does
wonders. Even for experienced candidates, keep taking the big
name. The market rewards it. (Including startups -
compensation packages for people with faang resumes usually
are better)
fragmede wrote 1 day ago:
> spending today-dollars and exercising options for the right to sell
stock 5 or 10yrs into the future almost never works out
There are places that will, no recourse, loan you the money to
exercise and pay the tax, in exchange for some percentage of the
profit, provided it's for a company they like.
Meaning, they lend you the money, but if there's no IPO/liquidity
event, you don't owe them any money. 70% (say) of a big number may
not be as big as 100% of a big number, but 100% of zero is $0. Which
isn't financial advice, just a bit of math.
ipaddr wrote 1 day ago:
If you find a company they accept you should keep your shares if
possible. Most companies will not be accepted for good reason.
TuringNYC wrote 1 day ago:
>> There are places that will, no recourse, loan you the money to
exercise and pay the tax, in exchange for some percentage of the
profit, provided it's for a company they like.
Yes they do this, but only for select companies. They wont touch
most startup equity.
SkyPuncher wrote 1 day ago:
Correct, the 409a is only going to show you the maximum possible
value.
Realistically, investors get their money back first, so 50% (picking
an arbiter number) of that valuation value won’t ever been seen by
employees. Then it gets even worse with multipliers and preferences.
TuringNYC wrote 1 day ago:
>> Then it gets even worse with multipliers and preferences.
Yeah, and most companies wont share the cap table with you, so you
do not know the multipliers and preferences. Its like you get
$(409a/X) in value, but you dont know what X is and they wont tell
you -- but you still have to buy in or lose everything (you
typically have to exercise all options upon departure, or lose it!)
Then, once you exercise, you wait for 5yrs to 10yrs for a liquidity
event, if the company even survives that long. My annual discount
rate would be like 10% or higher.
CPLX wrote 1 day ago:
> the 409a is only going to show you the maximum possible value
While the points about uncertainty of options are quite accurate,
this detail isn’t really true.
For the most part a 409a is the lowest reasonable valuation the
company could talk the auditors into accepting. The lower it is the
less tax paid and everyone knows that.
bcyn wrote 1 day ago:
You're correct about valuation, but the parent post was meant to
address "how much liquid dollars should you expect to receive vs.
409a." You are likely to receive less in most cases (read: unless
there are wildly successful public liquidity events) due to
liquidation preferences.
CPLX wrote 14 hours 14 min ago:
Any reasonable 409a will be fully aware of those preference
terms and will have factored them in.
x0xrx wrote 1 day ago:
Plenty of (non-VC backed) startups raise some money and then
sell privately; it’s often the case that preference does not
cause the common stock value to drop below the most recent 409a
in these cases.
(In my experience, the 409a is on the order of 20% of the most
recent raise, and preference is not more than 50%, in my area.
And obviously you hope to sell for more than the last raise!).
FreakLegion wrote 1 day ago:
It's the preference and its multiplier that gives investors their
money back first. These aren't different things, they're one thing,
and generally only matter if the company exits for less than the
valuation the investors invested at. The exception to this is if
any investors have a liquidation preference > 1x (you should avoid
companies where this is the case).
Preferences also don't stack with the rest of a liquidity event.
E.g. say an investor puts in $100m at a post-money of $1b with a 1x
liquidation preference. If the shares go for $900m, the investor
gets back their $100m, and that's all. They don't lose money, but
they don't make money either. If the shares go at a $1.1b
valuation, the investor converts their preferred shares to common
shares like everyone else has. The investor doesn't get their money
back first and sell more shares on top of that. It's either/or.
t0mas88 wrote 1 day ago:
Whether it's and vs either/or is the difference between a
liquidation preference or a participating liquidation preference.
And indeed the more than 1x cases are also problematic for common
stock holders.
But I do assume the 409A for the fair marker value of the common
stock takes these into account? Not a US tax expert :-)
FreakLegion wrote 1 day ago:
You can construct any arbitrary deal terms you like, of course,
but in the Silicon Valley ecosystem nobody you'd want to raise
money from does this. Deal terms are broadly standardized and
the desirable investors only do clean term sheets. Quoting
myself from another thread a couple years ago: VCs make their
money from outlier companies, so the competent ones don't
optimize for worst-case outcomes. You'll never see a dirty term
sheet (e.g. liquidation preference > 1x) from Sequoia, for
example, because they don't return 8x on a fund by squeezing
pennies out of failed startups.
To answer your question, yes, doling out company value to
different share classes is part of the 409A calculation. I've
used Carta and Pulley for this, but it looks like neither has
their docs posted publicly. Here's Pulley's overview page from
our last 409A, though:
Valuation Analysis
To determine the fair market value of the Subject Interest in
our analysis, the following steps were taken:
Step 1 - Determine the value of the Company using an
appropriate methodology(ies)
Step 2 - Allocate the value of the Company to the various share
classes taking into account share classes economic rights and
preferences
Step 3 - Apply a discount for lack of marketability
(“DLOM”) to the resulting per share value of common
Step 4 - Analyze any secondary transactions that have incurred
in the past and determine to what extent they should be
considered relevant in determining the value of the Subject
Interest in the analysis
The system is built to handle non-standard liquidation
preferences, but anything more esoteric (e.g. your
participating preferred shares) probably needs a bespoke
valuation. You won't see this stuff from successful VCs,
though. It would be a bit like investing in SpaceX, but having
one of the terms be an increase in Earth's gravity.
TuringNYC wrote 1 day ago:
>>> VCs make their money from outlier companies, so the
competent ones don't optimize for worst-case outcomes. You'll
never see a dirty term sheet (e.g. liquidation preference >
1x) from Sequoia, for example, because they don't return 8x
on a fund by squeezing pennies out of failed startups.
Serious question -- if you are right, then why hide the cap
tables?! Typically cap tables are even hidden from employees
who have millions of theoretical dollars riding on the
company.
Transparency is usually an indicator of above-board terms,
and opaque things are usually opaque for a reason.
FreakLegion wrote 1 day ago:
The cap table is just a spreadsheet of who owns what.
Employees don't need to see that level of detail to
understand their shares, so there's no particular reason to
pass it around, and plenty of reasons not to.
Many startups are happy to give relevant details, though,
like the percentage of fully diluted shares you own, the
last preferred share price, whether any investors got
non-standard terms, etc. Rather than asking to see the cap
table, ask the questions you want the cap table to answer.
If they won't tell you, maybe pass on working there.
ldjkfkdsjnv wrote 1 day ago:
One thing no one told me:
When you cofound a company, its not the equity percent, but who is in
control that matters. If you have 40%, and they get 60%, but legally or
otherwise (you are the face of the company), then you have control and
the 40% is worth more than the 60.
If you leave early after cofounding a company, there is no saying what
happens to you shares, and likely they will be diluted to almost
nothing
Its all about control.
If you are an employee, either go for a company thats a few years from
IPO, a generational startup, or consider the equity worth 0.
sdfasdfas134 wrote 1 day ago:
This is true. Once you lose control, the VCs will start to appoint
their buddies in Atherton in as CEOs, VPs, SVPs, Chiefs of Staff,
etc. Eventually you get pushed out. You wont even know what half the
people do.
Or you get impossible performance plans placed on you (that their
buddies wont get) which will mean you either achieve the impossible
or you lose your founder stock.
If you are giving up voting control, ensure to get a secondary sale
to sell some of your stock (5-10mil) so you're set for life. Then you
can let the VCs burn the company down...if you really want.
leonhard wrote 1 day ago:
what’s a generational startup?
shishy wrote 1 day ago:
They probably meant a "once in a generation" startup like a unicorn
ldjkfkdsjnv wrote 1 day ago:
cursor
ipaddr wrote 1 day ago:
Things are moving fast. Not sure how solid they will be next
year. Bigger players want that marketspace.
dakiol wrote 1 day ago:
Unless you work in SV, I think the advice for the rest of us is: take
equity/stocks/options as a lottery ticket. Very unlikely that you’ll
cash something, therefore base compensation is king.
ipaddr wrote 1 day ago:
The problem becomes they (the company) talks/treats it as money paid
and expects a lower salary (or additional passion like being happy to
wake up at 4am to deal with an issue randomly) in exchange. They
also want people who buy into the lie.
fluorinerocket wrote 1 day ago:
Exactly
ptero wrote 1 day ago:
It's the same thing in the SV. Unless the company is doing liquidity
events the early, but post-founder equity is unlikely to pan out for
employees.
And it can motivate employees to stay at the company way beyond
what's good for them, as leaving the company means either abandoning
your equity or exercising your options and paying real money for a
very risky and illiquid asset. My 2c.
ghaff wrote 1 day ago:
If you work for a moderately large company, it probably won't go to
zero (though it could so you may want to hedge your bets). Not sure
what SV specifically has to to do with it. I agree in general about
focusing on cash on the barrel.
strangelove026 wrote 1 day ago:
At a startup where I've exercised 75% of my options because the company
seems to be going to a direction where maybe it's public in a little
while (and I've got some other investments which prevent me from being
over-invested here). I also want to dump all of the shares as soon as
they go public and I'm able (employee sale window-wise) as I anticipate
that there'll be a pop followed by a drop. This is all anecdotal given
what I've observed over the years. As a result of exercising everything
early (back into the S&P) on I'll be able to get long-term capital
gains which is a motivator.
So that all said I agree with the author's take of "maybe" exercising
before an IPO is worth it. This is my first time in a role where I've
actually got pre-IPO Options. My last role I joined right before the
company went public. The agreement there was that I'll get x$ worth of
shares where the quantity is determined by the price 3 months or so
after the IPO. They went from >$100 per share to like $30 a share which
coincided with when I was assigned my shares lol. Oh well.
dmitrygr wrote 1 day ago:
> I anticipate that there'll be a pop followed by a drop
You'll miss both. A 6-month lockup is typical. Sorry, do not pass go,
do not collect on the "pop"
PopAlongKid wrote 1 day ago:
>AMT is a pretty complicated calculation
Actually, it is not. It only seems complicated because it is backed
into after calculating the regular tax when you use the IRS tax forms.
In other words, first you calculate ordinary tax, then you make
plus/minus adjustments for the things that are different under AMT.
If there was a Form 1040-AMT which simply calculated the AMT the same
way we calculate regular tax, you would see that it is actually simpler
than ordinary tax. (depreciation is simpler, itemized deductions are
simpler, personal exemptions for kids go away, the standard deduction
is much higher, and so on).
If we did it the other way around - calculate AMT first, then make
adjustments to back into ordinary tax, then you'd say ordinary tax is
complicated.
Most people don't understand that under the TCJA temporary provisions
enacted in 2017 and expiring in 2025, most of the changes just involved
moving AMT provisions into the ordinary tax calculation.
hn_throwaway_99 wrote 1 day ago:
I agree AMT itself is not a particularly complicated calculation. But
I don't think that was really the point of that quoted statement. The
complicated part is figuring out if and when AMT applies to you, and,
essentially, for how long it can raise your taxes.
As you said, the tax code requires you to calculate your taxes twice
- once using the "normal" rules, and another time using the AMT
rules, and you pay whichever is higher. So, depending on your
individual circumstances, it's non-trivial to know if AMT will apply
to you when making particular money movements during the year. Also,
if you have to pay AMT in year one, but then in year two the
calculated AMT is below your normal tax calculation, you get a credit
for the excess amount (i.e. amount over the normal tax from year 1)
up to the delta between the normal tax and the AMT amount. In other
words, AMT can often times just cause tax to be paid earlier, but the
total amount of money (over years), ends up being the same. Of
course, the time value of money comes into play - paying a tax
earlier is losing money.
So, point being, there are complicated considerations to take into
account.
Oarch wrote 1 day ago:
I wonder how much longer this logic can hold. I have equity in the
startup I'm at. It's a very complex platform and in a niche / emerging
market.
Yet could AI feasibly generate a similar (or better) app in a few
years? It used to be unthinkable. Now, I'm not so sure.
The development cost of software could feasibly drop to negligible
levels. It no longer seems like sci-fi, more and more it seems like the
inevitable direction of travel.
What happens to my equity? Welp. Might not be great news.
Aurornis wrote 1 day ago:
There’s more to a successful business than masking an app.
A lot of acquisitions are made by companies that could re-build the
acquired product themselves. They’re buying the business, brand,
and customer base, not the app.
ldjkfkdsjnv wrote 1 day ago:
This isnt true, nobody knows what will happen when you can very
cheaply replicate software. The sales etc are valuable, but when
the cost of producing the product goes to zero, weird things will
happen.
lurk2 wrote 1 day ago:
This is magical thinking. If you could clone Facebook tomorrow
your platform wouldn’t be worth anything without established
business processes, network effects, and goodwill.
ldjkfkdsjnv wrote 1 day ago:
line of business saas is absolutely vulernable. the biggest
companies on the planet are not under thread. SAAS companies
worth 100M-300M are absolutely vulnerable
lurk2 wrote 1 day ago:
This has nothing to do with your original claim.
henry2023 wrote 1 day ago:
Who says the cost of producing software is going to zero?
Oarch wrote 22 hours 0 min ago:
It's likely heading towards that direction.
Just seeing how Veo3 has taken huge chunks of value out of the
film/production space in the last week. It's going to be very
hard to justify many salaries going forward.
haxton wrote 1 day ago:
Always treat startup equity as 0 until you've sold it.
edoceo wrote 1 day ago:
Correct. The motivation for equity comp should be more of "I want
to change the world" than the "I want big money". The odds are very
against it.
Here's some older stats (2017) [1] But searching, you'll find loads
more studies on startup/angel/seed.
It's like, optimistically, 1/20
[1]: https://berkonomics.com/?p=2899
Oarch wrote 1 day ago:
Good advice! Thankfully I do want to change the world (for the
better I hasten to add) and so far so good.
<- back to front page
You are viewing proxied material from codevoid.de. The copyright of proxied material belongs to its original authors. Any comments or complaints in relation to proxied material should be directed to the original authors of the content concerned. Please see the disclaimer for more details.