I've got about 15 years of experience at 3 startups, two with Director/VP roles. Two were acquired, and one reached it's 15 birthday after only having a seed round. All were fairly small. Net benefit to me from options is a $500 long term capital loss. The main benefit was experience (and that is a very valuable benefit!) and, eventually, retention cash from an acquiring company.
This shook me. Obviously, I was on the opposite side of the opinion. I never had the experience working in a funded startup, I prepared my mind to join one (I already chose, a seed funded, likely to join in 2020) after the current company was acquired in January - Now, I'm confused. Of course, I understand the equity as a lottery ticket - I'm confident on the startup I chose will grow big, I'm interested to hear the negative side of your 12 year experience, especially the climax. Honestly, I'm in a opinion of cashing a 300K at the least after Series D or Acquisition, in 3-5 years.
> I'm confident on the startup I chose will grow big
Just a word from hard-earned experience here...
Most startups will fail and any options you get will be worthless. It's just a cold fact of life.
Be optimistic, be hopeful, be excited about the possible future of the startup you're in -- but do not arrange your life or plans so they depend on the success of the startup. It might be the next big thing for sure, but the odds are much larger that it won't.
300k in 3-5 years? You can get that much in RSUs from a publicly traded company, and you can sell those for cash every quarter and buy a house before the 4 years are up.
For me to work for a startup, the upside scenario needs to be an 7 figure payoff to be worth giving up the sure thing of bigco stock. And even then, the utility function from money is logarithmic so I’d still go with bigco.
> I understand the equity as a lottery ticket - I'm confident on the startup I chose will grow big...
I know you already got a response, but I wanted to offer my experience.
Your immediate concern shouldn't be whether the company grows or not. Your immediate concern should be what happens to your options when your employment is terminated.
All jobs end in two ways: you are either terminated (fired, laid off, etc) or you terminate yourself.
What you need to understand is what happens.
- Will you be able to afford exercising your options? Not a huge deal most of the time, especially for engineers. It might cost a few thousand. In extreme cases, you're on the wrong side of the golden handcuffs. Once you exercise, you are chained to that company's future unless a secondary market is available.
- What's the window for doing so (typical is 90 days!)?
Further questions to ask before spending too much time:
- What are the founders' beliefs about VC (Growth-only, money-hungry, what)? Every dollar that is invested post-hire potentially means your options are worth less.
- What are the founders' beliefs about revenue? Do they want to make their product "free"? Do they have a business plan?
- How open are they about finances? If they aren't, just don't. If they spin some BS about not being able to legally disclose company finances to employees, run.
Having $1MM worth of equity means nothing if you can't exercise them or if the founders' crash the company into a cliff being dumb.
I'm not motivated by equity at all (and particularly not if that equity is in the form of stock options). When I'm working for a company, I'm already completely on-board anyway. If I weren't, I wouldn't be working there.
That's not to say I'd turn it down, I'm only saying that it's gravy, not meat.
By motivated, do you mean working for less than I was worth, or perhaps a time when I added more value than I was paid for?
When I couldn’t accurately value my options in my total comp, I realized that was the point. The only time I have been motivated was when I was on or working with a great team. The very best were indie consultants who were all paid consultant dollars. The next was doing startup consulting to prove a concept.
Equity that isn’t measured in a percentage of the company with transparency on prefs is at best, %99.9 of the time just a tax liability. It’s negative compensation.
Ask yourself, is what you do so magical that someone would give up partial control of their company for you to perform it? If you are not a cofounder, not an investor, not the key customer rainmaker what do you do? More so, if they don’t have the money to pay you, consider the long tail of clowns who do get funding , then why there isn’t money or why aren’t you worth it.
Most people take options because they are just happy to get the job and it makes spousal conversations easier. This latter reason I suspect is the most valuable one of all.
> percentage of the company with transparency on prefs
I had this at 1 of three startups job offers that offered options. Guess what? It was only at that one that equity paid out to anyone.
Having an "equity" package without this is insane. Why would you want to work for someone who trusts their core business to someone they think would fall for junk like that? It's not just "equity has unknown value", it's "equity has unknown value but I'm giving it a wholly fake measure of 100,000 Monopoly dollars because I think you are just that stupid."
I'm not going to join a team that is pulling the moral equivalent of a 419 or Windows Tech Support Telemarketing Scam on day 1 of our relationship.
These companies are actively selecting for morons. Not only are they immoral scum, but they aren't going to be very successful if their engineers are morons.
Equity is to techies what exposure is for artists: a way to con them into busting their humps for the promise of a big payoff that almost never materializes.
I got burned during the first dotcom boom and learned my lesson. Demand the biggest salary and benefits package I can get, and walk out if they offer equity in lieu of actually paying me.
No way. I work in a startup (~35 employees) on a small, mission-critical team (~6 members). Even so I consider my contribution to company success or failure to be negligible. It boggles my mind that someone at a giant company like FAANG would allow their options to influence their work habits, as if their role in any way impacts the share price. Perhaps if I was in a top leadership position, but for a line-worker, equity is just an investment that happens to be correlated to the performance of your employer (ie bad, because its not diversified).
I recently discovered that the stock i was hand-wavingly promised never materialized. 10 months in to this job it's caused a cascade of reflection and 'why bother' moments.
So first, thanks for this question.
At prior jobs, I've hit points of "I dont want to be here, but i'll see it out because of x vesting point." Personal history has shown vesting to be a lottery ticket as has been said elsewhere. Its only paid out once and to the tune of about 4k total.
What i've landed on at this job is that I really dislike many aspects of this job; the domain, the location, the open office plan, and a lot of apples-to-apples comparisons when really theres a basket of varied fruits.
That said.
I get to do work here at my own pace and on my own terms. It's why I took a job at a smaller startup to begin with. Even as I struggle with the finer points (with some other insights in this thread), and moral points aside, I find that a lack of options means I'll at least see the year out here. I gave up a lot to prove myself in a slightly new area of the profession, and that experience is what I'm choosing to use as my "stock" instead.
I always do my best regardless of compensation. Why would I be doing any less? Doing less harms me more than it harms the company I'm in and it makes it harder to get compensated more.
Equity is part of a range of other forms of compensation. It is a lottery ticket, yes, but statistically, lottery tickets have a value. A job that pays $20k with 1% equity in a million dollar company is better than a job that pays $25k, but worse than one that pays $50k (after taxes and all that). Plus there's other little things like potential to learn, comfort level of chairs, fun level of team.
If I get a better offer elsewhere, I will take that instead.
Startup equity structures are financial vehicles aimed at transferring the wealth generated from the labor of the employees to the founders and investors.
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[ 2.9 ms ] story [ 59.3 ms ] threadLessons Learned
- Venture Capital structures were set up for a world in which successful companies exited in 6-8 years and didn’t raise too much capital
- Venture capital growth funds are now giving startups the cash they would have received at an IPO
-- “Growth Capital” moved the need for an IPO out another five years
-- This allows VCs to capture the increase in market cap in the company
--It may have removed the incentive for non-founders to want to work in a startup versus a large company
--As stock options with four-year vesting are no longer a good deal
- Investors and Founders have changed the model to their advantage, but no one has changed the model for early employees
--VCs need to consider a new stock incentive model – RSA’s for the first key hires and then RSU’s – Restricted Stock Units for everyone else
- Large companies now have an opportunity to attract some of the talent that previously went elsewhere
They are lottery tickets and I treat them as such. I was a c level at my last position and had a percentage ownership... no difference.
I treat salary and bonus as my only comp, equity is just a lottery ticket of x size.
So many startups have CTOs of 5 person eng teams.
Just a word from hard-earned experience here...
Most startups will fail and any options you get will be worthless. It's just a cold fact of life.
Be optimistic, be hopeful, be excited about the possible future of the startup you're in -- but do not arrange your life or plans so they depend on the success of the startup. It might be the next big thing for sure, but the odds are much larger that it won't.
For me to work for a startup, the upside scenario needs to be an 7 figure payoff to be worth giving up the sure thing of bigco stock. And even then, the utility function from money is logarithmic so I’d still go with bigco.
I know you already got a response, but I wanted to offer my experience.
Your immediate concern shouldn't be whether the company grows or not. Your immediate concern should be what happens to your options when your employment is terminated.
All jobs end in two ways: you are either terminated (fired, laid off, etc) or you terminate yourself.
What you need to understand is what happens.
- Will you be able to afford exercising your options? Not a huge deal most of the time, especially for engineers. It might cost a few thousand. In extreme cases, you're on the wrong side of the golden handcuffs. Once you exercise, you are chained to that company's future unless a secondary market is available.
- What's the window for doing so (typical is 90 days!)?
Further questions to ask before spending too much time:
- What are the founders' beliefs about VC (Growth-only, money-hungry, what)? Every dollar that is invested post-hire potentially means your options are worth less.
- What are the founders' beliefs about revenue? Do they want to make their product "free"? Do they have a business plan?
- How open are they about finances? If they aren't, just don't. If they spin some BS about not being able to legally disclose company finances to employees, run.
Having $1MM worth of equity means nothing if you can't exercise them or if the founders' crash the company into a cliff being dumb.
That's not to say I'd turn it down, I'm only saying that it's gravy, not meat.
Don't sacrifice salary for equity.
The real benefit of working in a startup is gaining experience/exposure to more responsibilities than you would in a big company.
Its harder to leave a job that pays well, with good benefits and great work / life balance above all
When I couldn’t accurately value my options in my total comp, I realized that was the point. The only time I have been motivated was when I was on or working with a great team. The very best were indie consultants who were all paid consultant dollars. The next was doing startup consulting to prove a concept.
Equity that isn’t measured in a percentage of the company with transparency on prefs is at best, %99.9 of the time just a tax liability. It’s negative compensation.
Ask yourself, is what you do so magical that someone would give up partial control of their company for you to perform it? If you are not a cofounder, not an investor, not the key customer rainmaker what do you do? More so, if they don’t have the money to pay you, consider the long tail of clowns who do get funding , then why there isn’t money or why aren’t you worth it.
Most people take options because they are just happy to get the job and it makes spousal conversations easier. This latter reason I suspect is the most valuable one of all.
I had this at 1 of three startups job offers that offered options. Guess what? It was only at that one that equity paid out to anyone.
Having an "equity" package without this is insane. Why would you want to work for someone who trusts their core business to someone they think would fall for junk like that? It's not just "equity has unknown value", it's "equity has unknown value but I'm giving it a wholly fake measure of 100,000 Monopoly dollars because I think you are just that stupid."
I'm not going to join a team that is pulling the moral equivalent of a 419 or Windows Tech Support Telemarketing Scam on day 1 of our relationship.
These companies are actively selecting for morons. Not only are they immoral scum, but they aren't going to be very successful if their engineers are morons.
I got burned during the first dotcom boom and learned my lesson. Demand the biggest salary and benefits package I can get, and walk out if they offer equity in lieu of actually paying me.
So first, thanks for this question.
At prior jobs, I've hit points of "I dont want to be here, but i'll see it out because of x vesting point." Personal history has shown vesting to be a lottery ticket as has been said elsewhere. Its only paid out once and to the tune of about 4k total.
What i've landed on at this job is that I really dislike many aspects of this job; the domain, the location, the open office plan, and a lot of apples-to-apples comparisons when really theres a basket of varied fruits.
That said.
I get to do work here at my own pace and on my own terms. It's why I took a job at a smaller startup to begin with. Even as I struggle with the finer points (with some other insights in this thread), and moral points aside, I find that a lack of options means I'll at least see the year out here. I gave up a lot to prove myself in a slightly new area of the profession, and that experience is what I'm choosing to use as my "stock" instead.
Equity is part of a range of other forms of compensation. It is a lottery ticket, yes, but statistically, lottery tickets have a value. A job that pays $20k with 1% equity in a million dollar company is better than a job that pays $25k, but worse than one that pays $50k (after taxes and all that). Plus there's other little things like potential to learn, comfort level of chairs, fun level of team.
If I get a better offer elsewhere, I will take that instead.