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Open guide to equity compensation

(github.com)
656 points mooreds | 12 comments | 13 Apr 25 19:13 UTC | HN request time: 1.476s | source | bottom
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cj ◴[13 Apr 25 20:33 UTC] No.43675640[source]▶
As our 30 person startup has grown, I made a conscious decision to stop pitching stock options as a primary component of compensation.

Which means the job offer still includes stock options, but during the job offer call we don’t talk up the future value of the stock options. We don’t create any expectation that the options will be worth anything.

Upside from a founder perspective is we end up giving away less equity than we otherwise might. Downside from a founder perspective is you need up increase cash compensation to close the gap in some cases, where you might otherwise talk up the value of options.

Main upside for the employee is they don’t need to worry too much about stock options intricacies because they don’t view them as a primary aspect of their compensation.

In my experience, almost everyone prefers cash over startup stock options. And from an employee perspective, it’s almost always the right decision to place very little value ($0) on the stock option component of your offer. The vast majority of cases stock options end up worthless.

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Swizec ◴[13 Apr 25 20:40 UTC] No.43675676[source]▶
> The vast majority of cases stock options end up worthless

My fav manager had a great way of phrasing this: "There are more ways for your options to be worthless than to make you rich"

But I also personally know plenty of people who made off great with their startup equity. They're def not worthless.

Ultimately I think you should never take an uncomfortable pay-cut to join a company and you should maximize your stock compensation on top of that. Don't forget other types of equity – brand, exposure to good problems, network.

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1. awesome_dude ◴[13 Apr 25 21:06 UTC] No.43675858[source]▶
> But I also personally know plenty of people who made off great with their startup equity. They're def not worthless.

I personally view Stock Options in the same way as lottery tickets - sure they might pay out big sometimes, and people do win lotteries, but, for the most part, they're going to be losers.

There might be argument about the difference in how often stock options lose compared to lottery tickets, but that's missing the point.

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2. fragmede ◴[13 Apr 25 21:18 UTC] No.43675924[source]▶
Sorta. You could definitely go in on something worthless that never gets any traction and end up with less than zero, as in, you owe money after the experience. But for every Stripe or Airbnb there's 100 more lesser known names that still pay out, not in the millions, but a couple hundred thousand dollars range, which is still enough to change most people's situation.

Definitely look at them as worthless untill they're worth something, but the untold secret is the secondary and private market. SpaceX employees have gone that route and some are quite rich despite there not being an IPO. Again, the failure mode to be aware of is you could end up in debt and owe money which is worse than if you'd never played.

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3. cj ◴[13 Apr 25 21:30 UTC] No.43676010[source]▶
> Definitely look at them as worthless untill they're worth something

One (of numerous) problems with stock options is almost all stock option contracts require you to exercise within 90 days of leaving the company.

Often times employees leave a company, and then need to decide within 90 days whether they will spend anywhere from $5-50k+ to exercise the options to keep the stock, otherwise you forfeit the options after 90 days.

The stars really have to align for you to make money with options without risking/gambling your own capital by exercising them.

Unfortunately secondary markets only exist for very large companies like Stripe. I’m not aware of secondary markets for small < 100 person companies, which is where you see the most blatant hyping up of stock option value.

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4. ants_everywhere ◴[13 Apr 25 21:34 UTC] No.43676025[source]▶
The main difference is that people often think they share a fate as a startup. They all have the same lottery tickets (in varying amounts) that pay out under the same conditions. After all, that's how managers often motivate the early employees.

But since there are different classes of lottery tickets, the payouts can change arbitrarily at the last minute depending on the specifics of the deals.

So even after accounting for the fact that most lottery tickets don't pay out, you need to account for the fact that some within the same startup might pay out while yours don't. And there's no perfect way of knowing ahead of time.

5. dgunay ◴[13 Apr 25 22:11 UTC] No.43676231{3}[source]▶
There are companies that will finance your options exercise in exchange for a cut of the earnings in the event of an exit. I haven't personally used one, but they do exist.
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6. fragmede ◴[13 Apr 25 22:11 UTC] No.43676232{3}[source]▶
I can't speak to their individual deals, but Hiiive, Forge, and ESO fund are all working with companies that aren't stripe sized.

But absolutely no one should read this and think anyone's paper valuation is worth actual dollars until the money hits your bank account.

7. fragmede ◴[13 Apr 25 22:14 UTC] No.43676250{4}[source]▶
and the most important thing someone told me is that 100% of $0 is $0. x% of a big number > $0
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8. awesome_dude ◴[13 Apr 25 22:15 UTC] No.43676261[source]▶
> You could definitely go in on something worthless that never gets any traction and end up with less than zero

Absolutely agree

> Lesser known names that still pay out, not in the millions, but a couple hundred thousand dollars range

FTR This is the same for lottery tickets, they don't all win the top prize (or a share of it), most will win a few dollars, some tens of thousands, and so on.

9. est31 ◴[13 Apr 25 23:42 UTC] No.43676711{3}[source]▶
> without risking/gambling your own capital by exercising them.

Many companies offer early exercise, so you can reduce the amount you gamble by a lot.

Also, you already "pay" in terms of opportunity costs by being at that startup vs something more established where you get RSUs of a public company. So using some of the money from the startup in order to exercise the shares is really useful. If the startup's cash compensation is just enough to pay your bills, then of course it's different.

10. dilyevsky ◴[14 Apr 25 01:36 UTC] No.43677297{4}[source]▶
There’s a much better option - simply offer nso conversion with much longer exercise window
11. dgunay ◴[14 Apr 25 06:41 UTC] No.43678647{5}[source]▶
Yeah, but you should try to shop for a deal where 100 - x is as big a number as you can negotiate.
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12. fragmede ◴[14 Apr 25 08:37 UTC] No.43679269{6}[source]▶
Oh absolutely, the important bit is that 100% of $0 is $0.