Open guide to equity compensation

I think the main thing to remember is that you should assume they are worthless.

There's probably something like a 99% chance they are worthless, a 0.9% chance they are worth a decent holiday, a 0.09% chance it'll let you retire early, and a 0.01% it'll make you somewhat rich. Worst of all, unless you're the CxO you have very little control over the outcome.

Equity is a nice bonus, but you might just as well treat it like the company giving you a lottery ticket for Christmas. Nobody is going to take a significant pay cut or work 80 hours a week for a lottery ticket, so don't do it solely for the stock options either.

I’m 0 for 3 on startup equity being worth anything and have since left the industry.

One of the startups I did some time at was as close to a sure thing as one can hope for (unicorn valuation at one point) but it still went to zero in a very public flame out. It’s still impossible not to get imaginative about what could have been as I was a very early employee… such is life.

The most lucrative stretch of my career was working for a big company that paid good base salaries.

I've worked at 8 companies, 3 have resulted in value from equity (all granted pre-IPO), all of them in certainly much larger than "a decent holiday" level.

I think people have updated to be much too negative on the prospect of equity paying out. It's obviously much better than 1%, at least if you work at anything other than extremely early-stage companies.

How are the founding dates of the startups distributed? Are recent startups still exiting well?

Well statistics shows that it is best to value equity at 0. I will take equity in a non public company. But not in exchange for cash compensation at my market rate.

Same. 1 startup is dead-dead. 1 startup is now a husk of itself used by the CEO for fractional CxO consulting, and 1 is down from unicorn status to limping along with 1/5th the staff.

The primary benefit of startups is getting to do more work to learn more faster and not deal with Process.

Founding dates? I don't know. IPO dates were 2007, 2019, 2023.

I assure you that statistics do not show it is best to value equity at 0.

The rate of having a liquidity event for startups, particularly startups past the A stage, is just obviously not ultra low. Like, is it better than 50%? Reader, it is not! But it's not sub 10%, either.

People can make intelligent decisions about equity without hyperbolically insisting that the chance that that equity will be worth money is one in a million.

It really depends of the stage of the startup. I recall reading someone doing analysis on this (unfortunately I don't have a link) showing that joining a company that isnt public yet, but is already large-ish and showing some real product-market fit gets people better payouts. Yes, employees 1-40 of a future unicorn will to great (if they could afford to buy the shares, and AMT doesn't kill them which is another story), but it's relatively safe to get into a company that hasn't IPO'd yet.

Imagine say, that you joined Stripe in 2014. By then, probably 500-1000 employees and a a real name on the industry, yet private. It's perfectly reasonable to not consider the stock they might have offered at that time as straight out money, like you'd have treated Google RSUs. But discounting the shares to zero, or just "a nice bonus" is also silly. I bet anyone that got a year or two of stock in that era is well into the retire-early/somewhat rich cadre, and that wasn't all much of a risk.

"Statistics" on its own doesn't tell you anything; you have to consider your own risk aversion. Only VCs can afford to be risk-neutral and only consider expected value.

Are there statistics about funding round (A, B, C, etc) and getting good value for options?

> By then, probably 500-1000 employees and a a real name on the industry,

You're wildly exaggerating here (but unsurprisingly). I know someone who joined Stripe in 2015, and he said there were about 300 employees globally at the time.

But I do generally agree with the rest of your point, I'm just contextualising the information.

Care to show your source?

I'm honestly stunned that people here are performatively math-illiterate.

Some companies experience liquidity events. Therefor the value of equity in those companies is positive. Some companies go out of business. Therefor the value of equity in those companies is zero.

If N is the ante hoc chance that a company will experience a liquidity event, then:

N * X + (1 - N) * 0 = value of liquidity

X is positive. 0 < N < 1.

Therefor the value is positive.

It's not really possible to have nice uncontested stats about this because the definitions of the rounds aren't fully neat, there are potentially generational effects, and how you divide up industries isn't fully neat either.

In a typical year, a double-digit number of tech companies IPO (there was a big jump in 2021 and then a crash in 2022/2023, with 2024 seemingly back in the double-digit range). https://www.visualcapitalist.com/charted-four-decades-of-u-s...

Let's be really clear, though: there's "getting good value for options" and then there's "getting some value for options." It is straightforwardly true that in general big public companies have better comp than pre-IPO companies: the guaranteed value of equity in your Metas or Googles or even lower-tier public companies is generally higher than the expected value of pre-IPO equity, even if you are relatively risk-insensitive.

That is importantly different from "the value of pre-IPO equity is zero," or "it is a one-in-a-million event to get value from pre-IPO equity."

People aren’t saying the chance is literally zero. They are saying it is low enough that they can’t consider it reliable comp for income purposes in their own personal situations. I can’t say my experience has been any different so I don’t blame them. People commenting aren’t math illiterate. I’m kinda amazed you are taking things so literally when it’s so obvious to anybody reading how to interpret the discussion.

It’s not importantly different if the value you get from pre-IPO equity is less that the haircut you took to work at the startup, which is overwhelmingly the case.

You want to tell me you’d be feeling like your equity was worth something in colloquial terms if you got what amounted to a mediocre bonus one year through your liquidity event?

And then take into account the risk/reward premium and alternatives.

I've worked at 10 startups since 2006, with equity or options each time. Only one time did it turn out to be worth anything at all (~6 months salary), and that one time wasn't even a successful "exit". It was more of an aquihire, and they paid out the options for everyone they didn't want, ie everyone not living in the Bay. The other nine times my options have been worth precisely zero, either I get let go or quit because the company is circling the drain, or fizzles out, or gets rid of a bunch of people to goose the numbers before a fire sale.

Stock options are a lottery ticket, and I value them roughly the same.

> you should assume they are worthless.

I had this mindset at a startup and decided not to risk any of my money exercising my stock options. They eventually expired. Years later the company IPO'd and I would have made a lot of money had I exercised.

Waiting for more certainty before exercising means the fair market value will likely be higher then and you'll have to pay AMT.

I now approach a job with the mindset that stock options are probably worthless, but I'll risk what I can afford to by exercising as soon as I can.

They sure are insistent on it being literally zero for people who don't think it's literally zero.

If you like, I'm happy to update my claim to, "startup equity often has non-trivial value, say, >$1000 per year."

Add a few zeros and I think we’d be in the right ballpark. You have to make up for the haircut before you start counting positive net value.

Yes. Something is more than nothing. This is not rocket science.

I really want to insist on the principle that we are nuanced enough people to say, "startup equity is worth less, in expected value, than public company equity, but 'less than public company equity' is still more than zero."

Sounds like your startup equity has been worth about $3000-$5000 per year?

I hoped you had some real data, but all you had was a joke.

Ok it's not zero. Is it 0.0000000000000000000000001?

Surely you're aware that obtaining 0.50$ is not going to have a large impact? Even if the sum is 3000$ the impact is extremely limited.

But you had to go and be a r/iamverysmart material because you actually have no more information than me.

Also learn to spell therefore please.

You played a stupid game, you won a stupid prize.

Something is different than nothing. When people repeatedly insist that something and nothing are the same, they get trivial answers.

And learn which side of the digits a dollar sign goes on please.

I truly empathize with your desire. But I can’t agree.

To get to the point of the community feeling like startup equity is worth something on average, I think we need to figure out how to generate more favorable outcomes for startup employees.

If startup equity is worth something 20% of the time, the average person would need to work at 4 startups before seeing value. And the statement that it has non-zero, but low, expected value, just isnt true. On average it wasn’t.

If we could make startup equity worth something-minus-x 100% of the time (instead of just something 20% of the time), I’d be more amenable to agreeing with you that you can place a reliable non-zero value on startup equity.

That means things like removing liquidation preferences. Unfucking the tax situation around options or making it standard politcy that the company buys your options for you. Universally allow secondary markets. Build in participation structures for existing employees through funding rounds.

Would you say the expected value of a lottery ticket is > 0? Because startup equity is just too unreliable for an average person to not treat it like a lottery ticket.

I will concede that if you are very very discerning in which startups you work for and a good negotiator and have access to questionably legal secondary markets, you may be able to beat the curve. But that’s certainly not the average case.

You don't appear to know what "average" means. You mean that the modal value is zero. The average value is not.

There are all kinds of bets where the modal value is zero or negative that are good bets!