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Open guide to equity compensation

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656 points mooreds | 3 comments | 13 Apr 25 19:13 UTC | HN request time: 0.621s | source
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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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1. blitzar ◴[13 Apr 25 21:49 UTC] No.43676111[source]▶
As your 30 person startup has grown, the (future) value of the stock has gone from $0.00 to not $0.

When the value was zero, of course you had to talk up future value - you were selling something worth $0 for $1,000's. Now that it is worth something, it represents actual value for the employees to swap for salary, which is why you no longer offer as much!

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2. cj ◴[14 Apr 25 00:43 UTC] No.43677024[source]▶
That’s not really how it works, though. The price of your options is set based on when you join the company. If the company is already valuable by the time you join, you’re essentially buying in at the current valuation with the hope that the valuation will continue to increase.

You make money on the amount the company value increases starting the day the options were granted.

(This comment isn’t 100% technically accurate, but gets the point across in fewer words)

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3. ikiris ◴[14 Apr 25 21:31 UTC] No.43686540[source]▶
Almost always stock options at a startup are the equivalent of an unsecured iou. Even if there is a conversion at some point due to a buyout, common employee stock rarely ever sees any of that money. If anything they’re often negative value because you pay taxes on their claimed value at assignment.