Open guide to equity compensation

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.

> 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.

> 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.

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.

> 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.