Open guide to equity compensation

There's also just the case that a buyer is happy buying say 88% of the company and having 12% (usually non-voting) shares lie with employees/former employees. Stock options are only really, truly worth anything if they IPO.

Not since... I'm not sure the regulatory change, but if employees are able to sell back to the company or to private investors, resulting in cold hard cash in employee bank accounts, without the company going public, I'd say they are worth something. We can argue about how, without an IPO, the price isn't fairly decided upon, but having cold hard cash in the bank is nonetheless real.

IPO is not the only way for employees to access liquidity

True that stock _options_ are only worth something after an IPO, but vested and exercised stock options that get turned into equity is a different story.

Equity can be worth something via acquisition from private equity doing roll-ups, corporate buyers looking to fill strategic product niches, etc

Also, for the more heavily vc-funded late stage still pre-ipo plays, secondary market, which can be at a discount to the most recent vc round, or in some rare instances in a hot sector, premium.

One other thing - waiting for the IPO might be the worst thing to wait to do. The public markets are much more fickle than private markets. Once a company IPOs, there's usually a trading moratorium on insider shares, usually 180 days, so by then, the equity value may have completely imploded.

I've never heard of being able to sell back stock options. You don't own anything with an option. You just have the right to buy at a price in the future.

I didn't say stock options. There is a mechanism through which SpaceX employees have been able to cash out some sort of financial object that they received, despite the company not being public.

The comment you were replying to ended with this:

> Stock options are only really, truly worth anything if they IPO.

fair. the important thing here is that IPO is not the only way to liquidity for early employees

It sure fucking seems like it is! Have you tried to buy early stock in startups? You have to have 10K minimum in most cases.

I’d have bought huggingface, openAI, anthropic, unsloth, and many others stock right at this moment if I could get in for less than 10K.

Prove me wrong internet. I’m ready to buy in these companies this minute.

Well, I'm not sure it is. People are pretty aware of salaries already for example. This was about stock options specifically.

Across the universe of accredited investors, I don’t think that a $10K minimum is a significant barrier.

We can argue whether the accredited investor process is good or bad (I think it’s more good than bad), but I don’t blame companies for not wanting a bunch of $872 high roller outsiders on the cap table.

My point still stands even if it's equity. PE/corp buyers may not care about buying out the very small minority stock holders, that is the point I 'm making.

Lets say you've got

Founder A 25% - Voting, Founder B 25% - Voting, Investor A 10% - Voting, Investor B 15% - Voting, Investor C 8% - Voting.

Former Employee A 0.5% - Non Voting, Former Employee B 0.4% - Non Voting, Employee C+ 0.2-0.3% each all Non Voting.

If say Big Co want's to buy the company why do they care about buying out former Employee B? If they can pickup the two founders and the three investors, thats enough for complete practical control.

I don't usually see minimums below 25K, which is fine and sensible.

You really need some kind of a proxy to aggregate anything less than that in practice - thinks like crowdcube or similar. Can you imagine having to draw up paperwork just to transact $1200 or something? Doesn't make much sense.

An outside individual purchasing shares is not the same as employees accessing liquidity.

As one example, SpaceX is privately held but routinely does funding rounds with large investors so employees can sell shares and access liquidity[1][2]. A $10,000 minimum purchase amount is trivial for those investors.

[1] https://www.reuters.com/markets/us/elon-musks-spacex-raises-...

[2] https://www.reuters.com/business/aerospace-defense/spacex-fu...

I'm generally pretty against paternalism in markets, but when you get to the more "finance-y" stuff like this the opportunity for large scale fraud is just so prevalent and there are so many people just looking for their next mark.

If $10k or $25k is an amount of money you have to pause to think about at all you have zero business investing in early stage startups. Simply by the way the math works out you are better off buying lottery tickets because at least then you'll get to scratch something off before going bankrupt.

Sorry, but I DO have business investing in early stage startups. I called huggingface being this big back in 2019. And given your first sentence, I'm going to 100% call this out as projection on your part.

Folks who work in AI/ML know how to invest in the space! You're welcome to ignore the fact that Unsloth is objectively going to pop off (likely be acquired by huggingface) and anyone who invests in it will come out ahead.

The Venn diagram of people who are sophisticated enough to make these kinds of investments with better odds than gambling and people for whom $10k is hard to scrape together is indistinguishable from two circles. I'm sure there are some in the intersection but it's such a small piece of the pie we can effectively call it zero.

If you want to gamble that's your right I'm sure there is a roulette table somewhere near you. But the social harm caused by allowing dentists and grandmothers to invest in seed stage startups greatly outweighs any social good caused by letting that near-zero overlap get rich a little easier.

People here get u on their high horse about investment minimums and the like. Sure, they get real excited about some startup and they may turn out to even be right. I also know people who do angel and seed investing who are beating the bushes for capital or are just holding tight. Startup investing isn’t some magic money tree reserved for the well off. Heck, I’m pretty selective about even purchases of even individual public companies.

In 2019 they didn’t need your $10k of funding. If you contacted them within the 6 months they were starting they would have said yes. In 2019 it was more time consuming than it was worth. So they encourage you to go through a pool of investors which you are scoffing at.

In reality, my project needs funding now. If i bootstrap and get customers, I don’t need to worry about your lunch money. I need someone (or customers) who can fund that same amount for a year.

That hasn't been my experience. I've never had the experience of BigCo only acquiring just enough for 50.1% ownership. There's also clauses in the equity plans for participation on change of control (assuming that BigCo taking 50.1% constitutes change of control)

it's a particular issue with PE, who aren't really doing it for strategic reasons, but really are just there to make money.

Right so for options, when the employee leaves the company, they can convert them to shares, and then there are ways for them to sell those shares somehow, and it results in cash money somewhere down the road that isn't just the salary.