←back to thread

Open guide to equity compensation

(github.com)
656 points mooreds | 1 comments | 13 Apr 25 19:13 UTC | HN request time: 0s | source
Show context
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.

replies(19): >>43675676 #>>43675759 #>>43675967 #>>43676111 #>>43676216 #>>43676383 #>>43676450 #>>43676463 #>>43676503 #>>43676526 #>>43676834 #>>43676885 #>>43676986 #>>43677139 #>>43677589 #>>43678377 #>>43679184 #>>43680072 #>>43684272 #
__turbobrew__ ◴[13 Apr 25 20:50 UTC] No.43675759[source]▶
Even if the company has a successful exit lots of times the founders have different stock class than employees which allows them to cook the books in creative ways where employee stocks are devalued without affecting founder stocks.

I personally went through a successful exit of a company where I was one of the early engineers and was privy to orchestrating the sale (working with potential buyers and consultants) and saw this happen.

I now am granted stocks which are traded on the NYSE so nobody can cook the books without commiting securities fraud.

replies(7): >>43675832 #>>43676272 #>>43676802 #>>43676851 #>>43677057 #>>43678735 #>>43680644 #
mancerayder ◴[14 Apr 25 00:49 UTC] No.43677057[source]▶
Can you share at a high level what you meant by cooking in the context of the exit?
replies(3): >>43677176 #>>43677626 #>>43681824 #
1. hibikir ◴[14 Apr 25 02:45 UTC] No.43677626[source]▶
When the founders still control the board, in practice the buying company understands that what makes the acquisition work is that said founders end up happy, and that the outcomes for your typical employee can be sacrificed to the edge of what the law allows.

Maybe there's management carve-outs. Maybe the total value of the acquisition is lower, but as part of the negotiation, there are great transaction bonuses, or retention bonuses. The investors with preferred shares still get their liquidation preferences, but the common stock is worth a pittance. Maybe instead of an acquisition, some of this is turned into an asset sale, or there's some considerations for founders that involve very friendly rollover equity. Maybe the founders add a new kind of stock, or create a new legal entity as part of the acquisition that does... "interesting" things. An inventive legal team cannot do miracles, can make sure that the employees feel robbed either way.

The acquirer, the founders and the VCs with the biggest share will get what they want, and come up with something neither will challenge. So it can be down to just the workers to pool together and decide to sue for violation of fiduciary duty, which might not be fast or easy to prove. You aren't in the room where it happens, but everyone else is.