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Open guide to equity compensation

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656 points mooreds | 1 comments | 13 Apr 25 19:13 UTC | HN request time: 0.001s | 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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__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.

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carimura ◴[13 Apr 25 21:01 UTC] No.43675832[source]▶
"Cooking the books" could mean many things but most people would interpret this as fraud. There are many exit scenarios that aren't fraud but rather stacks of preferential stock that get paid before common, who usually get paid last.

What happened in your exit scenario?

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matt-p ◴[13 Apr 25 23:02 UTC] No.43676491[source]▶
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.
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rsanek ◴[14 Apr 25 02:40 UTC] No.43677600[source]▶
IPO is not the only way for employees to access liquidity
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Der_Einzige ◴[14 Apr 25 10:29 UTC] No.43679817[source]▶
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.

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pc86 ◴[14 Apr 25 12:44 UTC] No.43680681[source]▶
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.

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Der_Einzige ◴[14 Apr 25 13:26 UTC] No.43681015[source]▶
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.

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1. grepfru_it ◴[14 Apr 25 16:24 UTC] No.43683011{3}[source]▶
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.