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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: 0.201s | source
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lizknope ◴[14 Apr 25 13:29 UTC] No.43681043[source]▶
Why didn't I get any money from my startup? - A guide to Liquidation Preferences and Cap Tables

https://www.reddit.com/r/startups/comments/a8f6xz/why_didnt_...

I've posted this before but it's a great read. Even if you have millions of shares, the dilution and later investors could still leave you with nothing.

I worked for 2 startups, both failed, but I never got to see the cap table.

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justinbaker84 ◴[14 Apr 25 17:50 UTC] No.43684112[source]▶
I worked at a startup where I joined as the second employee before they raised any money and I basically got 0.5% of the company. They went on to raise over $100 million in VC.

I got $0 for my equity. Start ups have SO many ways to screw employees out of their equity.

The most basic is that you have options that you are not allowed to sell during equity rounds. If you accept them then you need to pay the strike price and they count as taxable income even though you got shares instead of money so you just lose a lot of money.

Say what you will about Elon, but at Space X employees are allowed to sell their shares for actual money at regular intervals. Very few start ups that succeed allow their employees to do that.

90% of startups that succeed just want to grind down their employees rather than pay them the equity they earned.

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1. lizknope ◴[14 Apr 25 19:37 UTC] No.43685345[source]▶
At both startups we bought our shares early using Section 83(b) of the IRS tax code. That first year when we bought the shares I had to file extra paperwork but it shifts the tax rate to long term capital gains.

https://www.cooleygo.com/what-is-a-section-83b-election/

So I ended up writing checks of $60 and $100 to buy thousands of shares at $0.0001 a share. I left both startups before they went under but everyone lost that small amount. When people ask me how much money I made at the startup I joke that I lose $60.