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.

> Each employee chooses each year how much of their compensation they want in salary versus stock options. You can choose all cash, all options, or whatever combination suits you. You choose how much risk and upside (down) you want. These 10-year stock options are fully-vested and you keep them even if you leave Netflix.

[1]: https://jobs.netflix.com/work-life-philosophy

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.

I’ve been in Silicon Valley a long time, since the dotcom boom. My first company, the executive assistant got so rich from the pre-dotcom IPO she quit and bought a vineyard. That’s how things used to be. And we aren’t talking about some crazy ipo, it was before those times.

Fast forward to these days, the startup I worked for got acquired. I was engineer < 15. The founders got low 9 figures, I got 5 figures. Almost everyone got fucked for years of loyalty.

But that’s what YC and other accelerators teach founders. Be cheap with equity. And this document just perpetuates that.

Founders can easily make life changing money but the people that do the actual work get fucked unless it becomes a >100B company like a Facebook. That’s not realistic and they know that. Employees need a bigger piece of the pie when things go great for the company and not just when it becomes a Facebook, Uber, etc.

If you want to know how to evaluate equity, pick a total valuation of the company at exit and then multiply by your stake. If the company needs to exit at > 10B for you to make a life changing amount of money, then ask for much much more equity or don’t take the offer.

https://www.stockoptioncounsel.com/blog/standards-ownership-...

https://fairmark.com/compensation-stock-options/

There are several books also available, including a 2014 book aimed at financial planners and tax advisors that I have on my shelf and find myself consulting several times a year, as it is still pretty relevant under today's tax law.

I do wonder how much of this applies to RSUs granted by public corps

My offer letter pledged something like $100,000 of stock, vesting over four years. I was told that I would receive the grant within the first three months of my employment, once it was approved by the board.

Once I finally received the grant, it was 1/5 of what it should have been. “What gives?”, I inquired.

Apparently the stock incentive plan has a “price floor” for grants at $5 / share, and the stock had plunged to approximately $1 / share at my time of hire.

So my offer letter says my grant is for $100k, but in reality it’s $20k.

I learned this was because there was a limited pool of stock available for employee award grants, and a recent rout in the stock price meant there was an insufficient amount of stock available for grants.

Apparently going forward, offer letters specify the number of RSUs rather than a $ amount. So I guess a charitable interpretation is that it may not have been so much an intentional deception as a set of unfortunate circumstances coming together with some poor oversight on the details of my offer letter.

Still, I am incensed.

I referred to a previous employer’s offer letter and RSU grant for comparison. The offer letter also specified a $ amount, and did not specify how it would determine the price of the stock to calculate the awards by.

In that case, it seemed to be the average closing price of the stock in the month the award was granted. Which I’m content with, but these details also were not specified in the offer letter.

tldr if you get an offer letter for a $ amount of RSUs, make sure to clarify (in writing) how the valuation of the stock is determined for the calculation of the number of units awarded.

No benefits, $45k pay cut, and even when everything goes well I might break even.

In college the computer science department had an extracurricular talk about finances for a software engineer; the invited speaker was very adamant that holding most of your net worth in a company that employs you was an unacceptable concentration risk. I remembered that to this day.

Can I even sell in secondary market? I do not live in USA. Can the company stop me from selling and also refuse to buy it back themselves?

[1]: https://en.wikipedia.org/wiki/Employee_Stock_Ownership_Plan

The guy is now a senior engineer at a decent company, but effectively had 10+ million of value he created lifted from his hands.

These stories are extremely common

What happens in the average case scenario when your options vest, is that you are essentially allowed to make an equity investment in the company with really unfavorable terms (ie ur not even getting preferred stock or any voting rights unlike your average investor).

Let’s run the math here really quickly. You leave your high paying, hard, cold cash job at megacorp XYZ (let’s call it $300k), to join hot startup ABC that just raised a series A at a $50MM post. The startup offers you $150k in cash because … everyone is in it for “the mission”, and if they’re generous another $250k in options compensation to basically be on par with the XYZ salary that you’re leaving. Now, that $250k options grant is based on where the founders want the company to be by the time that your vesting schedule starts kicking in. So really, what you’re getting is more like 0.25 of the company if the company hits $100m valuation. We’re not going to even bother discussing pref, dilution and all the other factors that are constantly fighting to reduce that equity value. ANYWAY… once you vest you’re presented with the right to exercise, which costs money and is going to result in a tax bill which…costs money. Now you’re a wise financial planner and know that the sooner you exercise, the less tax you have to pay in the case of a liquidation event…so you fork up the cash. Now what’s it going to cost? Probably not 0, because strike prices are determined based on the valuation of the company when the options are issued…so you’re probably more in line to spend maybe $50k if you’re lucky but mostly closer to $100k. If there hasn’t been a 409A adjustment, you don’t have to pay tax on that. Now if you’re closer to a series B and let’s say the founders got where they wanted to be and valuation doubled, the 409a was filed and now you get to pay regular income tax, so you find yourself being taxed as if you just made that coveted $250k…but you didn’t. You are making an investment … just like any other investor, albeit with a lot less favorable terms. The best part is..guess what? If your circumstances change and you want to move on to a different job, you are now getting to choose between staying with the company until it has a liquidation event..or you have to effectively invest in it. Pretty shitty deal!

Now, this obviously assumes that you exercise your options and that you’re trying to optimize your tax bill. You could just as well be vesting and staying with the company for a long period of time, not having to really exercise your options and effectively you can make a ton of money without putting anything up for equity besides your sweat. Or you could have stayed at megacorp and taken that half of your salary that you gave up to invest in this ABC startup OR maybe a big bundle of the same kinds of startups with a much better risk profile because of diversification (and less reward).

Now let’s actually talk about a happy case. You joined early, you’re now an exec, you earned your stock, you vested, the company was gracious enough to give you a low interest loan to exercise your options…you’re golden. Company is getting acquired by a legacy big pocketed company or PE firm, you’re about to make bank and retire early. BUT…there is a caveat. During the sale proceedings it has been decided that half the purchase price is going to be stock and half is going to be cash. Moreover, all the execs should roll half of their equity into the new venture and you’re locked in for another 3 years, but now…you’re holding equity in a totally different beast of a company and you have 0 say or idea as to how that company works or trades.

In any case, as one of the comments here said…there are a lot more ways for your options to be worth nothing than there are for you to become rich from them. There are just too many variables to consider. It is not a good way to become rich. In order for it to be worth it, you have to be at a company that succeeds in making your equity worthwhile despite all of these caveats.