Also at this point in time there is so much shady stuff going on with options that you should always always value options at zero. Frankly if all you are offering is your labor in return for options you don't have the pull to get a particularly good deal. (Example: Friend worked three years at a startup. Friend is smart. Friend got ~$50,000... whoop dee doo dah day)

Only other advice I have is, if you are considering exercising any stock options you need to talk with a tax accountant before you pull the trigger. No exceptions.

You can never get this information even as an employee. You ask directly, and nothing. They don't want to give it to you.

Your company could be sold for 100's of millions, paying off the investors at 2x investment, and the common stock holders get nothing.

Never attribute to malice that which is adequately explained by stupidity.

Getting a seed round doesn't magically confer the founders/C*Os with an comprehensive understanding of how company equity works. Or common sense.

I mean, imagine if someone followed the same practice for the salary part of compensation: "We will pay you money!" "Eh... how much?" "Some. The actual number is privileged and confidential."

This can be seen in recruiting stagee as well, it is usually presented as the take home question. Give them a take home interview problem that takes two days to solve. Those that go for it, will be dedicated and desperate enough to be good workers.

I honestly strongly dislike this quote, because at the end of they day just about every malicious activity could be wrongly attributed to stupidity.

So what is the lesson here? I hear this saying over and over, always with the implication of "Give them a pass". Who cares if they are being crooked, or are too dumb to do division. Either way, the employee loses.

Given my experience of advising early stage startup founders on equity investment, dilution, cap tables, etc., I believe that ignorance is at least as likely as malice in situations where they seem unwilling to disclose all the information the potential employee needs to fully evaluate the potential value of any equity options being offered.

I would never join a startup where the founder wasn't razor sharp and forthcoming on all these details.

"A witty saying proves nothing." - Voltaire

Does that really change anything, if your C-suite is too stupid to understand how companies work?

So yes, options are somewhat of a lottery ticket with ever changing odds. If the company does extraordinarily well, you will do well also. If you truly believe the company has a very good chance at financial success, you should stay irrespective of the number of options. If you are making a significant contribution to that success, a rational company will want to reward you and incent you to stay with more options. If both those things are not true, it is best to seek your fortune elsewhere.

Yes, but the directors of the company are obligated to act in the best interest of shareholders, so hopefully they would do that iff it increases the value of existing shares. (OK, there are many things wrong with this, including the fact that option holders are not shareholders.)

"If the company does extraordinarily well, you will do well also."

Yes, but if the company does very (but not extraordinarily) well, you might end up with nothing.

"If you are making a significant contribution to that success, a rational company will want to reward you and incent you to stay with more options."

But your contribution may not be constant. An early engineer who took a risk (low salary, high chance of being laid off) and built the prototype may not fit in when the company grows, so there may be little rational incentive to treat her fairly.

Also, all shareholders, or the majority?

Can you give me examples of people in jail for this 'crime'? At worst people saw social network, and it seemed a ok.

My understanding is that options for common shares, such as terms at YC, have not even anti dilution protection. So the # you have is a snap shot, and nothing to do what that % would be when you fully vest.

This is where the GGGP (davidwihl) is both right and wrong—knowledge of the cap table at signing won't guarantee anything, but that combined with a good judgement of character is the best you can do. In the end you can get screwed either way, but if there is any caginess up front then run don't walk away.

Your BATNA is to walk away from a deal where the counterparty refuses to give you the information needed to make a rational decision.

I like the experience of working here, but now I totally realize I have lost a significant amount just by not negotiating anything.

2. Would've asked for a better base salary citing all the "ifs" stock options carried with them.

In many cases, it's because they don't want non-executive employees to be able to know certain financial details, including the valuation of the company. I wish this wasn't the case, but the reasons for it seem logical and in fact fair - it's just that many people assume this is a lot when it probably isn't.

The downside is many people are apt to accept, thinking 10,000 in options is a "lot", and I've made that mistake in the past. In an A round startup, this number could easily be in the several millions of shares outstanding, and likely is. If it's gone through several funding rounds, it's likely even less. 10,000 in a C round is significantly less if they have divided the stock by 10x or more in the previous rounds.

Executives could be pulling in whole percentages of the company, or multiples thereof, and one of the first few members of technical staff could basically be looking at a year's salary or less in payout if the company would sell in 5-8 years.

The percentage of the companys that make it is also a factor. While the article focused on needing to stay at a company, it's fair to consider that the great majority of startups are going to fail or be very small acquisitions (asset deals, acqui-hiring, etc). In these positions, the VCs will get paid first, and there may not be much if anything left.

Another possibility is the company is sold for small prices but the CEO could secure a very very nice deal to join the new company (plus bonuses), which has happened on more than one occasion.

A VC only needs a small fraction of his portfolio to do big exits, so they make lots of bets.

Stock is a huge gamble. I don't recommend "no stock, just cash", but don't ever let someone underpay you on hopes the stock event will happen.

Stock is being used as a retention tool, and that's the design of it, unfortunately.

I'd be much more in favor of equitable profit sharing as a retention tool - suppose a company decides to give away X% of it's profits back to employees forever, and this is done in a way where it isn't the CEO/leaders making all the money. Instead say in a 50 person company, 10% of the profits always go back to the people, and each person gets 1/50th.

This also eliminates sales commission on large deals and makes everyone part of the deal (the whole company) profits - also no quarterly targets, personal bonus tiers, executive bonuses, or anything like that. As the company becomes more efficient, those numbers go up, and it keeps things simple.

Do you know of good examples of this working? I'm interested in how it might work with a typical startup.

I think you would want to calculate a % early in the year, and then award that percentage at the end of the year.

If you wanted to taper that somewhat by employee reviews I guess you could, but it shouldn't be on quota - and ideally you'd just not continue to employ those people you didn't want to be there.

Yes, everybody would lose out if there were no profits. And a lot of startups aren't profitable. But (IMHO) I think that's also where SV investment gets it wrong -- they value growth above profitability sometimes, and this desire for rapid scaling makes or breaks companies, when in the end, I think a greater percentage could be BOTH happy and moderately successful at the same time, rather trying to bust themselves and "go big or go home".

This model is probably a LOT easier to adopt in a bootstrapped company, where there's less likely a board to say no to it -- and yeah, if you're not profitable, you wouldn't do it... and you also would be unlikely to have stock anyway.

At least they should be able to tell you the common strike price and ideally the fair market value of preferred shares. This would let you benchmark things fairly well.

What does late stage mean? How many employees? How much funding raised?