Your explanation is a self fullfiling prophecy disguised as if it was some wise advice.
In reality employees can and should make informed decisions, this advice is equivalent of covering ears and screaming bla bla bla.
Power is given to those who demand it. If you start with assumption of being treated like meek, you are simply setting yourself up for a defeat.
Yes, it's important to try and understand your stake and whatever choices may actually be available to you. It's also important to realize that you are likely part of the 99% of employees who have been handed a worthless piece of paper, which just might convert into something valuable under a very specific and extremely unlikely set of circumstances.
On top of everything is the fact that not all financial advisers are equally knowledgeable or caring about their profession. Given the same documents to review, some will be overly optimistic or just plain incompetent while others will actually be able to explain just what you have lined up. How many stories of "I was advised X, so I spent money, and now I'm broke and losing my home" stories do we need to read to understand this?
Your salary is your compensation, and you base all financial decisions solely on that income. You figure out your cash-out options, and when the time comes that you convert to hard cash, now you have more money. Until then, keep your dreams of a windfall with you at night under your covers. It's foolish to plan out your life expecting to yes, win the lottery.
Valuing the options at zero and demanding adequate salary without them is the opposite of meekness.
I know several people who successfully negotiated better terms. Demanding "adequate" salary and valueing options at "zero" are two seperate tasks. You assume latter (options not valued at 0) implies former (salary not adequate) its a statement about your risk averse world view, not a statememt of fact.
As far as meekness, loudly proclaiming that you are valuing options at zero is great way of letting your co workers and others know of your level of interest in the success of company. At which point if not meek you would surely come across as contemptuous, lest the company suceed and your coworkers end up better off than you.
And for every person you know there are dozens of stories about people who didn't even come close to recouping their salary differential. And those are just the "successful" startups that had some sort of exit. So the risk is (obviously) real.
> its a statement about your risk averse world view, not a statememt of fact.
No, it's a (true) statistical statement that you're misrepresenting as a categorical one.
> loudly proclaiming that you are valuing options at zero is great way of letting your co workers and others know of your level of interest in the success of company
Does the VC who's investing in a profile of N other companies also not have much interest in the success of the company? I mean, if they REALLY believed in the success of the company, then why aren't they just throwing all N at the company?
The only difference between the VC and the employee is that the employee is providing a limited resource (time) that can't be split among N bets, while the VC has enough cash to afford to make risky bets.
So it's entirely possible that the company has an negative expected value for an employee and also a positive expected value for the VC (and founder, but for different reasons).
Which is exactly the scenario the article is warning about: share dilution, refinancing, and all those other strange terms, often rendering the employees' options worthless over time (but not the VC's of course)
You don't have to be contemptuous to be confident in your own worth and realistic about how much you can influence the company's chances. By working for a company you are already long that company; you should be looking to diversify. The people who "drink the kool-aid" and get extremely personally devoted to their company are not exactly respected, IME.
You do whatever you like. If this stuff is interesting, go learn about it! There's nothing wrong with that. But all I've discovered, the more I've learned about the world of VC and options and equity compensation, is that it's a rich man's game and I've been wasting my time trying to play.
You can very well assume that it's worthless. If you do, chances are you will not do your research on things like early exercise and 83(b) filing (whether, for example, you work at a company that even allows things like that).
Then, in the very small chance that your equity is actually worth something, you will be kicking yourself really hard because if you'd only prepared, you could've been paying LTCG on the whole spread, rather than dealing with AMT and trying to find a private buyer for your illiquid stock to pay off the IRS and the CA FTB.
Look, I won't be kicking myself neither hard not soft, because I made a conscious decision to study and become proficient in another field.
You finance people work under the assumption that everybody cares—or should care—about the underlying concepts of your field, not to mention the details such as jargon and acronyms, just because we have to use money to conduct our daily life. That's demonstrably false.
It would be like assuming everybody who uses a smartphone should care and become proficient on TCP, signals, sockets, PIDs, scheduler priorities, and what not. In a word, foolish.
Considering the stock options you're given basically worthless, unless fortuitously proven otherwise, and making your employment decisions based on salary alone (and other non-monetary factors) is a valid strategy, because it allows you to avoid having to invest time into studying and understanding all those foreign concepts. Since time is a finite resource, choosing how to spend it while still having your butt covered is great advice.
On the other hand, if you are a founder of have otherwise invested a considerable amount of time and energy into those shares, it would be foolish not to seek professional advice on their management, as the article rightly points out.
Those aren't finance terms, they are taxpayer terms! Long term capital gains, alternative minimum tax, everyone knows who the IRS are...
"fiscal gibberish, fiscal gibberish, Then, in the very small chance that your equity is actually worth something [sic], fiscal gibberish, fiscal gibberish"
Sounds almost like the definition of a lottery to me.
perhaps you were referring to the 'infinite monkey theorem' ? i would rather believe programming to be nothing like that.
Startup comp is a little different; salary + the value of equity at (a reasonable) exit (but derated by a healthy 80%, because 80% of all startups fail, right?) It might also be wise to discount for any difference in preferred shares vs. common stock.
This might just be my personal experience, but I feel like a lot of people don't derate startup equity for (the statistically expected) failure correctly.
Better to get the market salary for a 50 hour a week job and do your own startup on the side as a side project.
The thing is, early employees (first 1-4 years) put in as much effort and take as much risk as founders, and take a lot more risk than investors (who can spread their bets over a dozen other investments) yet generally get poor terms in their options packages.
Options do have a calculable value, if you can determine the risk of failure for the company. I think they correct answer is to get RSUs that vest and have the same terms as the investors do. That's a lot more fair- investors still get to spread their bets around and have less risk, but employees have reasonable participation in all outcomes in that case (and the RSUs vest like options would.)
Yes, because every company that has ever failed was predetermined to be a failure long before they went out of business. Give me a break. I've watched companies of varying sizes do extremely well for several years, which then fall apart into ashes in a matter of a month or two. You can't assign value to options unless you are in the process of cashing them out.
EVERYTHING involves risk. A risk adjusted calculation isn't a guarantee but it's also not irrelevant simply because there's risk.
If I will pay you $1 for every number that comes up on the dice, unless its a 1 in which case I pay you nothing, would you ante up $0.50? You seem to be arguing that because there's a chance a 1 could come up, that a ticket for that game isn't worth $0.50.
Also, your analogy if full of it. You make it sound like options will pay out 5/6ths of the time. Adjust your analogy to rolling a 100,000-sided die with a couple of numbers that pay out, and we might be closer to the reality. With those adjusted numbers, no you cannot have my $0.50.
You mean feign interest in the company for two years longer than every VC that passed them over?
I'm being cynical, but I am baffled how Silicon Valley companies think they are going to be privileged enough to hire engineers that are actually interested in their company's ambiguous mission, amongst the subset of engineers randomly on the market at any given time
How many VCs weren't interested again?
No way. I have been screwed often enough by companies that I am no longer going to put in uncompensated additional effort more than once per employer. If I want to do charitable work, there is no shortage of open-source projects out there that would pay in gratitude or reputation.
When I am "at will" in a company with zero actual ownership, I have no interest whatsoever in seeing the company succeed or fail. It makes no difference to me whether the job disappears because the company goes under, or because the CEO doesn't like my face, or because the owners sell out and the new bosses clean house. Any non-cash incentives will have no effect on me until they are actually in my possession. A promise that can be broken without consequence at any moment before the expected delivery date is no promise at all.
As an employee-owner, I can have a positive effect on the outcome of the company. But not once has any of my employers fully upheld any promise related to ownership made at or before hiring. So now all my accounting is by what I have in hand. If what I have is a load of tissue-thin promises that I have no means to enforce, that's great for wiping my backside with. I believe it was put more delicately some time ago as "don't count your chickens before they're hatched," and "a bird in the hand is worth two in the bush."
If you can't meaningfully enforce the promise, it is worth nothing. If you have a vesting schedule, and the employer can change it by firing you without cause, it is worth nothing. Analyze your proposed compensation defensively; pretend that the company is out to screw you without you even noticing it, because sometimes they are.
But it doesn't really matter, because you have no control over this anyway. All you have to do is decide whether the salary is high enough; the rest is irrelevant.
Some people really enjoy playing the lottery. If that's you, well, knock yourself out getting into the details of the options package! Just don't kid yourself or make any serious life plans based on your hopes about that stuff.