Moving upward a little: Several of my ex cow-orkers at MS are now partners, and will be able to retire early and never have to work again, and they're in their late 30s and early 40s. Nice gig if you can get it; it's not always a meritocracy, but getting better.
If you want to make a million dollars from stock over 5 years (in addition to a competitive salary) it's easier to do this at a big company than it is at a startup.
The first one blows up 409a (requires optionholder to pay fair market value for the shares). As to the second, very, very few investors are going to allow "their" money to be used for a common stock repurchase (at the same per share price) instead of going toward's the company's operations/development/whatever.
$X salary plus y% options at a startup should almost always be viewed as a having a value of $X and no more than that, but these "legitimate companies" want employees to view it as $X + $Million(s) in a future (all but guaranteed!) windfall. There are exceptions, but these are rare.
I wouldn't take issue with these companies trying to pass their crappy "equity compensation" packages off as "legitimate" if there was more openness and honesty about its value and the status of the employees with respect to the company.
The only time anybody should value equity at > $0 is when it's part of a regular grant or purchase of shares with true, market recognized value (e.g. RSU grants, ESP plans in a public company).
As a founder I wouldn't ever agree to that term as written. For starters, your options are common stock whereas investors have preferred. That just means you have to apply a discount though.
More importantly, I've seen first hand the change in team dynamics that happens when some "early" employees get a windfall. Not so much jealousy as this weird sense of complacency which permeates the entire co.
The truth is that at $100mm (heck, even at $1B valuation) the company hasn't "made" it yet. There is still tremendous risk on the table.
I think your idea is interesting, but I might add some step functions. At $100MM the co offers to buy back 1% of your shares, at $500MM up to 5% of your shares, at $1B up to 10% of your shares, and so on.
Realistically what happens is that in large, very late-stage rounds, the company gives employees the chance to sell some of their shares to the new investors at a discount (because of the common vs preferred situation).
The problem I see with this particular line is how disproportionate it is. If you had said 100+ people from 50+ companies, that might have been more convincing than 100+ people from a select 12 companies.
The problem here is that it's 12 companies, and not every company can be one of those 12. That's like me saying I know 20+ people from 2+ companies that made $1mm+ but those 2+ companies included FB/Twitter/etc.
Wouldn't you have to be going for a job in senior management to have a shot at doing something like this? Genuinely curious to hear if you have ever successfully done something like this?
This avoids the exercise window and acquisition concerns, is pretty tax favorable, and largely aligns your treatment with the founders. It is a bit riskier even if the company agrees to offset the loan with bonuses over time, but at lower valuations I think it is worth considering.
In any case, it's worth it to have a good lawyer look over all your options paperwork to make sure you are getting a fair deal.
This is addressed in the post:
> Another common objection is something like “I know lots of people who’ve made $1m from startups”. Me too, but I also know lots of people who’ve made much more than that working at public companies. This post is about the relative value of compensation packages, not the absolute value.
If I am supposed to make $1m more at Public Company over -- say -- a 10 year period, then that means my salary at Public Company would have to be $100k more per year than at Startup Company. Is the difference between startup and public really that big?
So if you’re the sort if person who’s likely to work hard at a BigCO long enough for most of your rolling RSU grants to vest, then yes, the comp difference is that big.
[0] note that MANY senior people at BigCos are NOT high performers. So beware of comparing to things like Glassdoor comp figures, which are highly likely to be coming from non-high-performers.
The continuity of a big co. can be very helpful from a salary perspective.
And while $300k assumes fairly high performance at a top public company, it's certainly not the upper bound.
[1] https://www.tekna.no/en/salary-and-negotiations/salary-stati...
Possibly even a little low for the Facebook / Netflix / etc tier.
Also, some companies will have target compensation bands (I know Yahoo did) where an increase in stock price will actually result in a smaller additional grant each year.
Another difference could depend on the nature of the individual earning that money. If that individual is disciplined and reasonably good at investing their money, taking the corporate job, living frugally and investing everything that's left might make them come out ahead. But if they're like most people, earning more will make them spend more and they'll come out behind the start-up employee who will usually immediately invest most of the windfall (either in a home or the market).
Neither route is obviously better, but it's probably worthwhile to look at the post-tax, post-spending bank balances of both sets of employees to see who comes out ahead since it's not a simple as comparing $1m to $1m.
As far as taxes, a big difference you didn't mention is that startups most frequently exit in a single liquidity event that can't be deferred (i.e. acquisition). Getting that $1MM in one tax year is much worse than spreading it out over even 3-5. At least in my locality, the difference between taxes on a $1mm windfall in one tax year vs. a senior dev salary at a place like Google is ~5%.
Not if it's long-term capital gains. The year that I banked most of my gains from my company's acquisition (sub-$1m, but just), my tax rate was substantially lower than in previous years. Paying taxes like a rich person has distinct advantages since the game is rigged in their favor.
That said, valuing equity is complicated:
- most offers include a healthy mix of cash and equity and benefits. Evaluate the whole package.
- unless you can pre-exercise via 83(b), I generally avoid options. RSUs are fine and many companies are offering them. Clever hack: counter the offer with a demand that the company pay 2% of the cost of exercising for each month you're employed, grossed up for taxes.
- watch out for illiquidity: whales often delay IPO which locks up employees. This compounds the exercise issue. Clever hack: counter the offer with a requirement that the company offer to buy back the equity at the most recent preferred share price, if the company accepts investment at a valuation exceeding $100mm.
Stay positive!