> Compare that to options, which worth is hypothetical and up for debate. None of your fellow employees know more than what the founders told them. It's some glowing future promise that will only be broken a few years down the road... When they typically won't need you anymore...

Hmmm...I think the part that is maybe missing from your model is that the value is not hypothetical and made up, you need to price the certainty into the value itself when negotiating the offer. If you are given very little information, the value is low. But it's not "high value low certainty" it's simply low value.

Skype equity that allows you to be fired and have it bought back at strike price is not "high value low certainty" it's simply low value. Engineers overvalued their equity going into it. They were not misled, and this was something that could've been reasoned about going in easily. They should've read what they were signing.

Some employers will give you enough information to make an informed decision (cap table, current revenue, projections, etc.). Most will not. Most are not worth working for, or at least their options are not worth valuing above $0. Some are, though.

> Hmmm...I think the part that is maybe missing from your model is that the value is not hypothetical and made up, you need to price the certainty into the value itself when negotiating the offer. If you are given very little information, the value is low. But it's not "high value low certainty" it's simply low value.

The context for this argument is that joining a profitable business carries less risk of being deceived / manipulated and waking up after 4+ years to a reality that is totally different than what you were repeatedly lectured to expect.

Your response doesn't really refute or address that argument. You are claiming that in the theoretical case that you are given 100% valid information and 0% hype, you should be able to to get a more accurate profit expectation. That's, of course, true.

The reality still is that you will not get 100% facts and 0% hype in the vast majority of startups. The entire industry has been operating for some time on bringing in clueless fresh grads, telling them they're all "rockstars", and that if they'll just work 14hr/day for 4 years, they'll also be multi-millionaires.

So while in theory (as you correctly point out) there can still be room for verification and realistic assessment of upside in startups, in practice the startup model has more loopholes, and these are universally exploited, such that the industry is generally quite deceptive.

It's just like how in theory, given perfect information, a used car can be priced almost as accurately as a new one. In practice, since there's so much room for deception and manipulation, that's not the case, and the industry has a well-deserved reputation of being shady and untrustworthy.

Now, imagine profitable businesses offered you a deal like this: "You start working at half your usual market salary. After 4 years, if you're still with us and we really like you, we'll pay you a huge one time bonus. We won't tell you exactly how much it will be, because frankly we don't know (and there's a tiny chance we won't be able to pay it anyway), but it will almost certainly be over $10 million and you'll get sooo rich, bro!".

Most people would laugh at that, because the normal full-time employment isn't so exploitable. But the startup model is, and that's the deal most startup employees agree to.

> Skype equity that allows you to be fired and have it bought back at strike price is not "high value low certainty" it's simply low value. Engineers overvalued their equity going into it. They were not misled, and this was something that could've been reasoned about going in easily. They should've read what they were signing.

As before, you are correct in theory, but in practice this is extremely shady. There's a pretty standard set of terms for equity in startups, and clawbacks are definitely not part of it. In fact, they go pretty much directly against it, and against the meaning of what option plans aim to be and achieve.

It's not unreasonable for an inexperienced engineer to assume the standard terms will be followed in his case as well. A fresh grad won't spend a substantial portion of his signing bonus on a lawyer to read his contract, and the clause was obscure and vaguely phrased that even a lawyer might miss it.

What Skype (technically, SLP) did was obviously legal, but extremely shady, and a good example of a savvy business tricking naive engineers. This wasn't innocent: these options that could (and eventually did) amount to millions of dollars were dangled in front of the employees noses since they were mere candidates. And all this time, they were actually worthless.

Legal? Probably. Shady and deceptive? Definitely.

> Some employers will give you enough information to make an informed decision (cap table, current revenue, projections, etc.). Most will not. Most are not worth working for, or at least their options are not worth valuing above $0. Some are, though.

Now I'm curious: which are these employers, in your opinion?

> The context for this argument is that joining a profitable business carries less risk of being deceived / manipulated and waking up after 4+ years to a reality that is totally different than what you were repeatedly lectured to expect.

> Your response doesn't really refute or address that argument. You are claiming that in the theoretical case that you are given 100% valid information and 0% hype, you should be able to to get a more accurate profit expectation. That's, of course, true.

You need to put yourself in a position where being deceived is fraud. If they show you fake revenue numbers that's fraud. If you don't understand that the real revenue numbers they are giving you aren't good enough, that's not fraud. If they don't tell you every single thing about the business that's not fraud. If they tell you they expect the business to do really well and it doesn't, that's not fraud. Ask the questions you need to get a feel for if the risk is worth it to you and take an educated risk. If they don't give you enough information run.

How much the employer hypes the position doesn't even come into the equation. I don't really understand why you think it's an important thing. Hype is not part of the deal. The numbers and the structure of the agreement are. Of course the CEO is excited about his company why else would he be risking so much to start it? Stop paying attention to emotions and start paying attention to the documents you are signing and the deals you are making.

> What Skype (technically, SLP) did was obviously legal, but extremely shady, and a good example of a savvy business tricking naive engineers. This wasn't innocent: these options that could (and eventually did) amount to millions of dollars were dangled in front of the employees noses since they were mere candidates. And all this time, they were actually worthless.

Again, why are you letting these engineers off the hook for not reading or understanding documents they signed that said in really big letters SIGN HERE IF YOU UNDERSTAND THIS. I can't imagine anything less misleading than spelling out your exact intent in legalese and then following through with it. Engineers chose to pay attention to the cheer leaders instead of the lawyers to their detriment. Why would employees expect Skype lawyers and managers to be on their team?

> Now I'm curious: which are these employers, in your opinion?

Cap table access is rare though I've gotten it a few times, and high level numbers about the cap table are not (# shares, %owned be investors etc.), revenue numbers are widely available, projections are widely available, I dunno man these aren't huge things for early stage employees to ask for, I think most people just usually don't.

> You need to put yourself in a position where being deceived is fraud. > > How much the employer hypes the position doesn't even come into the equation. I don't really understand why you think it's an important thing. Hype is not part of the deal. The numbers and the structure of the agreement are.

Again, what you're arguing here is like "The used car industry isn't shady at all. All you have to do is spend a couple of months learning to evaluate used cars, maybe a couple more to learn the relevant law and know what the salesperson can't legally lie about, then you'll probably be almost as good at detecting the real value of the used car as the people whose full time job is to hide and inflate it!".

Yes, in theory if all fresh grads took a full semester of financial literacy, startup equity models, and US securities law, they'd stand a chance against the savvy business folk greeting them at the door. In practice, it's not happening, so it's simply unrealistic to expect that, level of knowledge from a fresh grad. What's actually happening is that they do get manipulated (yes, not illegally so, typically) and then a few years later, they find out, and become bitter and come to post at HN about it.

> Again, why are you letting these engineers off the hook for not reading or understanding documents they signed that said in really big letters SIGN HERE IF YOU UNDERSTAND THIS.

I'm judging them by realistic standards, you're judging them by unrealistic standards. From what I recall of reading that clause at the time, it was near incomprehensible unless you knew both legalese and exactly how equity works. If they got a decent lawyer to review the contract for them, he'd probably catch it, but how many fresh grads spend the time and money to find a good lawyer for their first job?

I think you're being too demanding of naive fresh grads, and surprisingly forgiving of savvy businesses that are out to manipulate them with fine print in what would normally be a standard contract.

> I dunno man these aren't huge things for early stage employees to ask for, I think most people just usually don't.

Right, that's the reality I'm talking about, in which most employees are naive fresh grads. They hear some really attractive numbers from the founders, and they don't know anything about equity and how it works, legally or financially.

That's the reality we're dealing with here. Yes, I agree, these engineers could do more to protect themselves. Reality is, though, they don't. It's not completely crazy that they don't - learning all this stuff takes time and effort, and engineers aren't primarily interested in finance or US security law.

This general lack of knowledge also creates an environment in which more savvy people are at a disadvantage. For example, I obviously know to ask for the necessary data to evaluate my equity. Typical scenario I encountered, including in the last time I interviewed with startups:

They don't tell you anything you need to know. "You'll get X shares, which we estimate to be worth roughly a gazillion dollars when we exit, since we'll be taking over a bajillion dollar market."

That really is all you'll typically hear in the pitch talks. Seems like the vast majority of engineers never ask. So now when I ask for more information, I'm the odd one out. I got weird stares just for asking about the total size of the equity pool (!).

It's not pretty, and theoretically wrong, yet that's how the industry operates. It's been over a decade now, and these practices have become standard: giving employees no information, systematically hyping them with unrealistic valuations, and when it all blows up, their inflated fantasies collapse, but by then, they've served their purpose, so nobody cares.

I think your analogy is 100% spot on. I'm not arguing that the startup industry isn't shady, I'm arguing that it is and, much like the shady used car industry, and much like you said, you can totally find good deals if you know what you're doing. Yes, like any way of making a lot of money, it is hard to know what you're doing and founders promising you millions in 2 years, like all get rich quick schemes, don't work out, it turns out. Let's not throw out the baby with the bath water though.

> They don't tell you anything you need to know. "You'll get X shares, which we estimate to be worth roughly a gazillion dollars when we exit, since we'll be taking over a bajillion dollar market."

I have literally only once been told what shares would be worth on an exit and it was the first, worst company I ever worked for. Every other time I have been told total # shares and current FMV. You're correct this is a sign for dogshit founders though.

> That really is all you'll typically hear in the pitch talks. Seems like the vast majority of engineers never ask. So now when I ask for more information, I'm the odd one out. I got weird stares just for asking about the total size of the equity pool (!).

My experience with this has only been positive. I have always found that founders respect you for asking these kinds of questions, even if they don't want to give you the information. If a founder reacts poorly, again, that's your free sign to leave.

But look: yes, most people aren't good at starting startups and so most equity is worthless. Some of them are trying to screw you, but most of them just don't understand themselves. Don't buy most used cars. Don't join most startups. Don't live your life through simplistic stereotypes like sleazy used car salesman and misleading startup founder.

Anyway all I can really do is offer my assistance in helping others figure this stuff out, as I did in a previous post. This can be a frustrating industry but it can be rewarding as well.

> I'm not arguing that the startup industry isn't shady, I'm arguing that it is and, much like the shady used car industry, and much like you said, you can totally find good deals if you know what you're doing.

Are you familiar with the term Lemon Market?:

https://en.wikipedia.org/wiki/The_Market_for_Lemons

I suspect this is what's happening in the startup industry. At least back when I was involved, there were a handful of startups that were really good, and a vast majority that were really bad.

As time goes by, people become more aware of this. You yourself agree that most startups are awful, so most people with startup experience don't have many good things to say about that experience. You see that reflected in HN threads, including this one.

This leads to negative evaluation of all startups, since it's hard to tell which are good and which are bad - and mostly they are bad.

Theoretically, a Lemon Market ultimately collapses.

This isn't inescapable fate. If the industry reestablishes some ground rules, mostly obvious ones that already existed in early startup culture, then it can get on the path to recovery.

For example, equity should be meaningful, instead of the scam it has become. There are way too many stories of companies enjoying a good exit while nobody benefits except the founders and the VCs.

There's a lot of skilled people who will not go anywhere near a startup again because they and all their friends have been burned by this and similar endemic issues.

Startups heavily recruit naive fresh grads for that very reason, but that pool is shrinking for them as profitable tech companies pay more and more competitively. Right now I think most of the top grads want to go to top tech, not to startups.

If all the best engineers, especially senior ones, ditch the startup lemon market, that will be very bad for us here in the US. Our economy and culture has benefited immensely from startups like Google that became huge success stories because they offered meaningful equity, attracted top talent, and truly disrupted their market. Unless startup reposition themselves to attract this kind of talent, this won't happen anymore.