Stock options are never a reason to join a company. They are potentially an added bonus. But they should never be valued in that initial "should I work here?" Not when first taking the job, and not when considering whether you should leave or not (barring an imminent IPO that would delay your leaving by a bearable month or two)
Something you might not be aware of: If you joined the company before they had $50M in assets, your stock would also qualify as QSBS [1], which means you don't have to pay any tax on gains of up to $10 million.
[1] https://www.andersentax.com/services/for-private-clients/bus...
Your shares are likely going to get hugely diluted exactly because of growth investing like in the article. Investors and founders will essentially trade away your share of the company in new rounds, while they get huge payouts for it, your shares may grow a small amount, again realized over some long time horizon.
Let’s take an extreme example and say your shares double in value (not likely) through the remaining funding rounds, and eventually in another ~7 years you can actually sell them in some liquidity event.
So that’s $3 MM (gross) over 10 years. That works out to be $300,000 / yr in equity compensation.
Certainly very high. But not any kind of crazy number. Definitely there are rank and file engineers in FAANG companies, Wall Street, and other industries getting annual RSUs or bonuses well beyond that without having to wait 10 years to realize it or have the risk that it folds or you get laid off and lose a bunch of future value, and have a high base salary, good benefits, and good work/life balance the whole time.
Given that even a crazy outcome like $3 MM annualized over 10 years isn’t significantly better than other reasonable total comp opportunities, this overall paints a really bad picture for start-ups.
Your case, which is nearly about the best lottery ticket someone could get, is only slightly better than a competitive position at many public companies, finance shops, etc.
Meanwhile, almost all start-up outcomes would be far worse.
Not sure what your point is about $3MM over 10 years. Why would you divide it over anything other than the number of years you actually worked at the company?
You've assumed I was a senior engineering hire. I was in a junior non-technical role a year out of college.
> “Not sure what your point is about $3MM over 10 years.”
Please re-read my comment to help understand.
> “You've assumed I was a senior engineering hire. I was in a junior non-technical role a year out of college.”
Where did I make an assumption about junior vs senior level?
As for your claim you were given this grant for a non-technical role 1 year out of college, I think it’s more likely you’re just lying to troll this comment thread. Just in a Bayesian sense, the conditional probability that you’re lying is higher than that this is a true story.
It’s not impossible that this could have happened for a non-tech hire with no experience, but that mere possibility also is irrelevant compared with the far greater probability that this is just made up.
I don't think there's anything particularly special about my situation other than I was fortunate to join a now unicorn early on.
The fact that some people win at startup roulette doesn't mean that it's a good financial decision to join a startup, especially considering that you can make the same sort of money without the risk elsewhere.
To expand on it further, even if you are lucky to have joined a unicorn, you still didn't get a good deal in comparison to virtually everyone else involved in the company. The founders are likely billionaires and you made off with a low 7 figure outcome while taking on only marginally less risk. That's not a good deal by any reasonable definition.
Take Jeff Bezos. He was a fairly wealthy guy, having worked at D.E. Shaw before founding Amazon. Still, he took a $250k investment from his parents to help found the company. Yes, it turned out to be a great investment, possibly worth $30 billion today, but at the time, the more likely outcome was that it would be worth $0. So not only did he risk his own money, but that of his friends and family on his new venture.
Contrast this to an early employee who starts after the first round of outside money is made. That employee often gets paid a competitive salary (maybe not a FAANG level salary, but something that's fairly easy to live comfortably on). They certainly are not expected to raise money for the company. It's just a much safer thing to do, that really doesn't involve nearly as much sacrifice as the founder.
Now, I agree that there is a point where the rewards may not justify the risks, which is joining a company in the pre-series A stage. At this point, you might be asked to take a very significant salary/benefits cut, while your share of the company is likely to be in the low single digits (percent-wise). At that stage, I personally don't think the risk/reward ratio is fair (i.e. i think that stock grants to these early employees should generally be higher than they are).
Seems he is another wealthy guy who "made it on his own". I couldn't raise even a 10th of that from my family.
You have the option to swap places with the founders and become a founder yourself. But if you do that, you have to clear the same hurdles the founders did - validate a market, build an initial product, convince people to give you money. And you bear the financial risk that any one of these steps won't work out yourself.
One (productive, IME) way to look at the founder/investor/early-employee/late-employee divide is to think of it as risk apportionment. The founder risks their time & effort for a potentially large payoff if those risks succeed. The investor risks their money on the assumption that the founder can turn it into more money. The employee trades away the financial risk that the venture as a whole might not succeed for reasons outside his control in exchange for ceding most of the rewards if it does. Depending on your risk tolerance and belief in whether the company will succeed, you might choose to occupy different roles in that ecosystem. But understand that what you're being compensated for, when you have an outlandish success that nets a big payoff, is all the ways that payoff could have gone wrong and you might've ended up with nothing.
You have to include whether you are enabling greater income disparity, to ensure there is a disincentive for those in power to create that sort of environment for you. It is rational to consider both what benefits you, -and- what benefits society at large, and if you have sufficiently not terrible options to choose from, picking the one that does not greatly enrich another on your effort is a positive.
I wouldn't see the risk of being an employee and founder as similar. Typically often founders are for time periods without salary etc. Early employee should just consider it as a job with more risk of the company going down under (that risk also exists in more established company). You can request more salary for the job or some additional perks (such as options).
I think for the employee the risks of joining to startup are quite easy to manage compared to a founder.
Increased risk of a startup should mean increased salary. What it has turned into is lower salary with options to get rewarded if all goes extremely well. If things go only okay then the salary is about the same.
The risk can be higher for a founder but could be more risky for an employee based on personal situations. The reward ratio is higher for founder and control over risk is in their hands.
I don't think this is true. There are cases where people have broken equal or made slightly more than working at a corporation would have. It can be really good, but it can also be just okayish or not that great.
This is based off my reading of the phrase, which means that good options have to be really good. The "it is really good" that is actually written verses "it can be really good" that is closer to the truth (imo).
I would've been screwed if I didn't early exercise.
Not sure what the best source on this is, but a quick DDGing:
https://www.fool.com/knowledge-center/tax-rate-on-exercising...
If I early exercise my options on day 1, then I still have to wait until the 2 years after the grant date (2 years of employment) to get long term capital gains treatment.
If I wait 4 years, then exercise, then I have already satisfied the 2 years post-grant requirement, but I still have to wait a year after the exercise to get long term capital gains treatment.
The key part was my last clause: "whichever is later".
I was lucky to join a now unicorn as one of the first few dozen employees a few years ago. I forward exercised with a few thousand out of pocket (section 83b) an equity grant now worth around $1.5m. Because I forward exercised my options at a low valuation I didn't have to worry about paying taxes if I exercised at a later time when the company's valuation grew. It also meant that my gains became long-term capital gains, and thus taxed lower, as soon as possible after I vested each month.