Even if the company has a successful exit lots of times the founders have different stock class than employees which allows them to cook the books in creative ways where employee stocks are devalued without affecting founder stocks.

I personally went through a successful exit of a company where I was one of the early engineers and was privy to orchestrating the sale (working with potential buyers and consultants) and saw this happen.

I now am granted stocks which are traded on the NYSE so nobody can cook the books without commiting securities fraud.

One other trick I learned about and should warn others about - getting an offer for shares (an employee level %) where there is in fact no options pool and existing shares will be diluted for every new employee who joins the team. I got such an offer, and not only was this information not given to me until I asked about any events aside from funding rounds that would be dilutive, but it was presented as standard operating procedure.

>getting an offer for shares (an employee level %) where there is in fact no options pool and existing shares will be diluted for every new employee who joins the team

How's this different than if an option pool exists? The more people have options, the further the pie will be split up. Having an option pool or not doesn't change this.

First, dilution should only be happening at funding events, not every time a new senior staff person is hired, and second the dilution should affect everyone equally— founders, execs, angels, VCs.

It's super unfair to give an employee "x shares" that turn out on exit to be shares of a fixed pie that is different from the one the investors have their shares in.

When the option pool is created that is the dilutive event, so new employees getting their grants doesn't result in current employees being diluted, because the entire pool was already taken into account.

But that’s not true. An options pool containing shares owned by the company is the same from a “how much of the company do I own” perspective as unissued or even uncontemplated shares.

The only real advantage to the options pool is ease of management of the shares. There’s a lot of paperwork around issuing new shares you don’t want to do it every time you hire a programmer. And I guess you could argue that telling people the pool exists lets them not be surprised by the future dilution when they’re issued. But the pool itself hasn’t diluted anyone.

Dilution is created by increasing the number of shares held by the company’s owners. Actions like issuing shares from a pool (or the inverse, buyback or cancellation of grants) affect every shareholders relative dilution.

there is a proxy to check this - investor quality. Every high quality investor - including YC - forces an options pool. The post-money SAFE created by YC accounts for an options pool ("The Post-Money Valuation Cap is post the Options and option pool existing prior to the Equity Financing").

high quality investors will in most cases, decline a fundraise if there is no options pool - since it signals that the founders are not serious about the most valuable asset of any startup.

The people.

I've found getting info around stock options at startups is often really hard. It's not very transparent. For example, the total diluted shares isn't shared or sometimes even the current valuation isn't shared. LoL good luck with ever seeing a cap table. Often times that makes it impossible to even determine their value.

There can be value here for sure, but everyone dreams big, never asks questions, and never tells. My other favorite in this industry is "stealth mode" lol.

"Cooking the books" could mean many things but most people would interpret this as fraud. There are many exit scenarios that aren't fraud but rather stacks of preferential stock that get paid before common, who usually get paid last.

What happened in your exit scenario?

There's also just the case that a buyer is happy buying say 88% of the company and having 12% (usually non-voting) shares lie with employees/former employees. Stock options are only really, truly worth anything if they IPO.

Not since... I'm not sure the regulatory change, but if employees are able to sell back to the company or to private investors, resulting in cold hard cash in employee bank accounts, without the company going public, I'd say they are worth something. We can argue about how, without an IPO, the price isn't fairly decided upon, but having cold hard cash in the bank is nonetheless real.

I've never heard of being able to sell back stock options. You don't own anything with an option. You just have the right to buy at a price in the future.

I didn't say stock options. There is a mechanism through which SpaceX employees have been able to cash out some sort of financial object that they received, despite the company not being public.

The comment you were replying to ended with this:

> Stock options are only really, truly worth anything if they IPO.

fair. the important thing here is that IPO is not the only way to liquidity for early employees

Well, I'm not sure it is. People are pretty aware of salaries already for example. This was about stock options specifically.

Right so for options, when the employee leaves the company, they can convert them to shares, and then there are ways for them to sell those shares somehow, and it results in cash money somewhere down the road that isn't just the salary.

IPO is not the only way for employees to access liquidity

It sure fucking seems like it is! Have you tried to buy early stock in startups? You have to have 10K minimum in most cases.

I’d have bought huggingface, openAI, anthropic, unsloth, and many others stock right at this moment if I could get in for less than 10K.

Prove me wrong internet. I’m ready to buy in these companies this minute.

I don't usually see minimums below 25K, which is fine and sensible.

You really need some kind of a proxy to aggregate anything less than that in practice - thinks like crowdcube or similar. Can you imagine having to draw up paperwork just to transact $1200 or something? Doesn't make much sense.

Across the universe of accredited investors, I don’t think that a $10K minimum is a significant barrier.

We can argue whether the accredited investor process is good or bad (I think it’s more good than bad), but I don’t blame companies for not wanting a bunch of $872 high roller outsiders on the cap table.

An outside individual purchasing shares is not the same as employees accessing liquidity.

As one example, SpaceX is privately held but routinely does funding rounds with large investors so employees can sell shares and access liquidity[1][2]. A $10,000 minimum purchase amount is trivial for those investors.

[1] https://www.reuters.com/markets/us/elon-musks-spacex-raises-...

[2] https://www.reuters.com/business/aerospace-defense/spacex-fu...

I'm generally pretty against paternalism in markets, but when you get to the more "finance-y" stuff like this the opportunity for large scale fraud is just so prevalent and there are so many people just looking for their next mark.

If $10k or $25k is an amount of money you have to pause to think about at all you have zero business investing in early stage startups. Simply by the way the math works out you are better off buying lottery tickets because at least then you'll get to scratch something off before going bankrupt.

Sorry, but I DO have business investing in early stage startups. I called huggingface being this big back in 2019. And given your first sentence, I'm going to 100% call this out as projection on your part.

Folks who work in AI/ML know how to invest in the space! You're welcome to ignore the fact that Unsloth is objectively going to pop off (likely be acquired by huggingface) and anyone who invests in it will come out ahead.

The Venn diagram of people who are sophisticated enough to make these kinds of investments with better odds than gambling and people for whom $10k is hard to scrape together is indistinguishable from two circles. I'm sure there are some in the intersection but it's such a small piece of the pie we can effectively call it zero.

If you want to gamble that's your right I'm sure there is a roulette table somewhere near you. But the social harm caused by allowing dentists and grandmothers to invest in seed stage startups greatly outweighs any social good caused by letting that near-zero overlap get rich a little easier.

People here get u on their high horse about investment minimums and the like. Sure, they get real excited about some startup and they may turn out to even be right. I also know people who do angel and seed investing who are beating the bushes for capital or are just holding tight. Startup investing isn’t some magic money tree reserved for the well off. Heck, I’m pretty selective about even purchases of even individual public companies.

In 2019 they didn’t need your $10k of funding. If you contacted them within the 6 months they were starting they would have said yes. In 2019 it was more time consuming than it was worth. So they encourage you to go through a pool of investors which you are scoffing at.

In reality, my project needs funding now. If i bootstrap and get customers, I don’t need to worry about your lunch money. I need someone (or customers) who can fund that same amount for a year.

True that stock _options_ are only worth something after an IPO, but vested and exercised stock options that get turned into equity is a different story.

Equity can be worth something via acquisition from private equity doing roll-ups, corporate buyers looking to fill strategic product niches, etc

Also, for the more heavily vc-funded late stage still pre-ipo plays, secondary market, which can be at a discount to the most recent vc round, or in some rare instances in a hot sector, premium.

One other thing - waiting for the IPO might be the worst thing to wait to do. The public markets are much more fickle than private markets. Once a company IPOs, there's usually a trading moratorium on insider shares, usually 180 days, so by then, the equity value may have completely imploded.

My point still stands even if it's equity. PE/corp buyers may not care about buying out the very small minority stock holders, that is the point I 'm making.

Lets say you've got

Founder A 25% - Voting, Founder B 25% - Voting, Investor A 10% - Voting, Investor B 15% - Voting, Investor C 8% - Voting.

Former Employee A 0.5% - Non Voting, Former Employee B 0.4% - Non Voting, Employee C+ 0.2-0.3% each all Non Voting.

If say Big Co want's to buy the company why do they care about buying out former Employee B? If they can pickup the two founders and the three investors, thats enough for complete practical control.

That hasn't been my experience. I've never had the experience of BigCo only acquiring just enough for 50.1% ownership. There's also clauses in the equity plans for participation on change of control (assuming that BigCo taking 50.1% constitutes change of control)

it's a particular issue with PE, who aren't really doing it for strategic reasons, but really are just there to make money.

See my comment further down. Im not going to go into any more details than that as the details of the sale are not public.

My read is that the poster felt that the accounting practices, which were likely legal and commonplace, violated implied contractual obligations.

That’s correct, I don’t believe anything illegal was done but certain things were done to dilute the employee share class which didn’t dilute founder shares. Just start reading about preferred stocks and you will realize they can basically be blank cheques to have any value and have voting rights to issue as much other common stock as they want.

Additionally there was some liberty on what “sale price” actually was in the contract. This may be common operation, but the sale price according to my contract was much lower than the amount of dollars which was exchanged for the company.

There’s also a lot of plain fraud in private tech companies.

It's technically legal -- the best kind of legal!

No. Fuck that shit. When the spirit of the law and the letter of the law conflict, I want us as humans to be able to step back and say that, hey, it doesn't make sense when you put it that way, and ignore the rules and do what's actually right.

As someone living in a country with common law and having taking business law 101 (so certainly NAL) this sometimes ends up being a bit of a guessing game as to how a judge will interpret jurisprudence.

There's a lot of room for improvement in legal systems and they move extremely slow due to the political nature of things.

totally, which is why we go to a jury of peers for things

wouldn't you rather the 50/50 chance for some _seemingly_ impartial person to intepret a deal, than have to pay a lawyer more than somethings worth to enforce some complex 500 page word salad to keep a business run by a person whose dones this hundreds of times before?

Ah yes the cornerstone of any stable judiciary - "ignore the rules and do [what I want]."

    > implied contractual obligations

What does this phrase mean? There is no way that any sound contract law will grant any weight to the term "implied". Either it is written (and agreed) or not. So, I would say anything that is not explicit is meaningless in term of contract law. (Again: I am only talking about jurisdictions with serious, mature contract law, not some banana republic.)

Sometimes what the contract says and what the contract _looks_ like it says to a layman can read very different.

- Granted $500k of stock on start, and then have it diluted as stock is added for new investors

- Hollywood accounting - net vs gross

There's lot of places where a contract can be represented as one thing, only to have it be far less than that.

Then it is a poorly written contract, and the party that agreed to it was tricked or poorly advised. Plain and simple. We see this often with "fast and loose" term sheets for some corporate and sovereign bonds on less reliable names. There is a whole podcast (I forget the name at this very moment) that does nothing but discuss dubious bond contracts. Frequently, the co-hosts will ask: "Who in their right mind would agree to such a contract? This clause is totally unenforceable / provides no protection against event X/Y/Z." And, yet, these contracts still exist in the wild.

Dumb question: Do you think the average dev in Silicon Valley pays a third-party employment contract lawyer to review the terms and conditions before agreeing? Sadly, I feel the answer is "no". Speaking personally, I would never agree to such complex employment compensation terms without third-party advice. Yes, I know it is not cheap (maybe 500 USD per hour), but the alternative looks much worse, and most people here facing these contracts can afford it.

> Then it is a poorly written contract, and the party that agreed to it was tricked or poorly advised.

Well, yes? I mean, we're talking about a situation where one of the parties involved in the contract isn't acting in good faith. And people frequently can't understand contracts. Is there anything surprising about the fact that someone was misled or "tricked" in such a situation?

If I say I'll give you 50% of the revenue we generate, and then the details of the contract allow me to bring on other people with the same deal of 50% of the revenue, and then you all share 50% it would likely feel unfair.

> There is no way that any sound contract law will grant any weight to the term "implied".

Nobody is suggesting that any law would.

> Either it is written (and agreed) or not.

Yet you managed to infer things that weren't in the post.

> So, I would say anything that is not explicit is meaningless in term of contract law.

Again, where is anybody saying anything to the contrary?

I'd say that phrase means 'consideration' in some cases, and in any case something like 'reasonable expectation', which would enter into the 'meeting of minds' prerequisite of contract law.

Banana republics like almost all countries with Civil Law rather than Common Law? And also, you know, some US states and the UCC?

The doctrine that anything not explicit is meaningless in contract law is also referred to as 'the four corners' referring to where you look to interpret the contract; this is considerably relaxed in many jurisdictions (and some situations in the US) where there is considerable information asymmetry and/or power imbalance between parties. With employment contracts in particular; to be a good coder for instance, why would you need to know how dilution of options works? Only to avoid being mislead by your prospective employer?

Conversely, in Civil Law jurisdictions, you see that corporations (rather than employees/consumers and sometimes small businesses) are mostly held to the four corners of the contract as they are professional parties that have legal departments and should be presumed to do their due diligence.

"Fraud" is a strong word, and there's nothing inherently wrong with having multiple share classes. But I really feel that preferred stock as implemented by most early stage startups is an intentional attempt to deceive employees. There's a lot of founders out there telling early engineers they're getting "0.5%" when they know full well that a $1B acquisition down the line is not going to put 5 million dollars in the engineer's pocket.

Can you explain? In most cases, preferences won’t come into play, assuming you raise at a standard 1x preference and sell for more than you have raised. In that case, owning 0.5% should roughly translate into $5M (modulo dilution).

Even with 1x preferences, the company might have raised $2 billion but sells for $1 billion because the investors don't want to get any further losses.

The general rule of thumb is that acquisitions are bad for employees, and IPOs are good, especially if the share price is stable for 6 months.

Also for acquisitions, often you'll have to work at the acquiring company for some time to get money from your options. Or might get options in the acquiring company instead (which again are worth nothing until some future possible equity event which hopefully translates into cash).

There are plenty of valid scenarios where the company sells for a lot, but less than it raised. And 1x preferences are no longer standard post-ZIRP, afaik.

People are often not aware that the value of common is nonlinear, so the value of 0.5% in this case is zero. (For the ML fans out there, the common price per share has one or more ReLU activation layers. :) )

That would be the naive mathematical interpretation and how the system would work if engineers designed it. Lawyers designed it, though, and they probably know some tricks to make that not happen.

Like what? All the examples people have said are where either

1) the company has Nx preferences, for N >1, in which case the company has essentially failed to fundraise or

2) the company sells for less than they raised, which again, is a polite form of failure.

lets no degrade lawyers more than necessary.

Business people hired lawyers to design means and methods to commit _implicit_ fraud and deceptive practices to improve the value of their capital assets.

Those lawyers then go on to sell this product to others.

I'm sure there's some lawyers out there that are going out there shopping this stuff around, but it's Capitalism and Business thats the active agent, not Lawyers.

You think engineers never scam?

Not like lawyers, dentists, car salesmen, etc do!

Have 1x preferences become standard? When I worked in startups early investors often has 2x or 3x liquidation preferences, especially at seed.

I am under the impression that an oversized cap table is pretty much standard. Am I wrong?

Playing both sides with this comment

I don't intend to be on the founders' side at all, I'm just not quite sure I'd throw them in jail over it. I'd definitely call it "cooking the books" comfortably.

Intentional misrepresentation is fraud, but I understand pragmatically how the line could become blurred. What I object to is the idea that blurring that line is intentional, even if that is not acknowledged.

Founders will almost always have common stock too, so they're in the same boat - it's only investors who will have preferred stock. If you don't spend 10 minutes to understand liquidation preferences before accepting a startup offer, that's kind of your problem.

1. If the company is bootstrapped the founders can have preferred stocks with whatever clauses they want on it

2. Most (all?) companies will not show you their cap tables so it basically boils down to “trust me bro”

The logical conclusion to #2 is valuing the equity compensation at zero, and foregoing it and asking for extra cash.

Kinda? The underlying issue is someone you think you can trust not telling you the full details so they can fuck you later.

The underlying issue is trusting someone you should not trust, someone on the other side of the negotiating table who has interests opposite to yours.

Yeah but I'm a programmer and don't innately understand that social power dynamics stuff. They're friendly and nice people and offer me drinks and snacks when I meet up with them. What do you mean they don't have my best interests at heart?

I’ve yet to work at a startup where liquidation preferences and investor participation is freely given or ever even mentioned. I only know about because I participated in TechStars. So, I guess we can blame employees for not hiring a lawyer to review their sign-on agreement (which, again, doesn’t have that info) or we can hold founders accountable for not sharing all relevant data needed to evaluate an offer. As a prospective candidate It’s one of those things you need to know about to even know to ask about.

I think founders are doing themselves a serious disservice. I loved working at startups but it’s just not worth it in most cases. The trade-off was always take lower salary for a chance at making big money and repeatedly investors and founders perform a rug pull.

Blaming employees for a change in the gentleman’s agreement is certainly one way to look at it. But, it sure feels exploitive, especially for younger folks that haven’t yet been burned by it. If founders keep doing it… well good luck finding anyone willing to work at their startup.

Seriously - the whole point of giving your early employees equity is so that you can attract talent without blowing your budget.

It seems like most founders love pretending that there are armies of top-tier engineers rushing to work at their startup in exchange for pay that's well below market and stock that still won't be worth very much even if the company has a wildly successful IPO.

I really wonder why this happens - is it just greed from the founders? The VCs? Do early employees value stock like shit regardless of how transparent the company is?

It is fraud to take advantage of the fact that your employees don't realise their stocks are not the same kind of stock that the VC and the founders have.

morally, yes

legally, no

Different stock classes SHOULD be illegal. I have yet to hear a single good argument for it that isn't obviously self-serving.

And ownership stake in the company should be a simple thing to understand, not some byzantine mess designed to fuck over the engineers.

I don't know where you live but in my country going to some old person and trick them into signing stuff they don't understand is illegal.

Banks aren't even allowed to suggest buying high risk stuff.

> the founders have different stock class than employees

This is super uncommon.

> stocks which are traded on the NYSE so nobody can cook the books without commiting securities fraud

The exact same fraud rules apply to private and public stock.

I've personally seen it happen multiple times from inside, it happens all the time.

It happened in the largest medtech acquisition in history (at the time) its Public knowledge.

> personally seen it happen multiple times from inside, it happens all the time

I’m not saying it doesn’t. Just that founders having a separate class of stock is very, very rare.

> happened in the largest medtech acquisition in history (at the time) its Public knowledge

Supervoting stock is absolutely a thing with companies. We’re not talking about that. We’re talking about start-up founders.

Its very common, so common that they call them "founders shares"

That’s not what that term means

Please enlighten us

Founder stock almost always convert to common not preferred. Carta article about it: https://carta.com/learn/startups/equity-management/founder-s...

I recommend researching a topic at least a little bit before going on and commenting on it

This serves my point not yours, the process is often very misunderstood by those being promised the equity, and it's often "converted" in ways that dilutes or outright takes away most of the value by the time the employees ever see financial gains from the equity.

That’s not what happens. Literally TFA covers the term “founders stock”. It really is a meaningless term to refer to common stock held by a founder.

Not a separate class of shares. Almost always, founder shares refer to the magnitude of the grant and the voting-rights agreement attached to it. ("Stock class" is a very specific term.)

Where can I read more about this?

I got forced into working for some garbage startup at a job early in my career. The CEO was absolutely psychotic and never put much effort into hiding his motives.

The guy gave me a "Pre selection" letter (bokded at the top that it was "NOT A LEGAL DOCUMENT") that I was selected to receive 1,000,000 shares, vested at 250k a year (no one year cliff into monthly). 1,000,000 of how many? Didn't say. Percentage? Nope. Was it 25% 3% .00003% Who knows!

I eventually was forced out after him verbally abusing me, making unsubstantiated accusations about how I spoke to other employees, and doing things like asking me to clock out and continue to talk about work.

I received two death threats after I quit. And, seven years later, I get a threatening letter falsely accusing me of defaming the company under random online accounts. After rejecting the allegations, I got a "settlement letter" that demands I forfeit all obligations, and can never talk about the employer again. It also explicitly stated I'd get $0 and that they "wouldn't appear at my place of residence" as my benefits.

Last I saw the SEC audited them and said they had no revenue and no products to commercialize.

They raised $6m on fundraising sites selling SAFEs, but had $800k in assets and $6m in debt. Oh, the most interesting part is the owner had the company paying his other computer repair business $5k a month for IT services.

It really reenforced for me how meaningless the whole process. Working for that company was a lifetime mistake.

Damn, that really sucks. It really is the luck of the draw. I started at a company that just paid me an hourly rate with no promises of stock options but I could just as easily have been dragged into some kind of mess like you experienced.

That's what I started as well with this employer. I never wanted to get involved with their other project but they forced me on it. I was trying to find another employer the entire time but it was just around the time Trump got elected the first time and nobody seemingly wanted to hire

Can you share at a high level what you meant by cooking in the context of the exit?

When the founders still control the board, in practice the buying company understands that what makes the acquisition work is that said founders end up happy, and that the outcomes for your typical employee can be sacrificed to the edge of what the law allows.

Maybe there's management carve-outs. Maybe the total value of the acquisition is lower, but as part of the negotiation, there are great transaction bonuses, or retention bonuses. The investors with preferred shares still get their liquidation preferences, but the common stock is worth a pittance. Maybe instead of an acquisition, some of this is turned into an asset sale, or there's some considerations for founders that involve very friendly rollover equity. Maybe the founders add a new kind of stock, or create a new legal entity as part of the acquisition that does... "interesting" things. An inventive legal team cannot do miracles, can make sure that the employees feel robbed either way.

The acquirer, the founders and the VCs with the biggest share will get what they want, and come up with something neither will challenge. So it can be down to just the workers to pool together and decide to sue for violation of fiduciary duty, which might not be fast or easy to prove. You aren't in the room where it happens, but everyone else is.

dilution

Dilution and liquidation preference.

Dilution is sort of a necessary evil that comes with raising new rounds of capital. I understand how >1x liquidation preference is legal, but it seems incredibly unethical, especially since it's never communicated to common stockholders.

IMO, if you feel the need to hide your cap table from your employees, it's probably unethical. Yes, indeed, most cap tables are unethical.

Somewhere along the line "privately-owned company" morphed into "do what in any regulated industry would be considered fraud."

Multiple classes of stock for non-investors in a pre-IPO/private company should be illegal because there's no visibility or transparency. The other side of the table has no legal right to audits or reviewing the books so the opportunity for fraud is huge. Maybe have an out if you have verified third-party audits and cooking the books like you mention (which happens all the time) carries the same fraud penalties as if you did it for a public company.

This is highly country dependent, but in America for example, if this is not presented in your employment contract then it is not something your employer needs to do.

However, if your employer is a public organization then all of this information needs to be made available to shareholders. While you may not have access to this information, it is not secret and can be shared by any of the shareholders. Due to this, there is an implicit requirement to reduce risk and “cooking the books” while allowed is generally seen as risky since shareholders may run for the hills. In a smaller, privately run company there are no shareholders to run for the hills. Just a bunch of employees who hold paper IOUs. In order to get that audit protection, the employee would need to negotiate that into their employment agreement!

> The other side of the table has no legal right to audits or reviewing the books so the opportunity for fraud is huge.

Are private companies allowed to share some information with a subset of their investors and not others?

Well, they don't always get away with it. Depends on who gets pissed off.

I think you can nix the qualifiers - multiple classes of stock have inherent problems and should probably never be legal

At least in public companies there are enough safeguards where I think a reasonable person could be fine with it.

Not every company is a unicorn. For bootstrapped companies that might never sell, multiple classes of stock can be extremely useful for a variety of legitimate accounting and dividend purposes. One of the local law firm's company setup packages uses a de facto _six_ share classes.

I agree with your concerns re. transparency but I don't think eliminating share classes would fix that.

I'm super curious - what are the six classes and what's the reasoning behind them?

A common structure would be something like:

* Class A - voting shares, founders / controlling parties, etc. Typically small fixed share count (e.g. 100), not issued dividends directly but used to represent percent of controlling interest.

* Class B - non-voting shares, early stage employees, advisors, supporters, etc. Used to issue dividends.

* Class C - Same as class B but reserved for future issuance through more formal programs like ESOP when you're ready for that

Then you might have some preferred shares for investors, say class D and E for two investor groups and then a Class F for convertible debt (even bootstrapped companies can have owner / friends / family / seed / etc money, plus may want to not rule out raising at some point).

This is obviously a lot of classes, but by doing something like this you can separate control from economic upside, create different terms / stock agreements for different classes, keep room for future planning (things like ESOP), facilitate investor needs (they almost always want preferred shares), have more flexibility with fundraising or convertible debt, etc.

I'm not actually trying to argue that exactly six classes are necessary or optimal, but moreso that its common to want not just one single share class. Practically speaking I imagine that firm does six because they're trying to give a template that'll work for many of their companies and reduce the amount of per-customer customization. My company has less although more than one.

Ah, I'm thoroughly familiar with the idea of multiple share classes (although I must commend your excellent explanation and examples here) - I was actually particularly interested what their six choices were to cover the bases as a lowest common denominator etc. No worries at all if you can't say though, I get that.

> The vast majority of cases stock options end up worthless

My fav manager had a great way of phrasing this: "There are more ways for your options to be worthless than to make you rich"

But I also personally know plenty of people who made off great with their startup equity. They're def not worthless.

Ultimately I think you should never take an uncomfortable pay-cut to join a company and you should maximize your stock compensation on top of that. Don't forget other types of equity – brand, exposure to good problems, network.

I think the main thing to remember is that you should assume they are worthless.

There's probably something like a 99% chance they are worthless, a 0.9% chance they are worth a decent holiday, a 0.09% chance it'll let you retire early, and a 0.01% it'll make you somewhat rich. Worst of all, unless you're the CxO you have very little control over the outcome.

Equity is a nice bonus, but you might just as well treat it like the company giving you a lottery ticket for Christmas. Nobody is going to take a significant pay cut or work 80 hours a week for a lottery ticket, so don't do it solely for the stock options either.

I’m 0 for 3 on startup equity being worth anything and have since left the industry.

One of the startups I did some time at was as close to a sure thing as one can hope for (unicorn valuation at one point) but it still went to zero in a very public flame out. It’s still impossible not to get imaginative about what could have been as I was a very early employee… such is life.

The most lucrative stretch of my career was working for a big company that paid good base salaries.

Same. 1 startup is dead-dead. 1 startup is now a husk of itself used by the CEO for fractional CxO consulting, and 1 is down from unicorn status to limping along with 1/5th the staff.

The primary benefit of startups is getting to do more work to learn more faster and not deal with Process.

I've worked at 8 companies, 3 have resulted in value from equity (all granted pre-IPO), all of them in certainly much larger than "a decent holiday" level.

I think people have updated to be much too negative on the prospect of equity paying out. It's obviously much better than 1%, at least if you work at anything other than extremely early-stage companies.

How are the founding dates of the startups distributed? Are recent startups still exiting well?

Founding dates? I don't know. IPO dates were 2007, 2019, 2023.

Well statistics shows that it is best to value equity at 0. I will take equity in a non public company. But not in exchange for cash compensation at my market rate.

I assure you that statistics do not show it is best to value equity at 0.

"Statistics" on its own doesn't tell you anything; you have to consider your own risk aversion. Only VCs can afford to be risk-neutral and only consider expected value.

Care to show your source?

I'm honestly stunned that people here are performatively math-illiterate.

Some companies experience liquidity events. Therefor the value of equity in those companies is positive. Some companies go out of business. Therefor the value of equity in those companies is zero.

If N is the ante hoc chance that a company will experience a liquidity event, then:

N * X + (1 - N) * 0 = value of liquidity

X is positive. 0 < N < 1.

Therefor the value is positive.

People aren’t saying the chance is literally zero. They are saying it is low enough that they can’t consider it reliable comp for income purposes in their own personal situations. I can’t say my experience has been any different so I don’t blame them. People commenting aren’t math illiterate. I’m kinda amazed you are taking things so literally when it’s so obvious to anybody reading how to interpret the discussion.

They sure are insistent on it being literally zero for people who don't think it's literally zero.

If you like, I'm happy to update my claim to, "startup equity often has non-trivial value, say, >$1000 per year."

Add a few zeros and I think we’d be in the right ballpark. You have to make up for the haircut before you start counting positive net value.

And then take into account the risk/reward premium and alternatives.

I hoped you had some real data, but all you had was a joke.

Ok it's not zero. Is it 0.0000000000000000000000001?

Surely you're aware that obtaining 0.50$ is not going to have a large impact? Even if the sum is 3000$ the impact is extremely limited.

But you had to go and be a r/iamverysmart material because you actually have no more information than me.

Also learn to spell therefore please.

You played a stupid game, you won a stupid prize.

Something is different than nothing. When people repeatedly insist that something and nothing are the same, they get trivial answers.

And learn which side of the digits a dollar sign goes on please.

ok, so you're a mini elon musk pet that has good name recognition. The probability that anyone can replicate this ins the million+ employee mark is worthless, also.

so, anecdote.

The rate of having a liquidity event for startups, particularly startups past the A stage, is just obviously not ultra low. Like, is it better than 50%? Reader, it is not! But it's not sub 10%, either.

People can make intelligent decisions about equity without hyperbolically insisting that the chance that that equity will be worth money is one in a million.

Are there statistics about funding round (A, B, C, etc) and getting good value for options?

It's not really possible to have nice uncontested stats about this because the definitions of the rounds aren't fully neat, there are potentially generational effects, and how you divide up industries isn't fully neat either.

In a typical year, a double-digit number of tech companies IPO (there was a big jump in 2021 and then a crash in 2022/2023, with 2024 seemingly back in the double-digit range). https://www.visualcapitalist.com/charted-four-decades-of-u-s...

Let's be really clear, though: there's "getting good value for options" and then there's "getting some value for options." It is straightforwardly true that in general big public companies have better comp than pre-IPO companies: the guaranteed value of equity in your Metas or Googles or even lower-tier public companies is generally higher than the expected value of pre-IPO equity, even if you are relatively risk-insensitive.

That is importantly different from "the value of pre-IPO equity is zero," or "it is a one-in-a-million event to get value from pre-IPO equity."

It’s not importantly different if the value you get from pre-IPO equity is less that the haircut you took to work at the startup, which is overwhelmingly the case.

You want to tell me you’d be feeling like your equity was worth something in colloquial terms if you got what amounted to a mediocre bonus one year through your liquidity event?

Yes. Something is more than nothing. This is not rocket science.

I really want to insist on the principle that we are nuanced enough people to say, "startup equity is worth less, in expected value, than public company equity, but 'less than public company equity' is still more than zero."

I truly empathize with your desire. But I can’t agree.

To get to the point of the community feeling like startup equity is worth something on average, I think we need to figure out how to generate more favorable outcomes for startup employees.

If startup equity is worth something 20% of the time, the average person would need to work at 4 startups before seeing value. And the statement that it has non-zero, but low, expected value, just isnt true. On average it wasn’t.

If we could make startup equity worth something-minus-x 100% of the time (instead of just something 20% of the time), I’d be more amenable to agreeing with you that you can place a reliable non-zero value on startup equity.

That means things like removing liquidation preferences. Unfucking the tax situation around options or making it standard politcy that the company buys your options for you. Universally allow secondary markets. Build in participation structures for existing employees through funding rounds.

Would you say the expected value of a lottery ticket is > 0? Because startup equity is just too unreliable for an average person to not treat it like a lottery ticket.

I will concede that if you are very very discerning in which startups you work for and a good negotiator and have access to questionably legal secondary markets, you may be able to beat the curve. But that’s certainly not the average case.

You don't appear to know what "average" means. You mean that the modal value is zero. The average value is not.

There are all kinds of bets where the modal value is zero or negative that are good bets!

I've worked at 10 startups since 2006, with equity or options each time. Only one time did it turn out to be worth anything at all (~6 months salary), and that one time wasn't even a successful "exit". It was more of an aquihire, and they paid out the options for everyone they didn't want, ie everyone not living in the Bay. The other nine times my options have been worth precisely zero, either I get let go or quit because the company is circling the drain, or fizzles out, or gets rid of a bunch of people to goose the numbers before a fire sale.

Stock options are a lottery ticket, and I value them roughly the same.

Sounds like your startup equity has been worth about $3000-$5000 per year?

It really depends of the stage of the startup. I recall reading someone doing analysis on this (unfortunately I don't have a link) showing that joining a company that isnt public yet, but is already large-ish and showing some real product-market fit gets people better payouts. Yes, employees 1-40 of a future unicorn will to great (if they could afford to buy the shares, and AMT doesn't kill them which is another story), but it's relatively safe to get into a company that hasn't IPO'd yet.

Imagine say, that you joined Stripe in 2014. By then, probably 500-1000 employees and a a real name on the industry, yet private. It's perfectly reasonable to not consider the stock they might have offered at that time as straight out money, like you'd have treated Google RSUs. But discounting the shares to zero, or just "a nice bonus" is also silly. I bet anyone that got a year or two of stock in that era is well into the retire-early/somewhat rich cadre, and that wasn't all much of a risk.

> By then, probably 500-1000 employees and a a real name on the industry,

You're wildly exaggerating here (but unsurprisingly). I know someone who joined Stripe in 2015, and he said there were about 300 employees globally at the time.

But I do generally agree with the rest of your point, I'm just contextualising the information.

> you should assume they are worthless.

I had this mindset at a startup and decided not to risk any of my money exercising my stock options. They eventually expired. Years later the company IPO'd and I would have made a lot of money had I exercised.

Waiting for more certainty before exercising means the fair market value will likely be higher then and you'll have to pay AMT.

I now approach a job with the mindset that stock options are probably worthless, but I'll risk what I can afford to by exercising as soon as I can.

> But I also personally know plenty of people who made off great with their startup equity. They're def not worthless.

I personally view Stock Options in the same way as lottery tickets - sure they might pay out big sometimes, and people do win lotteries, but, for the most part, they're going to be losers.

There might be argument about the difference in how often stock options lose compared to lottery tickets, but that's missing the point.

The main difference is that people often think they share a fate as a startup. They all have the same lottery tickets (in varying amounts) that pay out under the same conditions. After all, that's how managers often motivate the early employees.

But since there are different classes of lottery tickets, the payouts can change arbitrarily at the last minute depending on the specifics of the deals.

So even after accounting for the fact that most lottery tickets don't pay out, you need to account for the fact that some within the same startup might pay out while yours don't. And there's no perfect way of knowing ahead of time.

Sorta. You could definitely go in on something worthless that never gets any traction and end up with less than zero, as in, you owe money after the experience. But for every Stripe or Airbnb there's 100 more lesser known names that still pay out, not in the millions, but a couple hundred thousand dollars range, which is still enough to change most people's situation.

Definitely look at them as worthless untill they're worth something, but the untold secret is the secondary and private market. SpaceX employees have gone that route and some are quite rich despite there not being an IPO. Again, the failure mode to be aware of is you could end up in debt and owe money which is worse than if you'd never played.

> Definitely look at them as worthless untill they're worth something

One (of numerous) problems with stock options is almost all stock option contracts require you to exercise within 90 days of leaving the company.

Often times employees leave a company, and then need to decide within 90 days whether they will spend anywhere from $5-50k+ to exercise the options to keep the stock, otherwise you forfeit the options after 90 days.

The stars really have to align for you to make money with options without risking/gambling your own capital by exercising them.

Unfortunately secondary markets only exist for very large companies like Stripe. I’m not aware of secondary markets for small < 100 person companies, which is where you see the most blatant hyping up of stock option value.

> without risking/gambling your own capital by exercising them.

Many companies offer early exercise, so you can reduce the amount you gamble by a lot.

Also, you already "pay" in terms of opportunity costs by being at that startup vs something more established where you get RSUs of a public company. So using some of the money from the startup in order to exercise the shares is really useful. If the startup's cash compensation is just enough to pay your bills, then of course it's different.

There are companies that will finance your options exercise in exchange for a cut of the earnings in the event of an exit. I haven't personally used one, but they do exist.

and the most important thing someone told me is that 100% of $0 is $0. x% of a big number > $0

Yeah, but you should try to shop for a deal where 100 - x is as big a number as you can negotiate.

Oh absolutely, the important bit is that 100% of $0 is $0.

There’s a much better option - simply offer nso conversion with much longer exercise window

I can't speak to their individual deals, but Hiiive, Forge, and ESO fund are all working with companies that aren't stripe sized.

But absolutely no one should read this and think anyone's paper valuation is worth actual dollars until the money hits your bank account.

> You could definitely go in on something worthless that never gets any traction and end up with less than zero

Absolutely agree

> Lesser known names that still pay out, not in the millions, but a couple hundred thousand dollars range

FTR This is the same for lottery tickets, they don't all win the top prize (or a share of it), most will win a few dollars, some tens of thousands, and so on.

Pre/post pandemic startup equity seem to have wildly different outcomes

I was a hired early to a startup (my hiring manager was the CEO) that's now public and worth $10B+ that you've heard of. It took them over 10 years to go public, and I would have done just as well putting my money in FAANG, but with lower risk and more liquidity.

Well to be fair 10+ years ago it’s hard to find too many dollar for dollar investments that beat MAAMA.

True! But it's crazy that the risk, successful startup didn't even beat established tech for returns.

It isn’t crazy, it’s that startups are just that bad of an investment when averaged out. You have better odds playing the lottery.

I often had startups offer me a number of shares with no explanation for the percentage ownership or the number of total shares.

I said I have to value them at zero without more information and they would act all offended when I asked for more (happened at least 3 times).

This suggests to me that founders either don’t understand the mechanics themselves or are preying on lack of financial understanding.

It’s the latter.

Ignorance is a big problem too. One time I had someone offended when I asked if their insurance plan qualified as a high deductible - they didn’t know it was a legal classification and thought I was accusing it of being expensive.

I’m not anti-startup but the VC backed startup culture of the last 10 years or so has been pretty souring.

It's kinda both sometimes haha

So would you trade your founder equity for a fixed salary? My guess is probably not.

Equity is an extremely important factor for many candidates, especially more senior ones and executives.

I would not pitch it as future value, and instead pitch as % of company. If it's a minuscule amount that doesn't move the needle in offer conversations, than perhaps you are not offering enough, or you're identifying candidates who value more predictable income than investment in the company.

the founder has so much more control over the direction of the company and what an exit looks like that it makes sense for them to want equity.

As an IC, there’s little I can do to affect the company valuation because I’m just executing the CEOs vision. And there’s nothing I can do to affect their decisions about potential exits.

Exactly. If I'm joining a 30 person startup it's not because of the size of the paycheck. Any larger company will obvioulsy be able to easily beat the offer. I want a significant amount of equity. I want to see the cap table. I want to see details about funding rounds, finances, available runway. I want to see MRR/ARR, recently closed deals. If founders dance around these questions and say "equity is not imporant, see how much we are paying you" then I'm walking out the door.

Reading through the thread, the point is the startups arn't providing transparent accounts of what the equity is and how it can be diluted and reduced over the life time and sale of the company. That's all the debate.

Many people have seen those options become worthless because of legalistic maneuvers and violate what's said in the initial options.

So this tangent isn't really clarifying anything. Some people would simply want larger salaries and options be valued as 0$ for evaluating compensation because how easy Capitalists have made it to screw over classes of options/share holders.

Nothing wrong with wanting a guaranteed salary and job stability, but people in this situation should simply not be working at a VC funded tech startup. “Boring” software companies exist. Banks, government, aerospace, manufacturing, consulting Countless mid-large software companies of all conceivable types. Practically all of them will be able to beat a tiny startup on salary. Go work at them instead.

The question is more so to startups looking for proper staff. I'm not really certain you're getting the best quality staff if your best offer is to pimp up options. Seems like only morons would take that, and well, isn't that a problem itself?

If you think about it the vast majority of startup options are worth $0 so you have to treat them as worthless or you’re not being rational.

The idea that they’re a lottery ticket is the only way they keep hiring and I’ve heard plenty of engineers refer to actual lottery tickets as idiot tax

Yes I would trade founder equity for an increased fixed salary. Statistically, equity is going to be worthless.

This is the way. Options aren't really worth much for the rank and file startup employees after about 7-10 hires. That fraction of a percent is just not going to be life changing unless it's the next OpenAI or something. For very early employees it's different, but even for them some founders will assign far too little equity to really make a difference.

> In my experience, almost everyone prefers cash over startup stock options.

My experience has been a little different. We had a lot of people demanding both very high cash comp and then demanding very high equity packages on top.

Giving people a sliding scale option did put some of the control back in their hands, but it also produced an analysis paralysis for some where they couldn’t decide what to pick.

> And from an employee perspective, it’s almost always the right decision to place very little value ($0) on the stock option component of your offer. The vast majority of cases stock options end up worthless.

Much of this is due to startups failing. Every random “startup” trying to pay people with options because the founders have no hope of success inflates this statistic.

However another driver of this statistic is the extremely short exercise window upon quitting. People may work somewhere for 1-3 years but the company could be 5-10 years away from acquisition. Employees have to give the company money at time of quitting to get any equity, which few want to do.

I know the common wisdom, but I also know that there are a couple local technology centered private Slack groups in my area where people will eagerly try to evaluate and possibly buy your options for local startups. They don’t buy everything, obviously, but there is demand for the few cases where contracts allow transfer of the resulting equity.

> but I also know that there are a couple local technology centered private Slack groups in my area where people will eagerly try to evaluate and possibly buy your options for local startups. They don’t buy everything, obviously, but there is demand for the few cases where contracts allow transfer of the resulting equity.

isn’t this illegal? private stock ownership needs approval from company/BoD to change hands, no?

While board approval can be a condition of transfer (consult the options agreement), forward contacts can be used (with counterparty, liquidity, and price risk) when transfer conditions cannot be met to effectuate a de jure transfer.

This is why I will never work somewhere with a short post termination exercise period (PTEP). If it’s not at least 5 years, ideally 10, they don’t seriously consider equity something that employees are owed.

That mindset can definitely simplify negotiations, but I’ve noticed that removing equity from the perceived value stack can change how people show up. Some folks who might've gone the extra mile with even a slim shot at ownership now treat the role more like a job than a mission. I’m curious—have you seen any shifts in long-term engagement or retention since downplaying equity?

It is a job, no matter how you pitch it. Equity is not real ownership and doesn't come with any real decision making power. It is a slim chance at a big bonus. I've had equity in most of my jobs and the job sucks then I'll leave before my stock vests which I've done twice.

> I've had equity in most of my jobs and the job sucks then I'll leave before my stock vests which I've done twice.

Sometimes you can't tell how it will be from the outside. You only know whether you'll like the job, or whether it has prospects, after trying it.

Bouncing isn't a bad move. In fact it's smart from a diversification perspective. Once you realize a company has no future, just get out and try again. As an employee, choosing whom to work for is one of the few ways you can diversify against risk.

As your 30 person startup has grown, the (future) value of the stock has gone from $0.00 to not $0.

When the value was zero, of course you had to talk up future value - you were selling something worth $0 for $1,000's. Now that it is worth something, it represents actual value for the employees to swap for salary, which is why you no longer offer as much!

That’s not really how it works, though. The price of your options is set based on when you join the company. If the company is already valuable by the time you join, you’re essentially buying in at the current valuation with the hope that the valuation will continue to increase.

You make money on the amount the company value increases starting the day the options were granted.

(This comment isn’t 100% technically accurate, but gets the point across in fewer words)

Almost always stock options at a startup are the equivalent of an unsecured iou. Even if there is a conversion at some point due to a buyout, common employee stock rarely ever sees any of that money. If anything they’re often negative value because you pay taxes on their claimed value at assignment.

> And from an employee perspective, it’s almost always the right decision to place very little value ($0) on the stock option component of your offer. The vast majority of cases stock options end up worthless.

This isn't actually true from a historical perspective. The primary reason why the gap between the wealthy and and everyone is increasing is that employees started preferring cash compensation over equity. Joseph Blasi documented this in his book The Citizen's Share, and that book is why Elizabeth Warren recently passed legislation making it easier for employers to give equity to their employees.

> The primary reason why the gap between the wealthy and and everyone is increasing is that employees started preferring cash compensation over equity.

You're making it sound like equity turns companies into co-ops when in reality most equity remains unexercised (because that literally involves paying your then likely former employer money) or ends up being worthless for all the reasons others have explained.

The gap between the wealthy and everyone else has been sharply increasing ever since Reagan[0].

CEO pay alone has massively skyrocketed, detached from all other economic growth factors (most of the growth occurred in the 1990s)[1]:

> From 1978 to 2020, CEO pay based on realized compensation grew by 1,322%, far outstripping S&P stock market growth (817%) and top 0.1% earnings growth (which was 341% between 1978 and 2019, the latest data available). In contrast, compensation of the typical worker grew by just 18.0% from 1978 to 2020.

The reason workers prefer cash compensation is that you can't use equity to pay your bills. Cost of living has increased since the 1970s[2], housing costs and college tuition have become a lot more expensive[3]. While electronics may have gotten cheaper, the day to day expenses have gone up and those in lower income brackets will necessarily spend more of their income on things like groceries and rent. Standards of living increasing with income may increase those expenses but there's a cut-off point where those increases no longer track linearly even if you throw in money sinks like private yachts. If you want to reduce cash preference, you'd need to first address the underlying socioeconomic insecurities that drive the real need for cash that this preference comes downstream from.

You can't have multi-billionaires (or even near-trillionaires) and a steady socio-economic progression to them from sub-minimum wage. Multi-billionaires can only exist in a system that allows for disproportionate amounts of wealth to be drained out of the system into a minute fraction of the top percentile. The gap is a necessary conclusion of a system that allows multi-billionaires to exist.

Thinking this can be fixed by "making it easier" for corporations to give workers equity not only ignores why workers prefer cash (and why they're more likely to do so now than decades ago) but also why corporations want to use equity for compensation (i.e. because it usually reduces cash compensation while coming with very low (and in any case: delayed) risk due to workers not exercising options or shares becoming worthless or near-worthless due to the way preferential shares are usually structured). If we were talking about actual worker ownership (or at least revenue sharing) things would look very different, but that's not something most corporations want and definitely something most investors/VCs would reject outright.

[0]: Reagan cut the top marginal income tax rate by 20% to a mere 50%, after it had already previously been cut sharply by Johnson from 91% to 70%[a]. He also slashed capital gains tax on dividends by 20%[b]. The 1980s also saw the rise of Financialization[c], i.e. the rise of the finance economy (rapidly eclipsing the real economy), and a sharp decline in the already scarce labor union participation[d]. It's also worth pointing out that the response to Republican neoconservatism from the Democratic Party was (like in much of the West - possibly due to the Cold War hard line against socialism) not a stronger leftist opposition but instead a shift towards Third Way[e] politics and neoliberalism, i.e. while Reagan may have been the starting point, the widening of the wealth gap was a bipartisan effort.

[a]: https://taxpolicycenter.org/statistics/historical-highest-ma...

[b]: https://www.forbestadvice.com/Money/Taxes/Federal-Tax-Rates/...

[c]: https://en.wikipedia.org/wiki/Financialization

[d]: https://www.imf.org/external/pubs/ft/fandd/2015/03/jaumotte....

[e]: https://en.wikipedia.org/wiki/Third_Way

[1]: https://www.epi.org/publication/ceo-pay-in-2020/

[2]: https://www.investopedia.com/ask/answers/101314/what-does-cu...

[3]: https://www.consumeraffairs.com/finance/comparing-the-costs-...

> In my experience, almost everyone prefers cash over startup stock options.

Good to know, because its common for the founder and hiring manager guilt trips to be insane.

Startups have this weird psychological purity testing I have never seen outside of religious groups.

Effective organizations understand you actually don’t need to look inside the box. If someone is continuing to do good work for you it’s working. You don’t need to second guess their reasons why, or give them a reason to question their commitment.

It’s a basic lack of empathy. Many founders do have the privilege of choosing opportunities and seemingly cant or are unwilling to relate to people just working with integrity and sometimes being fulfilled by their choice of trade, without needing to be married to someone else’s idea and cause.

Also most founders ideas aren't unique and there is often a tone deafness there. Employees with experience have already seen their idea even if it was in a prior cycle.

"Believing in the mission" requires a suspension of disbelief that can reduce the impact of various factors that would otherwise decrease morale (e.g. lower cash compensation, fewer benefits, unfair working conditions, longer hours, etc).

There's a reason many startups are built on hordes of college kids and it's not that they "have more energy" or "are more willing to think outside the box". They're less experienced and thus easier to manipulate. They're also less likely to have dependents they need to take into consideration, don't understand their limits or trade-offs between short-term performance and long-term endurance (e.g. burnout), and are more likely to be naive about their place in the company and the effect/function of the company. Plus, of course, they're "less risk-averse" which is another way of saying bad at judging the odds of certain outcomes.

Isn't that the point of equity compensation? I don't care about owning a percentage of the company - that just sounds complicated. I care about converting it into cash later. To compensate for the small chance that will be able to happen, you better make it seem like a lot more cash than the alternative cash compensation you're offering. The upside to you is that you don't have to pay that bundle of cash for a while, and you only have to pay it if you have it. And not you personally, but all investors indirectly.

I would have ignored anything you said about the value of stock options anyway, having many years ago learned that they are practically always worthless, so making me a straightforward, honest, non-speculative offer would make me more interested in working for your company, not less. Kudos. Keep it up!

A candidate wants a _competitive_ offer. While stock is almost impossible to compare across offers, candidates can at least stack-rank the company’s funding and check to see how the proffered percentage compares to the mean for the funding round. So if a company has high-percentile funding, and gives a high-percentile equity fraction, it’s a good sign to the candidate. But of course, the company could be WeWork, or even OpenAI could get risky if the tender offers stop (which will happen when/if the market crashes).

At the end of the day, it means a lot to the candidate if the company _wants to compete_ for a hire, especially in the current economy (layoff-friendly and SWE saturated, especially versus 10 years ago). A story like “your options could be worth $XXX in 4 years” I hope is not seen as competitive today.

> t’s almost always the right decision to place very little value ($0) on the stock option component of your offer

one of my coworkers at databricks say their TC is like 900k or something based on some BS imaginary options value. lol .

I mean, dbx will probably be worth something but unless he or she has been there 10+ years, it's unlikely to be life-changing.

And honestly, a company of that size giving huge option packages would make me suspicious (I'm a very suspicious person though ;) ).

People offering stock comp in an unlisted private are the moral equivalent of Jeff foxworthy’s “oh you’ll take a cheque? Hell I’ll pay the whole damn thing off then. I didn’t know you’d take a check I thought you wanted real money.”

> The vast majority of cases stock options end up worthless

Also, even if the company ends up worth a lot of money, there's no guarantee that a way to liquidate, such as an IPO, exit or secondary market, will become available in any reasonable time frame. And as a regular employee you have exceedingly little to say in bringing about such events. There's not much fun in having a winning lottery ticket that can't be cashed in, in fact it's highly stressful.

I find it refreshing that you prioritize cash compensation over stock options. Many employees may feel more secure with a higher salary rather than relying on uncertain equity.

The hiring managers / founders equating the stock options to real money is actually a red flag to me.

It’s super unlikely that a cash-out event ever happens for a startup, so until then, it’s just fake money to me.

And I say this having owned and exited my own 8-employee startup and continued to work for startups for the last 15 years. I work for cash, not imaginary future profits.

I'm not saying this is right or wrong. But, if you're ventured backed, then this strategy is usually at odds with your investors. The reason stock options were used in the past was because you were signaling to everyone (you, your family, your grandma, your early employees, your current investors, your advisors, your future investors, etc.) that you were strapping on to a rocket ship. By paying them more and giving less stock, this means your capital raises don't stretch as far (from a perspective of time). This in turn will be a signal to your investors that you may take the $1M and not the $3B deal (see Google/Yahoo), which they may not like.