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.
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.
The primary benefit of startups is getting to do more work to learn more faster and not deal with Process.
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.
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.
If you like, I'm happy to update my claim to, "startup equity often has non-trivial value, say, >$1000 per year."
Ok it's not zero. Is it 0.0000000000000000000000001?
Surely you're aware that obtaining 0.50$ 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.
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.
so, anecdote.
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.
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."
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?
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."
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.
There are all kinds of bets where the modal value is zero or negative that are good bets!
Stock options are a lottery ticket, and I value them roughly the same.
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.
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.
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.
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.
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.
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.
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.
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.
But absolutely no one should read this and think anyone's paper valuation is worth actual dollars until the money hits your bank account.
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.
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.