I've become a bigger believer in cash. Unless you TRULY believe the vision.

I left and now am getting paid close to triple my old salary with options getting close to 10% in a business model that is far more profitable than the previous. I think lots of people just starting out in the startup scene get taken advantage of and taken for a ride.

This coming from someone who got bent over a barrel.

Work at a large, established organization and earn your fair market rate at a 40 hour work week, and start your own company on the side if you want to get rich folks. I'd never work for any startup again unless I was the founder.

While I can't prove it, I believe I was once fired just to prevent my options from vesting.

As an employee, you're really better off with zero options and a higher salary 99.9% of the time. But that means the owners have to sell more of their equity to make payroll.

If you want to be a nice guy and keep the early employees eligible for big payouts, take your share of the buyout/IPO and give them bonuses out of that. No one trusts the option plans any more.

I don't see any problem with restricted stock pre series A, when equity is the biggest consideration for employees. As long as financing is notes, the common hasn't yet been priced, so you can just use a very low value.

Willingness to issue refresher grants is easy for CEO and board to change.

I don't think you need to be as open as buffer, but being open with percentage ownership and financials seems obvious.

RSUs with a performance modifier already cover most of this for larger companies. Something like that for startups probably wouldn't work since so much of the risk is company-wide vs. individual.

Am I missing something or is this saying people should be offered an 'expected' equal compensation package to what they would get at Google? What would the incentive be? Google is a company with quite a bit of projected longevity, career progression, and very good perks. Why would I choose a startup with inherently greater risk for only the same reward?

I think employees would be more than happy to treat all of this as ordinary income, if that would make it more appealing to the IRS.

I am now working in a series A company, taking 0.13% of the company, 13,000 shares (options). At the other side, Pinterest offers me 30,000 RSUs which I turned down because I thought Pinterest was already a late stage company.

But after I did these researches (including this post), I am wondering if I made a right decision? my 13,000 shares will always be 13,000 shares, no matter how much dilution we have in future, right? so does it mean even if my company grew to the size of Pinterest in future, I still only have that 13,000 shares instead of 30,000 I could get from Pinterest easily with less risk?

Or all late stage startup companies have split their stocks otherwise I don't see how joining a early startup for 13,000 would be any better

This has some tradeoffs, some of them positive, some of them negative, but I am far from an expert I would love some input from somebody who knows more.

It does appear to be vastly simpler for all parties, and completely eliminates any possibility of a tax trap. However it seems to guarantee that you will be paying income tax on the sale, which can be quite sizable. And the specifics of what happens after you leave, voluntarily or otherwise, is incredibly important considering that you are never granted any actual stock.

Sam is dead-on that the current situation isn't fair and often offers employees little to no information about how the options work.

The 90 days to exercise thing is a real bummer -- for lots of reasons. As Sam says, not every employee is in a position to relinquish that kind of money for the options and taxes. I would say that if you are looking to go someplace else, depending on the size of the company and the situation, it's not out-of-line to try to value the options you won't get to exercise (or even the exercise price) into your new salary. Most companies aren't going to be willing to give you what you need to vest-out upfront, but it is a good way to negotiate either a one-time bonus or higher salary.

When the founders started the company, their equity was pretty much worthless. When employee #5 is hired and gets 0.50% of the company, her equity presumably has some dollar value. Employee #5 gets a better deal than the founders, even though the founders have 100x more equity.

The only thing that matters is the dollar value of the equity at the time it's awarded.

At the rate at which tech-giants are buying tech-startups, we'll end up with very few, very large tech conglomerates. I'm not sure how efficiently things run in these giant companies. More managers = more trouble and less autonomy for the lower levels of the pyramid. Central management and the pyramid are almost like communism, and we know how well that turned out...

Why can't a mid-sized profitable company pay out dividends to stock-holders? Say growth mode for the first 5 years to reach profitability, then start cutting cheques to founders, early employees, and first-round investors. I know losing cash will probably hurt the company momentarily, and stunt the growth of the business, but then you start a second round with a new pool of employee stock and new investors come it to do another 5 years.

Basically, he/she who wants to, can smooth-exit after 5, 10, or 15 years, while keeping the same company envelope, mission, and mid-sized company culture throughout the company's life. I guess this would work only for //very// profitable companies that end up with lots of cash in the bank, but if you haven't build a profitable company after 10 years what's the point?

For a very young startup (even for Series A), the shares are still worth pennies per share, and letting employees pre-exercise the shares not only saves them from AMT but also lets the long term capital gains kick-in sooner.

Only a few startups that I've seen do this, and its really effective specially for employees.

I could be wrong, but I've come to the conclusion that after dilution and taxes, any thing short of a billion dollar exit isn't going to be compensatory for my efforts. I don't know how correct my conclusion is, and whether I should try negotiating for more.

Why is this the case? If you try to align the interests of the investors with the interests of the founders, you'd find that this would put you at odds with your investors.

A company's total value might be quite a bit higher by having the ability to offer large amounts of employee options (just as an example, the ability to easily hire media personalities with a big followings without breaking your bank), which is good for both the founders and the investors.

I understand the investors are trying to protect themselves from the founders deciding to give a ton of shares to their friends (and then potentially back to the founders, in other ways), but I wonder if there is a better solution to this.

If anyone here has any ideas of how else we can be more friendly to employees with regard to equity I'm all ears.

But what really needs to be addressed is the fact that employee startup equity rarely produces the kind of reward that one would expect it to given the outsize attention that is paid to it. Sam writes:

> As an extremely rough stab at actual numbers, I think a company ought to be giving at least 10% in total to the first 10 employees, 5% to the next 20, and 5% to the next 50. In practice, the optimal numbers may be much higher.

It's worth testing these numbers against real-world data. For this, I'll use CB Insights' 2013 Global Tech Exits Report[1], which shows that:

1. 1,825 private tech companies exited in 2013.

2. Only 19 of them exited at a $1 billion-plus valuation.

3. 45% of exits were under $50 million, and 72% of exits were under $200 million.

If you assume that the first 10 employees receive 10% of a company's equity, and that each employee in that group receives 1%, a $200 million exit produces up to $2 million before taxes for each of the early employees. A $50 million exit produces $500,000. If you're making $125,000/year as a senior engineer, $500,000 gross after 4 years is the equivalent of what you earned in salary over the past 4 years. That's a nice bonus, but not life-changing wealth. $2 million is nicer, but if you plan to stay in the Bay Area, you might spend half or more of that on a modest house or condo.

Once you factor in the cost of exercising your options, taxes, dilution, liquidation preferences, lack of acceleration and the fact that a good portion of employees leave before fully vesting, you can see that even in a scenario where 10% of the company is given to the first 10 employees, employees aren't likely to see the type of compelling returns that Silicon Valley dreams are made of. Facebook and Twitter-like exits, where thousands of employees become paper millionaires overnight and the earliest gain tens or hundreds of millions of dollars, are the exception, not the rule.

What's worth considering further is the fact that 66% of the companies that exited in 2013 had raised no institutional capital according to CB Insights. So, as a prospective employee, in joining a venture-backed company (or a company coming out of a prominent accelerator), you may be putting yourself at a disadvantage even before you take into account the fact that employee equity is most vulnerable to dilution and liquidation preferences at these companies.

Final note: CB Insights' 2012 Global Tech Exits Report[2] shows similar trends to the 2013 report. In fact, in 2012, over half of exits were under $50 million and 76% of the companies that had an exit had not raised institutional capital.

[1] https://www.cbinsights.com/blog/global-tech-exits-report-201...

[2] https://www.cbinsights.com/blog/tech-mergers-acquisitions-de...

If the theoretical maximum of company exit is in single millions, then spending time negotiating 0.25% vs 0.3% equity package is meaningless.

In some states that's not even legal, even if you willingly agree to it, because it's considered an abusive employee relationship and tax evasion (for instance, Massachusetts.)

I think RSUs do exactly that. They're taxed at conversion time which typically coincides with a liquidity event. At issue time they're not treated as income precisely due to restricted nature of it.

In the first case, it's unreasonable to put in more than a couple of hours of overtime here and there for even market rate wages at any company, whether it's a startup or not. "Uncompensated (comp time doesn't count) overtime" is a euphemism for "exploitation."

In the second, the employee is effectively creating at least one of the revenue generating engines of the business. He deserves to reap the rewards of his labor. That means more than below-market wages plus "startup bucks"/lottery tickets.

The entire issue, as I see it, can be distilled to this: founders want employees who are taking significant risk, who will work for and treat the business like the founders themselves would, but who considers below-market wages plus "startup bucks" as great compensation, even when it is historically not.

* The medical sort, and here in Holland the Pharmacists require the same education as a medical doctor but specializing in pharmaceuticals not diagnosis.

When a senior engineer goes off and tries to work at a startup, it is precisely because they want to try playing the lottery (with a very fat equity slice), not because they're going out to try and get a ultra-competitive cash salary.

that's not the only option. The company could remain privately owned - in which case you want to have below 100 shareholders so that you can remain a C corp

They wrote into the agreement certain metrics that the company would have to meet after launch, and did everything they could to prevent it reaching those, e.g. firing the guy would would have made the sales, our multi-talented lawyer stepped up and made them. When Kleiner Perkins, who's connections could have been a make or break for the company, cold called us, these devils blew them off.

Their attitude was they'd rather have 100% of nothing (well, they probably thought it would have been something), and the company essentially died when 13 of us resigned en masse from the CEO down to all but one most junior engineer. (And then we had to go to the state to get our back pay for that partial pay period.)

I was in some of the last minute, try to save things face to face negotiations; these guys were malevolent. Not sure how they achieved net worths of 100 million and 500 million, but if they retained any control, they sure didn't use that money for good.

If there is enough confidence in the stock, a happy medium can be to sell enough ISO's at the time of exercise to cover the tax cost for that year. However, if the stocks you have are a massive % of your overall (potential) wealth, short term tax on a big # is still better than long term gains on a volatile #.

Also, I think "startups" generally suck. By startups, I mean companies built to become billion-dollar concerns (and willing to throw culture and people under the bus to get there). I'm starting to think of that as raving narcissism. People should want to do great work without that instant gratification and entitlement of Big Exitzzzzlol!!!!111

A better idea is this: http://michaelochurch.wordpress.com/2013/05/07/fixing-employ... . The idea is that people sell call options on their time, as a consultant. Let's say my fair market value is $200/hour now. I might sell a call option, struck at $150/hour, exercisable within 5 years. That's probably worth $100-150 because I'll be more skilled in the future. It lets people finance their career needs early, but it also makes the consulting market astronomically more efficient because the option-holders (who would tend to buy underpriced options) have an economic incentive to find work for talented people.

That is the only way I have heard of early exercise working.

"Under this rubrick, you owe no taxes at all, since money flows from you to the company, therefore there is no taxable compensation."

To be clear, the way this works is that the time of exercise you have income (AMT only for ISOs, regular income for other options) equal to the difference between the fair market value and your exercise price. So you owe no taxes if your exercise price is the fair market value, which is usually the case if you exercise soon enough after the options were granted. It's not about which way cash is flowing, it's about whether what you get back in exchange for the cash is worth more than the cash you are paying.

"I assume it's like any investment round, they sold stock for working capital."

I'm more hazy on this, but I don't think it would normally be similar to an investment round, because in an investment round typically new shares are issued; in this case you are buying shares that were previously issued for the employee stock pool.

The competing job offer is Google or another megacorp. What's their turnover for engineers in a year? 10%? 15%? The definitionally average startup has a higher turnover even if we restrict it to turnover caused by business failure, to say nothing of voluntarily or involuntarily losing one's job.

If you exit a position with Google/etc, you have a network full of people who also spent the last couple of years at Google. You can easily lateral into jobs of comparable quality. If you exit a position with a failed startup, your lateral transfer is likely into another job which pays below market. Your immediate professional peers are also people trying to avoid the failure stigma. They may also be slightly busy looking for a job to help you with your own job search.

If you work for Google for 2 years and then separate from them, your 401k increased by $30k in the interim and you probably have six figures sitting in the bank account. If your startup is shot out from under you, you may end up counting the number of ramen boxes in the pantry while hoping that the startup can make good on its final payroll check.

If you work for a megacorp and are let go, it is highly likely that you were let go for firm- or individual-specific reasons rather than industry-wide calamity. This is very much not guaranteed in startups, where e.g. ebbs and flows of the capital market can cause a daisy cutter to hit the hiring pipelines at dozens of firms at once. You could lose your job at the same time that everyone else stops hiring. Ask the wizened veterans of the dot com bust who are, what, in their late 30s?

Startups are meaningfully less secure than working at bigco. Anyone who says differently either doesn't understand them or is trying to sell you something.

If I'm paid $100k pa at Regular Corp and I get laid off after 1 year, then I keep the 100k I've already been paid.

If I'm paid $50k pa and 5,000 options at Startup Inc and I get laid off then I'll probably end up forfeiting the options which leaves me 50% worse off than if I'd worked for Regular corp.

If I were to guess why: The more relationships you have on the founding team, the more likely you are to have ONE of them blow up or have someone lose their nerve/interest. Early startups are fragile things.

Seems like you could go with a hybrid approach (start with 2-3 founders, raise a small amount or self fund to hire 1-3 stars for small salary/high equity comp who couldn't go without a paycheck).

http://www.businessinsider.com/one-million-users-startups-20...

I am not really familiar about this area. It is a one time price to pay to purchase the stock options, is that correct? Furthermore, where does tax come into play? Don't you only get taxed if you decide to sell the stocks to generate income?

Actually that's pretty telling. If they don't give a number it means it's ~0%.

Interestingly we decouple the two precisely because of what you're describing. When you start singling out specific people, other folks who are also doing very good work pretty quickly become disinterested in their job. That's bad.

Even worse, measuring ACTUAL value to the company is really really difficult (I'd suggest that it is impossible). So now you are in real danger of driving your most valuable people, the ones your system failed to recognize, out the door. That's bad news.

Build a culture of productivity, not productive individuals.

It's a massive lift for our team (based on tax savings) when an eventual liquidity event occurs, with no downside for the company other than additional paperwork and some legal costs.

I don't know, I suppose in a fair world you would be given more equity on yr1, less y2, etc. But that doesn't motivate people to stick around like the existing structure.

Yep. It's no real surprise that coders are mostly men with poor social skills, while HR is mostly women with good ones, most of whom those men find attractive. Classic Valley symbiosis.

In other words, you're telling me both people and organisations are imperfect?! Shocking.

Sarcasm aside: really, it is shocking how SW engineers could come to think that any of the inexact, data-free, human-judgement-driven sides of business are optimal--simply from the theoretical argument that a market is involved. A little economics is a dangerous thing.

I suggest starting from the assumption that everything can be improved, unless proven otherwise.

I worked at a very successful company that used a similar model: flat 50% of profits paid to employees as bonus. This worked fantastically well in the short term. Now, 10 years later, the company is still very successful but the upside has all shifted to the owners due to departures, renegotiations, and new hires not getting the same terms. So at 3 years it looked very pro-employee but at 10 years it looks very pro-owner.

Would have been really "interesting" if there had been a liquidity event...

* Employees have less incentive to stay because they won't run into the AMT "handcuff" situation (where if they leave they have to exercise their options or lose them, and they can't afford to pay the taxes to exercise the options).

* More employees will actually exercise their options before liquidity, which means more minority shareholders.

To clarify for those that are a bit slow(er):

Their development skills convinced me they were good developers, their social skills just correlated.

Mixing in a gender slur makes it worse.

This is the kind of thing we ban people for, especially when they don't have a history as a positive contributor on the site.

Even in professions like law and investment banking, where employees do have to work grueling hours on a regular basis, the "80 hour work week" is largely a myth. I think medical residents are one of the few groups that really puts in these types of hours consistently.

They were working with Western Digital, which like everyone else at the time was designing a 68000 based workstation, and conveniently enough, it was based on MIT's Nubus NuMachine: https://en.wikipedia.org/wiki/NuMachine

So they were doing all the normal infrastructure for a high end workstation, and LMI was designing a 4 board Lisp Machine CPU with a Nubus interface that would work in one of their machines, with or without the 68000 processor board running UNIX(TM).

People with a serious UNIX(TM) background were actually harder to find in the community at that time....

HR is there to make sure you know where the toilets are. They can't pick a Javascript programmer, nor can they decide what to pay for one.

In your next family gathering people will ask you to fix their computer. You say 'Sorry I'm not IT, I'm a programmer'. Suddenly they dislike you. Do they dislike your cousin who waits tables for not fixing their computer? No, just you.

Similar themes play out in a business setting. If you're competent everyone will want you to do everything important. Which will result in:

1. You get stretched too thin and start making mistakes -> fired.

2. You refuse to take more than your share of work. This is seen as a slight to whomever you refuse. Similar to the above anecdote.

No one gets upset with the person who can't help them. They get upset when the person who can help them doesn't. Additionally people tend to focus on what you haven't done yet, not what you've already accomplished. The more that you are able to do, the larger the unfulfilled expectations become. Suddenly a large portion of the projects are complaining that they would be further 'if only we could get Redmaverick to help'. Now you're seen as the bottleneck for not helping, rather than the asset because your skills apply in so many areas.

If you are a skilled person who can execute tasks, it is vital that you always frame yourself by your accomplishments. By default your capabilities will be used to create a long string of perceived obligations.

That is my take and my experience from that statement.

The best thing to do after having been tainted by startup education is to go into consulting.

The Gervais Principle is a fascinating series of articles that explain why this is the case and also give a lot of insight into corporate America. It's a great read.

Overperformers, on the other hand, draw attention and animosity. People may say they like change, innovation and creativity. Abstractly, they do. At work, when they're trying to hold position within an organization that would throw them under the bus without hesitation, they hate change (except change that they control) and anything that smells remotely like it might be a challenge to their authority, reputation, or power, no matter how remote that challenge may be.

I'm seriously considering going into consulting, specifically because it's the one employment structure where overperformance isn't catastrophic. The worst result of overperformance is that you automate yourself out of a job, but that usually leads to another, better, one.

If you're an underperformer, you might get laid off in a year or two. You'll typically have a severance or warning because people will still generally like you as long as you're not an asshole.

If you're an overperformer, then unless you have someone powerful who goes out of his way to protect you, you're going to be fired (on a bogus "performance" case where you're set up to fail) in 3 months. You're also probably the type of person who, when served with a PIP despite being one the biggest assets to the company, will go nuclear, create morale-killing spectacles, and be talked about for years afterward. (Not that I know anyone like that...)

Underperformers can move along. With 2-3 years on their resumes, no one asks any questions. Overperformers often blow up spectacularly and develop reputation problems because, even if they're abstractly admirable, they didn't know the rules.

My genetic pattern seems to show more debilitation in the 20s. Unfortunately, some people don't recover from the damage (to health and career) done in that phase. I seem to have made it through the worst, though.

It was in my late 20s that I learned to live with an unstable mood. Sometimes I'll have a panic attack (10 minutes of extreme adrenal excitement for no reason) or a depression attack (an intense 2-4 hour bout of depression that, while leaving me exhausted, seems to leave no lasting mark) but I take a zen approach. Yes, this is actually happening, and it's just emotion. Easier said than done, for sure, but it's an ongoing practice.

Panic attacks I think of as a stern, somewhat obnoxious teacher whose motivations I haven't figured out yet. What makes panic scary is that it can imitate pretty much any physical disease. Phantom smells, visual flashing, chest pain, balance problems, paresthesia, vertigo, vomiting, blurry vision. I've had pretty much all of that shit. Over time, you learn that it's not dangerous. Then it becomes an annoyance (like a traffic jam) rather than a source of terror.

I don't think of myself as disabled by it. Most creative people are on the bipolar spectrum (although two thirds are probably sub-clinical). I don't lose work time to it, and my "never flake" rule keeps it from being too disruptive. I think of myself as traveling the same road as everyone else, but in winter rather than summer. And there are things you can see more clearly when the trees are bare and the air is crisp.

The #1 thing you can do to at least not help drive yourself deeper into depression is to learn cognitive therapy, which nowadays has a "behavioral" aspect added to it that I'm not familiar with (this is the CBT Michael refers to in his message composed at the same time as mine). Buy this book; I keep extra copies to give to people: http://www.amazon.com/Feeling-Good-The-Mood-Therapy/dp/03808...

If you're truly bipolar, there's no substitute for a doctor's care as well, you'll probably need a mood stabilizer, of which there are many varieties from the "gold standard" of lithium to modern atypical anti-psychotics.