
10-Year Exercise Periods Make Sense - sama
https://dangelo.quora.com/10-Year-Exercise-Periods-Make-Sense?share=1
======
sama
I agree with Adam's post and intensely disagree with A16Z's post on this
topic.

I don't think companies should take back stock compensation on a technicality.
It'd be silly to even discuss taking back cash compensation when someone
leaves a company!

I appreciate Adam starting this trend years ago.

~~~
american158931
What's your opinion on how an employee should deal with a founder who clearly
believes more in the A16Z stance on stock options more than the Adam's? Apart
from obvious knee-jerk reactions like "stop working there."

Obviously it's in the founder's financial best interest (at least on the very
surface level) for employees to not have the option to leave the company with
shares at all. It is just lost money, from their perspective, and probably
annoying to have an employee leave (creating a headache in your life) _and_
take a bunch of equity with them. (And it severely limits an employees
negotiating power over time, which can be of benefit to the founder...)

What are some strategies an employee can use to make the point that Adam's
perspective is a much more employee-friendly one and, thus, better for the
company?

Looking for some perspective.

~~~
jerf
"What's your opinion on how an employee should deal with a founder who clearly
believes more in the A16Z stance on stock options more than the Adam's?"

Value the options at zero and take appropriate steps.

It may not be the statistical expected result, but it is the modal outcome
anyhow.

"Appropriate steps" isn't just "quit". If you're happy with the cash salary
than you don't have a problem, for instance, or the experience, or the
lifestyle, or any of the other reasons you may be choosing to work at a
startup.

"Obviously it's in the founder's financial best interest (at least on the very
surface level) for employees to not have the option to leave the company with
shares at all."

Well, yeah, but that's sort of vacuous; it's not in the employer's best
interest for employees to be compensated at all. But that makes hiring pretty
challenging.

"What are some strategies an employee can use to make the point that Adam's
perspective is a much more employee-friendly one and, thus, better for the
company?"

There isn't a general answer to that question, because it depends on your
status in the company. In some places, even opening that conversation will put
you halfway out the door. In others, they'll fall over themselves to fix the
problem if you just mention it, because they'll not have heard of this before.
You need to judge the situation you're in, and play out the possible scenarios
before you step in to something like this. But I'd suggest you're going to
need a _very_ solid position to change something this fundamental about a
company.

Generic advice: It's always easier to negotiate from a fallback position of
strength; unless you're absolutely confident in your position, consider having
a job in hand before starting this talk. (You don't have to tell your
employers that you have an offer in hand.)

~~~
zzleeper
Yours is the most reasonable answer and I wish more engineers understood this.
As long as there is a nontrivial fraction of engineers that don't, then
startups can take advantage of these ridiculous vesting periods and terms.

------
jeffdavis
Founders are committed and in for the long haul, and either make a lot of
money or none.

Startup employees make less money on a nice exit, but aren't as committed and
can work for a few companies (maybe 2 years each) to improve their odds.

So having 10 years to exercise makes a lot of sense for the second group.

Forcing the employees to stay until liquidation makes zero sense for the
second group. So you need to give the people that do commit at that level a
package that more closely resembles a founder.

Otherwise it just distorts the market in all kinds of ways. Nobody would want
to work for you until it looks like liquidation is around the corner, which
means startups would constantly need to be positioning themselves on the
auction block rather than focusing on lasting growth.

In addition, it creates the normal kinds of distortions associated with
illiquid assets and immobile people.

~~~
nedwin
Forcing employees to stay until liquidation isn't in the founders interest
either.

You retain employees who might have been great from the zero to 50 stage but
not as well suited in the 50 - 5000 stage. But their incentive is to stick
around or give up potentially millions in equity that they busted their asses
to earn.

Checked out employees aren't doing anyone any favors. You might say you can
fire the person or put them on a performance improvement plan but this is
easier said than done - especially if it was a key early hire.

I've seen this in many SF-based companies.

~~~
skewart
I completely agree.

Very often the skill set needed for employees changes dramatically over the
first several years of a startup's life. It's best for everyone if there is a
highly liquid job market and employees can easily leave (or be let go) when
they are no longer contributing at their max, but then easily find another
place where they contribute more. It's a lot easier to let someone go if both
parties know that the employee has been well compensated for the work and risk
they took on. It's that much harder to fire someone when a consequence is that
they will miss out on any equity.

I'm sure there are edge cases, but I can't see how, in the general case, tying
people to companies for long amounts of time is good for anyone involved.

------
SeoxyS
For young startups, I always recommend allowing Early Exercise. Put simply,
it's the right by employees to exercise their options before they vest. The
company retains a right to repurchase those options should the employee depart
before they vest.

This enables them to exercise them as soon as they're granted, which greatly
reduces the tax burden in two ways:

\- First, the strike price and the value of the option are the same when
they're granted, which means that the _spread_ (i.e. the difference between
exercise price and value of the options exercised which the IRS considers
profit for AMT) is zero. Therefore, no taxes need to be paid. _I 've been
stung by a 5-figure AMT tax bill on exercised options that were completely
illiquid—all of which would've been avoided had I exercised early._

\- It starts the clock for long-term capital gains. You need to hold the
actual stock for over 1 year to be taxed at capital gains rates instead of
income tax rates. Federally, this can lower your tax rates from up to ~40% to
~20%. (would've been 15% pre-Obama!) In CA, for state taxes there is no
distinction, so you'd still be paying income tax rates of ~10-13%

Keep in mind, if you early exercise, that you _must_ file an 83b election with
the IRS within 30 days, or the tax consequences can be severe. (If you don't,
you'd be taxed on the spread at the current option value every time some of
your options vest.)

Now, I think extended exercise windows are great too, and ideally option
agreements would have both. I think generally, early exercise makes more sense
for employees who join pre-Series-B, while extended exercise windows make more
sense for later stage employees.

------
andreasklinger
Wow never disagreed with a16z content so far.

> … at the same time disadvantaging employees who remain loyal to their
> employers just kicks the can down the road …

The underlying assumption that people only leave companies because they are
not "loyal"

People get fired, people get mobbed out of teams, company cultures change,
companies fail in management. employees lives change, people need to move to
other countries.

The whole notion about "loyalty" almost appears action-movie-like. "ARE YOU
WITH ME? HELL YEA!"

It's already hard enough to convince highly skilled people to join companies
vs founding their own. No need to further decrease the upside compared to
being a founder.

------
tlrobinson
From the A16Z post:

> This solves all of the issues: cash rich vs. poor; competitive offers; and
> the bad incentive problem (e.g., encouraging employees to quit to build
> their own diversified stock portfolios).

Says the VC whose business depends on a diversified stock portfolio.

A couple paragraphs above he admits that "median time-to-IPO for venture-
backed companies is closer to 10 years". That's not a reasonable amount of
time to expect employees to stay at a job, and seems like a recipe for burnout
and/or "rest and vest".

------
ska
I think there is fundamental difference of opinion here, exposed by Adam's and
A16Z's posts.

A fairly typical early stage employee will forgo hundreds of thousands of
dollars in salary over a vesting period, in exchange for options.

The philosophical difference is here: At the end of that period, do you think
of the shares as the employees, earned in exchange for both the work done in
those years, and the hundreds of thousands the company saved on salary? Or do
you think of the options as an ongoing incentive to keep the employee with you
(perhaps still below market rates), in exchange for the chance of a big payout
later?

Technical employees often feel the former, and will point to the fact that
they've "given" the company much more in salary reduction than many early
round investors paid per share they own outright. Corporations often state the
latter point, or some variation, particularly pointing out that later
employees don't have the same leverage on the option pool. Option agreements
often encode the latter.

~~~
mahyarm
I'm starting to have the feeling that those very early employees are about
equivalent to an angel investor, and they should be getting some sort of angel
investor equivalent terms.

Otherwise once people really start realizing the negatives of being an early
employee vs. founding your own startup it would be hard to hire otherwise.

~~~
ska
One way to do this with very early employees is to avoid the whole mess by
just giving stock.

~~~
sulam
You'd still have to pay taxes on it as per your (audit-able) 409a valuation.

~~~
ska
Sure, depending on the country it works different ways. But if there is tax to
pay, it is on a low valuation (very early, remember).

~~~
argonaut
To be fair, there is another catch-22, which is that a low valuation means the
startup is early-stage, which means your options are worth less.

So sure, you can early exercise, but there is a greater chance your early
exercising will lose you money (if the options end up worthless).

~~~
ska
Note I said "give stock", not "give options". Granted, this doesn't solve
everything - it was an aside comment about early stage vesting (where
liquidation events can be a long way off)

~~~
argonaut
My comment is equally valid if you replace "early exercise" with "paying taxes
on" (assuming you do an 83b election).

------
devit
Isn't any vesting for non-founding employees completely broken?

If the employee loses the stock when he's fired early, then the company has a
huge incentive in firing him a day before he vests, and thus he should regard
the vesting compensation as nonexistent.

If the employee retains the stock when he's fired early, then he can just get
himself fired to ignore the vesting period, making the vesting pointless.

It seems that vesting can only work if the employee is so essential that the
company would never fire him because the company would then be highly likely
to fail, which should only apply for founders in a functional company.

~~~
beat
Firings in ways that reduce the options available to the fired employee are
actually quite common practice. They just don't reduce it _this much_ , which
would have a lot of the obnoxious MBA types who take over middle-aged
companies licking their chops.

My spouse worked 13 years at what was a startup-with-traction when she started
there. Last year, they were bought out (public-to-private by a hedge fund). A
week later, she was sent packing, along with a lot of the "old-timers". That's
not even getting out of options (although there was some of that). That's a
simple purge. Purges happen.

When you ask employees to commit to ten years to get anything equity-wise,
you're exposing them to _tremendous_ risk. You're hampering their careers.
You're exposing them to the risk that you'll take a down round three years
down the road and their options will get diluted into near-worthlessness.
You're exposing them to the risk that your business will be wiped out by a
competitor, or put on the road to obsolescence by technical advances and
market trends.

For a 50% bump? Screw that.

~~~
x0x0
Or that the employees might have changing life circumstances any time in the
10-15 year future. Find a partner that changes your life needs around working
life or living location, have a kid, need more or different housing, have
medical issues, have family with medical issues, etc and you're sol.

ps -- a16z funded a company that, as an A round, refused to disclose
outstanding shares to value my option grant and was already on the brute force
15% of comp is bonus that you don't get if you aren't there in early April
every year retention ("bonus") plan. It may be unjustified, but with some
other stories I'm not a liberty to disclose, they seem very employee
unfriendly.

~~~
beat
Most option plans are employee unfriendly. And "This incredibly employee-
hostile clause will force us to be more honest with employees, which makes it
employee-friendly" leaves a bad taste in my mouth. It might work as long as
the original founders are in control. They _will_ be in control ten years
later, right? Right?

------
abalone
I agree with this, but what do you guys think about minimum service periods?
Like requiring 2 or 3 years? Companies like Pinterest and Coinbase have added
that condition.[1]

Greater portability could in theory lead to higher turnover even among happy
employees. They might go on to found their own company sooner. They might see
good financial sense in diversifying their options portfolio. Yet young
companies need the team to stick together for a certain time. Especially very
small startups at the YC stage -- turnover is very harmful.

Note: In Adam's example, nobody leaves the pre-IPO company in under 4 years of
service.[2]

[1] [https://github.com/holman/extended-exercise-
windows](https://github.com/holman/extended-exercise-windows)

[2] _" imagine a company takes 10 years to IPO. Employee A works at the
company from years 0 to 4. Employee B works there from years 4 to 8. Employee
C works there from years 8 to 10."_

~~~
dangelo
At Quora we decided not to have a higher "minimum service period" aside from
the standard 1 year cliff. The rationale is that the vesting cliff is what
everyone is expecting as the minimum. If a company wants to have a higher
period before someone can leave and retain their stock, they should just
increase the cliff to that length of time to make it fully transparent.

~~~
abalone
That's a fair point, but cliffs are more severe than exercise windows. Many
employees still get to keep some of their equity in a 90 day exit window
scenario. I think Kupor modeled it at about a third of vested shares on
average.[1]

More mature startups may be able to simply abolish the long-term incentive
that the 90 day window provides, but I suspect younger (<30 employee) startups
need added turnover protection. Perhaps backloaded vesting would be a more
comparable replacement? Transparent, predictable, fair, and not as harsh as
cliffs. You keep what you vest, but 70% of it vests in years 3-4.

[1] (Although there's certainly unfair variability based on personal financial
circumstances in that average.)

------
mesozoic
Wow I guess since employees should already value most stock options at near
zero it's hard to value them any less.

~~~
argonaut
Valuing stock options at zero is one of those HN memes that are repeated
endlessly, mostly, I suspect, by people not from Silicon Valley who know few,
if any, engineers who got rich from stock options.

Just because stock options should be valued at less than a company's private
valuation does not mean they are worth 0. Very few engineers actually value
them at zero.

Adding on to this comment:

It's a spectrum, not a black and white _your options are worth zero_ dictum.
At one end, (extremely early stage startup, < 5 employees, you're not a
founder) your options are probably worthless, sure, although you have a
minuscule chance of being worth $10M+. At the other _extreme_ , you join a
company that everyone knows is going to go IPO within two years, and
essentially earn what you would earn at Google or Facebook, maybe slightly
more.

To give you one example, I knew someone that made about a million (vested over
4 years) in options by joining an already-successful startup as engineer ~70,
that he believed would IPO within 4 years. On top of his market rate salary.

~~~
guelo
Would you estimate the percentage of Web 2.0 Silicon Valley engineers that
have been able to cash out anything significant (let's say > 1 year market
salary) at greater than .1%?

~~~
rconti
Yes. I'd say easily 3-5%.

~~~
ryandrake
Quite honestly that would shock me, but I wouldn't know where to get data
about this. I always believed that only a microscopic fraction of tech workers
actually made off with more than a year or so of salary from options (but
those who did likely made out extraordinarily well). I would not expect a very
flat distribution.

~~~
argonaut
Every time _any_ tech company goes IPO or gets acquired for a large number
(~>$50M), that's on average 1,000+ engineers who probably made some amount of
money from options.

~~~
chasing
These numbers don't make sense to me.

You're saying an _average_ tech company that exits has over 1000 engineers
alone? Certainly a $50M company can't support 1000 engineers. Or a $100M one.

(And, just for fun, if a co exited at $1B with 1000 engineers... Let's use
round numbers to sketch it out. Let's say the engineers alone get 10% of that
value (which seems generous). That's $100M. Divided amongst 1000. So $100K.
Not that much if you've given up income for years! Even if that amount is
split across 100 engineers, $1M's not necessarily a super-duper return on
investment if you're taking a bit pay hit.)

~~~
argonaut
I'm saying the average number of engineers is pretty high (because it's an
average, it's skewed up).

Regardless, quibbling over this doesn't really detract from my broader point
which is that every time you see a company go public, that's hundreds, if not
thousands, of engineers that made some money off their options. Some got rich.
Most probably just ended up with an above-market salary. Others (those who
just joined) get a tiny amount. The same applies for acquisitions, though
obviously you'll need to scale the number up or down depending on the $$.

------
smsm42
Longer exercise window would be very valuable, especially for employees not
having big cash pile laying around somewhere. That would raise the value of
options a lot. The other suggestion though - longer vesting period - would
have the reverse effect.

4 years vesting options in startup are "extremely risky investment that with
much luck and hard work may pay off". 8 years vesting options in a startup
means "I guess Las Vegas gambling is too boring and way to little risk for
you? How would you like to gamble with 10 years of your life?"

4 years vesting options in an established company is "we'll pay you if you
agree to suffer us and drag yourself to work long after it stopped being fun
for you". 8 years vesting options in an established company is "for how much
would you agree to sell us your immortal soul?"

In short, long period vesting for options may make total sense for company
issuing it. It would have very low value for employee, and even long exercise
period would not compensate for that.

------
laurencerowe
You can't pay rent or save for a mortgage downpayment with illiquid stock
options.

It takes something like $200-400K to get on the housing ladder in the Bay Area
so the idea of putting it off for 8-10 years with no guarantee of success is
already unattractive.

To shackle yourself to a single company for the duration? Nuts. When did you
last work anywhere for 8 years?

------
hkmurakami
I've written several times in the past that only companies with substantial
negotiating leverage against the gatekeepers of capital can afford to buck
what is considered standard.

Hence we've only seen the hottest companies achieve 7-10 year exercise terms.
[https://github.com/holman/extended-exercise-
windows](https://github.com/holman/extended-exercise-windows)

I've argued that as a cohort, YC is the best candidate to make a large push
against VCs and make 7-10 years vesting terms an industry standard. Learning
that this is now the case is incredibly exciting.
[https://news.ycombinator.com/item?id=11198991](https://news.ycombinator.com/item?id=11198991)

 _harj 119 days ago | parent | on: Fixing the Inequity of Startup Equity_

 _We 're excited to make 10 years the new standard option exercise window for
startup employees. Each of us have personally experienced someone close to us
dealing with the stress of trying to exercise their options within 90 days and
it sucks. We'd like to see more companies making this change, we'll be keeping
the public list of YC companies who have either implemented or pledged to
implement an extended window, updated here:
[https://triplebyte.com/ycombinator-startups/extended-
options](https://triplebyte.com/ycombinator-startups/extended-options) _

------
jdoliner
> There is no concern for how many shares we granted in the past to other
> employees or whether or not they are still holding them; the only concern is
> the current market... it would be irrational not to increase the option pool
> if that’s what was needed to be able to hire someone.

This is the part of this post that I can't believe is true. At the end of the
day a company only has so much equity. How can the amount you've given out be
of no concern in issuing stock to new employees? Isn't that tantamount to
saying equity isn't scarce? When does the amount you've given out become of
concern and in what context? If the answer really is that the amount of equity
you've already given out never becomes a concern to any aspect of your company
then why would you ever limit the amount of equity you give to employees?

~~~
danielweber
The employee pool is typically small compared to the entire pot.

------
lifeisstillgood
Everyone has a burn out point, a point when the company and the culture and
just your life stages mean you want to move on. Being handcuffed to one is bad
for everyone.

I would worry about the value of employees who basically wanted to leave the
company four years ago but are only hanging in because their shares are worth
a million. Surely it would be better to get those people paid and then out the
door rather than keeping your senior influential ranks full of people who
stopped caring years ago.

Surely there is a better way?

Stock options are some kind of payment - so why not treat it as a pro rata
accrument. You are the first hire - you get 2% of the company if you stay ten
years. Leaving after five to get married and move country? Fine here is 1%,
just sign here, and we all are happy.

No matter how nice your arresting officer is, everyone resents handcuffs.

------
dasil003
Thank you for this Adam, as an early-stage startup guy who still hasn't made
his FU money, this really nails all the salient points for me. Scott Kupor
tries to decorate his article with references to employees' interests and
considerations, but it's clear the guy has spent his career on the on the
management/finance side where he doesn't _really_ understand what it means to
be a ground-level early-stage contributor to a young startup. Consider Kupor's
"solution":

> _But, a way to truly compete for the very best and long-term oriented
> employees would be to offer even greater amounts of employee options grants.
> For example, why not offer stock option grants that are 50% more than the
> nearest competitor’s — but with the provision that a departing employee
> cannot exercise his or her stock options unless there has been a liquidity
> event? If you stay, you’re a serious owner, but if you don’t want to be part
> of the company for any reason you won’t be an owner. This solves all of the
> issues: cash rich vs. poor; competitive offers; and the bad incentive
> problem (e.g., encouraging employees to quit to build their own diversified
> stock portfolios)._

I don't even know where to begin with this. First of all, unless you are a VC,
you don't have visibility into the market for options. Even if you did,
startups are not _commodities_ , you can't compare shares of early stage
companies directly to each, particularly when you are a single-digit employee,
you are going to be shaping the actual future of the company. Not only should
the offer you receive reflect the value that your particular skills and
expertise will bring the company, but you also have to gauge the potential of
the company itself. 1% of a $1B company is worth a lot more than 2% of a $100M
company, and of course how much funding will you need to get there?

Obviously these things aren't predictable, but as a prospective employee you
have to _try_. After all, unlike investing, you only have one working lifetime
to spend as employee. That puts a different perspective on these things from
the VC really _is_ building a portfolio and playing the odds. Since the VC is
not directly pulling the levers, startups _are_ effectively fungible to them.

But the part that really burns me up about his "solution" and it's purported
comprehensiveness, is the idea that early stage employees who leave before a
liquidity event don't deserve any equity at all. I'm sorry Scott, but that is
absolute horse shit, and frankly it really will make me think twice about
taking any investment from A16Z in the future. The early stage employees who
take a huge pay cut in order to build something _from scratch_ which will most
likely fail completely, are making a huge investment in the company. They will
literally pave the way for all the later employees to even have a company to
work for.

Can you imagine if VCs made the analogous argument that angel investors should
not be entitled to their returns unless they matched the later VC investments?
"That would be preposterous! Obviously those angels took a big financial risk
and deserve their returns!" Financiers would never be this short-sighted, but
somehow Scott thinks that someone putting their blood, sweat and tears into
startup for a below-market salary are only as valuable as their latest month
of work. I respect the role of capital in startup creation, I really respect
it because I don't have it, but even so, money is _nothing_ without execution,
and A16Z would be nothing without talented founders and employees who are
willing to sacrifice a lot more than them to bring a successful company into
this world.

Even if you are a complete sociopath who is interested solely in the short-
term benefits to the company, you _still_ wouldn't want to take this tack
because (as Adam very aptly pointed out) then you end up with a lot of dead-
weight in the company that's just hanging around to cash in their options.

Startups are not fungible, employees are not fungible. Treating employees like
humans is not only the right thing to do, it's how you cultivate reputation
with "cash-poor" top performers. The danger for VCs like Scott Kupor is there
will always be an army of sycophants and yes-men ready to consecrate his every
word just to get a piece of that juicy VC fund, but they are in real danger of
having their lunch eaten by the expanding reach of angels that actually worked
their way up out of the trenches themselves and understand the tech employee
mindset.

~~~
lhc-
I agree with all of this. a16z and other VC's are pretty clearly on the side
of capital, and don't really believe that labor provides any value. Employee's
taking lower salaries and investing years of their lives don't provide any
lasting value according to a16z. I just cannot believe that he would try to
justify taking back fairly given compensation because an employee did not want
to continue doubling down and investing more and more money and labor into a
startup.

~~~
niels_olson
When did the labor-capital debate shift from truck drivers to PhD-caliber
computer scientists? Serious question, I think I missed the clear split. Has
it always been there and I didn't realize it? Is there a clear historical
event?

------
pfarnsworth
This is a well thought out answer, and frankly embarrasses the response from
the VC. Of course the VC wants to protect his own interests, he's just
obfuscating it by pretending he's talking about "wealth transfer" and
"fairness". What a bunch of BS, and I'll never work for a company that he is
"advising". Who knows what sort of dirty tricks he'll play against the
employees.

------
cpks
I felt dirty reading the a16z post. Really dirty. They tried to phrase
screwing over the employees for the investors as somehow employee-friendly.

------
a_small_island
>"He suggests paying 50% above market in stock, but including a clause that
all employees must remain at the company until a liquidity event or else they
cannot keep any stock at all (even if they could come up with the exercise
cost)."

Curious to what feelings this invokes for startup employees (nonfounders,
investors) on HN.

~~~
wpietri
In my case, wild laughter.

------
anf
Why doesn't everyone just exercise as soon as they join a company? At least at
earlier stage startups, it seems that the amount of salary offered as
compansation is at least an order of magnitude more than the amount of
options. Given this ratio, it seems like most employees should have enough in
liquid savings after even a few years to avoid taxes on the appreciation
between stock grant and vest times.

Of course, there's the possibility that a startup will tank, but even in that
case, losing out on having bought stock seems much smaller than the
opportunity cost of not having worked at a sure-bet tech giant.

~~~
overdrivetg
Vesting. You can't exercise unvested options - the company needs to have set
up an early exercise option as a part of it's stock plan for this to work.

But whether they offer an early exercise program is a very good question to
ask any early-stage company you're planning to join.

------
genericpseudo
The answer is clear – not easy, but clear; refuse to work with people who act
in ways you find unethical.

If Scott Kupor's position is a company's position, and the total package value
(including salary, benefits, etc), isn't acceptable to you when valuing
options at zero – and given you don't control the company, and they can fire
you at any time, you have to – then they're on the list. Refuse to work with
them and tell your friends.

If you disapprove of his or A16Z's attitude, just don't accept investment from
him. Let the market tell them they're wrong.

------
snowwolf
I understand where the 10 year exercise period came from and I can understand
the arguments against it.

A solution I haven't seen put forward is a compromise between the common 90
day window and the 10 year window, which is to have an exercise period equal
to the amount of time you were an employee. This discourages people from
bouncing around jobs collecting equity but gives a reasonable timeframe in
which to exercise if you do want to leave after putting 5 years into growing
the company.

~~~
mywittyname
> This discourages people from bouncing around jobs collecting equity

Vesting periods solve this problem.

~~~
snowwolf
How does vesting solve that? Which would you rather have (giving a simple
example of 1% options vested over 4 years) - 0.25% in 4 different companies or
1% in 1?

This is essentially the argument against 10 year exercise windows - it allows
exactly the above scenario.

~~~
mywittyname
If your vesting cliff is 1 year, then people who job hop after 8 months get
nothing. Thus discouraging people from bouncing around to collect equity
because there is a minimum tenure needed to collect.

Just set the cliff to match your definition of "bouncing around jobs".

------
bigbossman
Have any companies implemented a sliding scale for the duration of the
exercise period? 10 years makes sense for a super early stage startup, and 90
days is reasonable for public companies. I would think that some shorter
windows can be implemented for companies at different growth stages -- perhaps
by financing schedule, revenue size, expected time until exit, etc.

~~~
mahyarm
For public companies it doesn't matter because there is immediate liquidity to
cover options. Their vesting periods are often even shorter at 6 months and
they tend to not even bother with options and just give you stock units
directly or have stock purchasing plans at below market rates.

~~~
bigbossman
Yes, exactly, this is my point. The exercise period length should be
correlated to the expected time until potential liquidity.

------
zekevermillion
Scott basically argues that there should be a 10-year cliff on vesting. That's
what it means to price employees out of their equity comp if terminated early.

------
morgante
Scott's post genuinely makes me angry. It uses subtle language to imply that
employees are inferior individuals who are _lucky_ that the owners of capital
deign to share anything with them.

In Scott's worldview, choosing to leave a company before it has exited is
inherently disloyal. Even if they're paying you under market. Even if you
could contribute more value elsewhere.

I wonder if he would accept similar terms:

1\. Reduce his salary at a16z to something minimal. (<$100k)

2\. He only gets his carry in a company if he invests in every subsequent
round. If they ever decline to follow-on, it's clearly a sign of "disloyalty"
and they should forfeit all equity.

I agree with Adam that it's at least nice to see the owners of capital so
nakedly betraying their worldview (diversification is all well and good for
them, but employees owe infinite loyalty).

I will think long and hard before ever working for a company where Scott is on
the board.

This part is particularly troubling:

> One existing solution to the “dead equity” problem has been — and still can
> be — to make exceptions where appropriate for certain exiting employees.

It's essentially an argument for cronyism. The people who most need equity
extensions are those unlikely to have the connections and political savvy to
get them. I strongly suspect such systems would work to further disadvantaged
already disadvantaged groups.

~~~
hkmurakami
FYI, you should be wary about any A16Z company then. This sentiment is nearly
identical to what Ben Horowitz talks about here:
[http://www.bhorowitz.com/one_management_concept_from_how_to_...](http://www.bhorowitz.com/one_management_concept_from_how_to_manage_startups)

And Ben Horowitz has publicly supported Scott Kupor's blog post on Twitter.

Given that he and Marc Andreesen run the show there, we can reasonably
extrapolate that this is the firm's preferred stance. In fact, if either of
them was _against_ Scott Kupor's position, then the blog post likely would not
have seen the light of day in the first place.

~~~
genericpseudo
And I will vote with my feet, as I'm sure a number of other potential
employees will.

(Much as I will never knowingly work for a Kleiner company.)

~~~
phamilton
What's the Kleiner rub?

~~~
hkmurakami
Might be the whole Ellen Pao harassment suit.

The firm had a big shakeup and departure of staff preceding that as well.

[https://pando.com/2013/12/11/john-doerrs-last-stand-can-a-
dr...](https://pando.com/2013/12/11/john-doerrs-last-stand-can-a-dramatic-
shakeup-save-kleiner-perkins/)

(I feel like KPCB had another harassment suit before Pao but I can't seem to
recall the details.)

------
ergothus
I followed this link expecting to see a comment about some sort of "encoding"
of the human body relating to long-but-not-indefinite period of physical
exercise. Instead it's about stock options.

As the article offered no background, I'm lost as to what is being discussed.
In the last 20 years I've never had the same employer for 10 years, so can
someone ELI5 what is being discussed? Thanks in advance!

~~~
jdhawk
They're talking about the amount of time you have after leaving a company to
exercise the stock options that you were granted, effectively purchasing them
at par value. This has huge tax implications, and requires quite a bit of cash
on the spot.

Traditionally, the period has been ~90 days, which makes it even harder to
weigh your tax options and come up with the $$$$ to exercise the options.
Since its expensive, and has a short window of execution, the practice has
been viewed by many to be unfair. The Stock Options were a part of your
compensation - part of the Risk vs Reward balance you choose when you worked
for a startup, and now if you don't have thousands of dollars to spare on a
gamble - you forfit those options back to the Company.

By extending the period to 10 years, you have the ability plan accordingly,
see if the company will eventually exit, and exercise them when the time is
right.

~~~
quickquicker
Great explanation.

------
ak2196
Quora was definitely not the first startup to do 10 year exercise period, not
by some margin. My Lime Wire stock options from 2000 had a 10 year exercise
with a 6 year vesting schedule, no cliff and vesting every 3 months. Here's
the proof: [http://imgur.com/6eTUyui](http://imgur.com/6eTUyui)

Adam's on the right track though. I just had to write a 6 figure check today
to exercise my vested options at my current employer because of the 90 day
clause. It makes me angry because the company's official stance is that the
board wants to use stock options as an employee retention tool. I was
fortunate enough to have had the cash but a lot of other people are not and
there is no secondary market. So if you get fired or have to quit during a bad
market you are basically screwed.

------
cloudjacker
Man Silicon Valley companies are living in a parallel dimension!

They collectively think they have the LUXURY to hire employees that are in
love with their random idea

And they collectively think that the employees have the LUXURY to play russian
roulette with the compensation terms

Let's address that, because these factors have are completely disjointed with
the success of the company and the employees' INTEGRITY (instead of "aligned
incentive") to deliver amazing products and code

