
TLDR Stock Options - vinnyglennon
https://tldroptions.io/
======
code4tee
Easiest strategy is to just assume the options are worthless and base your
comp assessment on that. Doing otherwise sets people up to get burned badly.
Furthermore the risk reward for all but the founders is typically
significantly lopsided.

If you can accept the risk great, but again assume you’ll never see a penny
from options or far far less than you might think (as the calculator
highlights nicely).

If things go well you’ll get a nice bonus. Not life changing for the vast
majority of people, but a nice financial surprise.

The mistake most people make is accepting far too little cash comp on the
grounds that their options may be worth something some day. When they turn out
not to be they get burned twice. First on not getting that money period, and
second on not having higher cash comp all along which means they also missed
out on compound savings or investment with that money.

Net net see options for what they are in most companies—-a way to “pay” people
when the company can’t really afford to pay people.

~~~
esoterica
That’s not a rational way to evaluate compensation. Would a reasonable person
rather take a guaranteed $1000 or a 10% chance of a $1 million? Obviously the
latter, even if it has a large chance of being worthless. The not-stupid way
of assessing a compensation package would be to conservatively estimate the
expected value of the options and apply a substantial risk penalty in your
objective function, not to round all volatile compensation down to zero.

~~~
xyzzyz
_That’s not a rational way to evaluate compensation. Would a reasonable person
rather take a guaranteed $1000 or a 10% chance of a $1 million?_

A "reasonable person", or a more commonly used "rational agent", is an
idealized notion that doesn't actually exist in a real world. Actual humans
are not expected-utility-maximizers. See e.g.[1].

Also importantly, the scenario (evaluating the value of option-based
compensation) is not like "guaranteed $1000 or a 10% chance of a $1 million"
scenario you're describing. Rather, it's like "pay $50-100k/year in
opportunity cost for entry to the lottery in which you can win some unknown
prize that's almost surely below $5M, at even more unknown probability". Even
an expected-utility-maximizer, a "reasonable person", cannot really make a
reasonable calculation of the expected utility.

[1] - [https://sci-
hub.tw/https://www.sciencedirect.com/science/art...](https://sci-
hub.tw/https://www.sciencedirect.com/science/article/abs/pii/S0167487099000318)

~~~
kolbe
Just because people don't tend to do it doesn't mean you as an individual are
incapable of doing it. His advise is the rational approach, and people on
Hacker News tend to be smart enough to understand how to estimate probability
distributions and how to compute expected value off of these estimates. With
tools like this at their disposal, they are more than capable of applying
their risk preferences and making rational choices.

~~~
munk-a
His advise is only smart if the salary you'd be giving up is unnecessary and
you consider it a luxury to lock into an investment you may lose.

In fact, that's exactly what it is, whenever you're taking stock options into
account for compensation be sure to consider how big of an investment (in loss
of salary) it is and whether the potential payout and the risk seem logical.
If you think that making that big of an investment is too risky for your well
being (even if, in the average, it'd pay out better over a lot of plays) then
don't take it.

We exist for a limited amount of time and large games of chance like this
(even if they have an expected return) are not irrational to decline.

~~~
ljm
There is so much to factor in, too. I'm pretty happy with options if my base
salary gives me a decent quality of life, I certainly wouldn't work for less
on a gamble, considering the failure rate of startups. Never mind the fact
that you are making a secondary investment in the same place you work, so you
are doing worse than putting your eggs in one basket.

It's a nice bonus that _might_ pay something out. It's not a replacement for a
proper salary.

That said, I can appreciate the desire to get skin in the game. Would love to
see research on how necessary that is, though.

~~~
johnwyles
I think you may still be missing the point. What is the harm in completely
ignoring the stock options and negotiating strictly on base pay. I think stock
options for the most part should be considered like free snacks in the
workplace. "Nice-to-have", they taste better because they're free, and if all
the sudden they get yanked you didn't stake any livelihood or change of
circumstance for it. If they end up becoming something great - maybe you get a
new espresso maker, extra bathrooms at work, or an office instead of an open
desk. Rarely will stock options change your life that you shouldn't plan on
them but a nice perk if they do as they are very infrequently life-changing by
any measure.

------
smallgovt
This tool isn't really helpful. What you really want to know, as an employee,
is what the expected value of your options are -- not what they will be worth
if company IPO's for $xxb. This expected value is strongly correlated to your
company's valuation which isn't an input into the posted model.

As a general rule of thumb, I'd recommend taking the valuation of the
company's last financing round and halve it. Then, multiple this valuation by
your projected vested ownership percentage (and subtract any impact from
exercise price).

The biggest reasons you want to discount the company's last private valuation
are liquid preference and risk intolerance.

This rule of thumb is most effective if the last private valuation was recent
and completed on standard terms.

Edit: I see a lot of people recommending that people value their options at
$0. Imo, this is an irrational approach for most tech employees who have a
non-zero tolerance to risk. Yes, options are like a lottery ticket but that
doesn't make the ticket worthless, and you need to know how to properly value
the ticket when a company offers you an option between shares and salary.

~~~
roguecoder
Given that 2/3rds of venture-backed startups fail entirely, your approach is
going to massively over-estimate the likely value of options.

~~~
smallgovt
The company's valuation at the last financing round already prices in the high
likelihood of failure. That is, on average, the VC industry does a good job at
assigning valuations to companies (see published reports on average IRR of the
VC industry). As you point out, there's huge variance in outcome which may
affect your appetite for shares, but when it comes to assigning an expected
value to your shares, the last financing round is an appropriate place to
start.

~~~
roguecoder
I don't know what your experience is, but what I have observed is that
valuation is usually the product of multiplying how much money investors want
to put in by how much stock the company is willing to give up.

------
brootstrap
This is cool... I was first employee at startup who sold about 5 years later.
My original stock options sheet said my shares would be worth a cool 1.2mil.
Turns out the shares were only worth about 60k. Pretty solid , but not fuck
you money. more like pay off some of wife's student debt and kickstart
retirement saving money haha.

I will have to say though getting a check worth 5 figures and cashing that
bitch felt great!

~~~
ummonk
A 5 figure check is standard sign-on bonus at most medium-large companies -
you don't have to wait 5 years to get that.

~~~
pault
Really? The most I've ever had was $10k with a one year clawback clause, and
the 45% bonus tax left me feeling like I had trapped myself in a job I didn't
like for a measly $5k.

~~~
deanmoriarty
In my experience (which includes my circle of friends in the bay) FAANG
companies routinely give sign-on bonuses in the $50k-$100k range for standard
software engineers with a few years of experience.

The largest sign-on bonus I've personally seen was one that I myself received
in an offer from an hedge fund in NYC: $150k (I didn't take the job anyway
since I hate the cold weather, very stupid of me).

~~~
ngngngng
This seems like it would make the insane cost of living most of these
companies are in much more manageable, no? I've never considered leaving my
low cost of living area because I figured my standard of living would go down
on the average software engineer salary.

------
crazypyro
Seems easier to just assume the stock option has no value, especially given
failure rates.

I feel most people will overestimate their chances of success which will give
them an unrealistic number.

~~~
mykowebhn
This. I tend to look at stock options at an early-stage startup as a lottery
ticket.

~~~
linuxftw
Worse than a lotto ticket. A lotto ticket doesn't make you accept below-market
wages and has fixed amount winnings that won't be diluted.

~~~
roguecoder
Lottery tickets cost you money up front and have a defined possible upside.
Neither of those is true of equity.

The uncertainty of startup equity makes it impossible to do the same probable
value calculations you can do on lottery tickets.

~~~
ryandrake
Options are worse because they cost you money year after year: the difference
in salary you could have made instead of taking a job that offered those
options in lieu of a market salary.

If im offered a job that comes with options but pays $1000/yr less than I’m
making now, I have to ask myself: why not just keep my current job and spend
that $1000/yr on an investment with similar risk/reward profile? If I’m
willing to do that then I should just keep my job and buy that investment. If
I’m not willing to do that, than I shouldn’t take the job, because that’s in
essence what it would mean. In either case I shouldn’t take the job.

------
RubenSandwich
Feature request:

When you select a new funding round of a company: "Seed", "Series A", etc. Can
you keep the same IPO amount? As it is right now the IPO amount slider will
keep the same position, not amount, so if your not paying attention to the IPO
amount it makes it seem like 0.01% in a Seed round is worth less then in a
Series A round.

~~~
bethly
Thanks for the feedback! That's a good idea; I'll add it to our list!

------
jpollock
I had 1% of a company at seed time which eventually went public. The value
peaked at USD$400k before I could sell, and quickly dropped down to USD$100k
for 6+ years of work.

------
zamfi
Hmm. One thing that is really not covered here, even in the giant asterisk, is
the diminishing probability a big acquisition will be _clean_.

Where by _clean_ I mean: the acquiring company acquires the shares of your
company for the stated acquisition value.

These days, it seems like acquisitions often end up using retention packages
for key employees, and letting the rest go. The actual per-share purchase
price is low compared with the total acquisition value, so even if you're
fully vested, not that diluted, etc. -- of a $1B acquisition, very little will
go to the actual common stockholders.

~~~
deanmoriarty
Do you mind elaborating a bit more on this concept?

In such a scenario, why would investors ever want to put money in a company if
the bulk of the value came via retention packages (which they can't tap into),
as opposed to the per-share purchase price (which they can tap into)? I am
talking about investors who put money in "clean deals", so 1X liquidation
preferences, non-participating, which from what I've seen in the Bay Area is
fairly standard.

If the terms are clean (assumption above), common holders not making any money
on a $1B acquisition would just mean that investors will at best recoup all
their original capital, without any meaningful return, so why bother?

I understand that the investors have a lot of money to play with and can
afford to lose a good chunk of it, but in the scenario you are picturing they
would get screwed even when the company itself becomes a massive success (as
defined by the $1B acquisition), which is exactly the needle in the haystack
they look for.

Am I missing something? Are there some obvious ways through which investors
with 1X preferences can make a lot of money while wiping out common holders?

~~~
zamfi
I don't know why investors would want to put money into such a company, if
they knew a priori what would happen.

But I'm not saying "common holders make no money" in literal terms. A $1B
acquisition might look like $100-500M stock consideration, certainly not
nothing.

It happens because, these days, founders often retain control of shares and
board even all the way up to billion-dollar acquisitions, and their incentive
to share all (or even most) of that acquisition money with their investors is,
frankly, not that high -- the investors would rather a deal go through than
the company fail, and they don't have enough control to dictate terms.

The acquiring company cares most about the product (often) and about retaining
key talent, not how much the investors get.

So, in a founder-controlled startup, no one who has power over an acquisition
has a strong incentive to reward shareholders. Perhaps this is an inevitable
result of founder control, and will cause the pendulum to swing back the other
way?

Anyway, it's worth noting that this doesn't apply to IPOs.

~~~
deanmoriarty
> It happens because, these days, founders often retain control of shares and
> board even all the way up to billion-dollar acquisitions

That's the part I was missing. I know of a few companies currently valued at >
$500M, and for all of them the founders still own about ~15-20% (together),
and the investors across all rounds (usually they are at a Series D stage)
have enough equity (50%+) and voting seats to basically not just let the
founders do whatever they want, and these companies are very healthy business
wise. It's just the standard cost of taking every new round with a 15-20%
dilution, it really doesn't take that much to lose the majority.

I assume that in order to raise money at terms much more favorable than these,
the company must be doing incredibly well, to the point where the investors
are going to think "well, this company is going to get so big that I'll make
big bucks anyway". Not all companies that sell in the high 9 figures can
command such privileged treatment from investors, in my opinion. And in some
cases, the investors-founders relationship is not necessarily adversarial,
several seasoned entrepreneurs raise money from investors with whom they've
been cultivating deep business relationships over the years, so they
definitely have a "common goal" even if technically one could screw the other.
Of course this might not happen with a more naive 20-something startup
founder, who might get eaten alive by investors.

But I take your data point as very interesting, and something I hadn't
considered.

~~~
zamfi
I don't want to sound like a grouch, but it might be worth noting that the
list of ways for founders & investors to devalue common shareholders is quite
long. Dilution, recapitalization, you name it. At every investment point, the
company (i.e., the controlling interests) have the opportunity to effectively
reincorporate and reallocate ownership.

Really my point is that ultimately there's a level of good faith action
required on the part of both founders and investors in order for even the best
case scenarios to yield money for common stockholders. It's one reason why
reputation is so important in business.

No employment contract you sign with an employer is ever "ironclad", so you do
your best to make sure they're reasonable people who understand the value of
reputation and that business is "iterative" \-- in the game theory sense!

~~~
roguecoder
This is also why at least one actually-independent board member is a good
sign: at least someone involved has a fiduciary duty to the common stock
holders.

~~~
deanmoriarty
But don't founders typically have common stocks as well? How exactly can they
dilute other common holders rather than themselves, without implementing some
very bad shenanigans (e.g. a-la Mark Zuckerberg with FB)?

------
xivzgrev
Does anyone else frequently encounter companies that are coy about what
percentage of stock your options represent? I've probably asked 10+ companies
and only one or two shared. They're all too happy to share number and strike
price, but not the outstanding shares.

~~~
JimboOmega
They'll never share the actual cap table in any case. With preference etc, the
strike is a bit of a fantasy anyway.

------
erichurkman
The biggest downside to options is the tax treatment. The treatment by the IRS
is absolutely asinine: you're taxed on the 'gain' between strike & current
fair market value, or rather, you'll pay tax through the AMT. You can't sell
the shares, so why are you taxed at exercise?

~~~
roguecoder
If you were given stock you'd be taxed on the whole value immediately, because
you are getting something of value whether or not it's liquid. Getting
compensation tax-free at time of receipt, as options do, is already a pretty
great tax deal.

~~~
erichurkman
Tax free at receipt is great. It should be tax free at exercise, too, and only
taxed when the shares are sold. It's asinine to get taxed on something you
cannot realize any actual gain from.

------
filleokus
Would I be willing to invest any of the surplus cash I would get from a FANG-
style salary in something as risky a startup? Definitely not. Just considering
stock options as a cash investment (as opportunity cost) drives me so hard
towards not taking them it's silly.

Of course I would have an information advantage as an employee, and also
perhaps a possibility to _slightly_ effect the outcome. But at the same time
I'm locked up at the startup, and putting my salary and equity in the same
basket.

(Maybe this has been covered in other comments, but couldn't find it)

------
sdrinf
Relatedly, the valley still does not have a good story for first employees.
Given the economics of stock options, there is currently no good economical
reason to go working for a startup when the option of working for an already
IPOd & liquid Corp exists.

~~~
woolvalley
Which is why as a startup you have to offer something that FANG can't offer,
like full remote working or similar.

That or taking the people who fail to get FANG offers / naive jrs.

~~~
opportune
If I were to start a VC-backed startup I would just employ the paradigm most
big publicly traded tech companies use: pay competitive market rates for good
engineers as FTEs, and contract with body shops for all the other work. Given
that FANG are some of the best performing companies in the world I'd say it's
a safe assumption that they've done the math and found that it's more
economical to pay a high rate for a limited number of high qualified engineers
rather than pay medium rates for less qualified engineers. And then you can
have contractors making less than what "medium" engineers make do the less
important/skillful stuff.

~~~
deanmoriarty
Not to totally dismiss your point, but don't forget that one of the reasons, a
very big reason, why FAANG companies pay that high is because they literally
print money like crazy, so they can afford to behave that way. They have tons
of cash to burn and they're not going to run out of it anytime soon.

If you are a startup that just raised 10M$, you just can't go around and pay a
few good engineers $500k a year in cash compensation (which is what they would
make at FAANG, since the RSU portion of the compensation is basically cash-
equivalent, perhaps discounted at 80% if you want to be conservative), even if
"a few" is a very small group.

You'll have to settle with offering them $180k base + stock options that on
paper _might_ bring their compensation to $500k, 5-10 years down the road, and
any reasonable good engineer should value them at 10% of their pitched value,
if not less.

It just really never makes sense to join a startup for financial reasons, and
I say this as a person who was lucky enough to have a ~1M$ windfall from stock
options of a former startup employer: amortized over the amount of time I
spent at that company (4 years), I'd have been much better off financially had
I been at FAANG the whole entire time (which is where I am now btw, completely
done with the startup bs).

~~~
woolvalley
I think this is a relatively recent development. 8-10 years ago, working at a
startup or working at FANG paid about the same, but the startup came with this
lottery ticket, you learned more at a startup and it wasn't a big co with big
co politics and process. Back then it definitely made a lot more sense to
maybe give up %10-%20 less income in exchange.

Startups & VCs started getting a lot of money in the global search for yield
as interest rates dropped to 0 and QE started printing money and giving it to
banks who would invest it. The google/apple/etc wage collusion lawsuit
increased the amount of competition for engineers. FANG was losing engineers
who would rather do their own thing for a little bit less. The H1B lottery
system limited the supply. Housing started getting even more expensive in the
SFBA. And as you said, FANG prints money so they can afford to keep on going
up in the bidding wars.

Compensation started going up in this competitive system as a result until we
are at the point we are today, where startups are definitely not competitive
comp wise to being at FANG.

------
mkoryak
I worked at startups for the free beer, the tech and people. 3 startups later
I have made 0 money on stock and had loads of fun.

That's the truth about startups. Now I don't work at a startup, I make butt
loads more money, and have much less fun.

------
maerF0x0
Previously posted. Big discussion here:
[https://news.ycombinator.com/item?id=14463260](https://news.ycombinator.com/item?id=14463260)

------
mikekij
Great concept, and really helpful for most non-legal savvy early employees.

I noticed that an employee getting 1% options in a seed stage company doesn’t
seem to get anything unless the exit is > $35M. Not sure that applies to most
seed stage companies. Employees of a company I know well would start seeing
proceeds after an exit >$5M.

~~~
jasode
_> doesn’t seem to get anything unless the exit is > $35M._

It's because their model assumes "$41 million" was invested into the
hypothetical seed company over 4 rounds. Therefore, the company has to exit
for _more than $41m_ for the employees' common stock to be worth something.

You have to click on the _" How We Guesstimate"_ button to see their
underlying financial assumptions.

In my opinion, this type of "what if?" calculator would be easier to
understand if they explicitly showed the _intermediate calculation steps_ in
the user interface. A more obvious "show your work" would educate people and
preemptively answer questions such as yours about why a $5 million exit nets
$0 for employees.

~~~
nitrogen
Seconded. A user-friendly display of intermediate steps would be great for
educational purposes.

~~~
bethly
Building this tool we purposefully steered away from education. We found that
the users we talked to, people considering startup jobs who didn't know how to
value options, were frequently overwhelmed and discouraged by tools with more
educational content.

This tool might spark someone's curiosity, but we purposefully built it for a
group that didn't want to have to learn about venture finance and still wanted
to work at a startup.

~~~
mikekij
So then I guess my feedback is that exits between $10M and $100M (which are
the bulk of >$0 exits for venture backed software companies) should assume the
company has only raised ~30% of the exit amount. e.g. A $50M exit for a
company that has raised $10M can still make some money for everyone.

But I agree with the premise that the UI for this tool has to be super simple.

Thanks for building this!

------
icedchai
I had around 0.6% of a seed stage company. After series A, acquisition, a down
round with the acquiring company, etc. I wound up with like $12K. Most people
do much worse.

------
phy6
What if my company doesn't tell its employees how many shares have been
issued, so that it's impossible for us to know what percentage of the company
we own?

~~~
smallgovt
If your employer refuses to disclose # of issued shares, you have absolutely
no way of valuing your shares. I can't think of one good reason why they'd be
unwilling to give you this information, and as a result, I'd actually advise
that you value your shares to be worthless.

~~~
phy6
I agree, without knowing, we can only assume they will be worthless. I am in
the US, Do you think discussion of this among employees is protected under the
National Labor Relations Act, say in our company's private Discord channel?

~~~
smallgovt
I'm not sure. If you really want an answer, I'd post the question to Avvo and
see what responses you get. I've found that you typically get written
responses from real lawyers within 24 hours, and for generic questions like
this, they don't ask for a paid consultation. IANAL and not related to Avvo in
any way.

------
deyan
Unfortunately this is highly misleading without the ability to customize (e.g.
capital raised, liquidation preferences, future rounds, etc.).

~~~
bethly
If you are looking for more detailed scenario modeling, we've also built a
free cap table management tool that takes into account the specifics of a
particular company: [https://captable.io/](https://captable.io/)

------
aidenn0
Even shorter TLDR: single-digit percentages of equity are unlikely to be worth
much more than 1-2 years of salary.

Really if you are in the bay area and consider only the financial aspect,
working for FAANG for the low 200s is almost certainly better than a startup
for the mid 100s plus equity.

Note, I choose to work for a non-FAANG company for non-financial reasons. I
therefore don't work in the bay area for financial reasons (I was able to find
a non-FAANG job for mid 100s somewhere that is ~40k a year cheaper for a
mortgage).

------
iooi
For what it's worth, a 35% dilution per round is pretty high. If you have good
traction 15% is very doable.

That said, I like that it's conservative so you'll undervalue your options -
it's very likely that they'll be worth nothing.

------
GCA10
This model feels very mechanical in the rigid $50 million cutoff between "low
exit" and "will make you money."

Truth is, niche companies with small burn rates can yield nice payoffs to
investors even if the exit is $20 million. And cash-hungry dream-chasers can
yield almost nothing to insiders even with a $80m to $100m valuation.

I'd like this model more if it had a second slider that let you move between
"thrifty bootstrap" and "costly moonshot." Over the years, I've seen friends
get surprised on both sides of the supposed $50m divider.

------
kemitchell
Giant asterisk FTW

------
tasuki
"You've been offered 100% of a Seed company. If the company is sold or IPOs
for $40M ... in 7-ish years you could be looking at something like: $0"

Really?

~~~
deanmoriarty
It's basically the difference between common stocks vs preferred stocks.

The scenario assumes the startup raised ~40M from investors, which is
realistic.

So in that case yes, you can own 99.9% of the equity the company, but if it
sells for less than the total amount raised, the investors will exercise their
liquidation preference rights (typically 1X for clean deals), meaning that
they will wipe you out completely and keep the 40M for themselves.

If the startup sells for 50M, the investors can then decide to either exercise
their liquidation preference rights and get their 40M (leaving you with 10M,
assuming non-participating rights), or they can decide to convert their equity
to common and thus get 0.1% of 50M, and you take the 99.9%. They'll take
whatever is the most convenient for them, which typically means they'll
exercise their liquidation preference rights unless the company sells for more
than what they valued it at during their round of investment.

------
alangpierce
To be clear, this is saying that seed-phase companies have a 74% chance of
eventually failing, and a company that makes it to series C is nearly as
likely to eventually fail, at 71%? My impression was that joining a later-
stage company is generally seen as much lower-risk, which is also why
companies tend to give out fewer options as the company grows. Is that the
wrong way of thinking about it?

~~~
bethly
In the data set I used for reference, Series C+ companies still mostly failed
to exit. Even at the furthest extreme the data tracked, of the 35 Silicon
Valley companies that raised a fifth round 18 failed to exit or raise more
money.

On the other hand, there are some advantages that may make later companies
less risky: the timeline to exit may be shorter (though that is less true in
the case of an early M&A, which ~23% of the cohort found). The nature of the
risks may change in ways that make it easier to evaluate. And cash salaries
usually rise in the later stages, reducing the marginal cost to employees.

There was no stage at which venture-backed companies stopped being a risk, but
that's also true of public companies that grant options: it is always possible
that the share price goes down and the options are worth nothing. I think the
takeaway is that in this 2006-2008 cohort, earlier startups were less at risk
of running out of money that most people would assume.

------
marssaxman
Assume stock options are worthless. Once in a career, perhaps, you might
experience a pleasant surprise in a modest little way. Do it for the salary,
do it for the experience, do it because you are trying to be the change you
want to see in the world, but don't do it because you imagine the stock will
be worth anything.

~~~
throw31415
Unless the company is on the market for almost a decade now, shows steady
growth and IPO might happen during the vesting period.

However I agree that most cases stock option is worthless in early ages,
especially if it needs VC money to keep the ship from sinking.

~~~
marssaxman
Sure, but in that case you won't be receiving potentially-life-changing
quantities of stock options, because it's already too close to being a sure
thing. You're only going to strike it rich if you are one of the first handful
of employees to receive options at a very early startup which later has a very
successful exit, and you simply can't know in advance whether the startup you
are thinking about joining will or won't be one of those.

------
krzkaczor
Generally, I agree that you should treat shares as worthless and negotiate
your base salary, the only exception that I can see is blockchain space where
you can often get tokens that are already tradable. This basically means that
you can sell anytime (ofc. you still have vesting period etc).

------
abalone
It’s important to remember this calculator is looking across several years of
the growth of a company but only valuing one option grant. There may be
additional grants given along that journey (say, every 2-4 years) along with
salary increases that bring you closer to market.

------
Iknown0thing
More than percentages, it is the terms that matter. You can get a decent
percentage of a early stage company, but end up making no money even if the
company sells for 10-100x of the valuation at the time of stock options. Be
sure you understand the terms.

~~~
te0x
Can you expand on this? What are some of the terms that should be careful
examined?

~~~
Iknown0thing
Most of them are related to how and when your stocks are vested. Most
companies never IPO and get to a point where you can sell your stocks on
secondary markets. So vesting period and terms of it are important. For
example - if you dont have accelerated vesting, you end up getting nothing
when the company is acquired even at a good valuation. Depends on terms of
acquisition as well and what happens to employee stock pool when acquisition
happens.

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k__
What is the reason companies aren't handing out stock, but only stock options?

~~~
paulsutter
Taxes. Income tax is owed on the value of whatever is granted. If an option is
granted with a strike price equal to the fair market value for the stock, then
there's no income tax owed. This is also the reason it's important the company
chose FMV in a way that wont get disputed later. Because back taxes and
penalties are a bear.

Some do grant RSUs (restricted stock units), which are usually taxable as
income when you receive them.

~~~
dilyevsky
This isn’t correct. Double trigger RSUs (which are handed out by pre-ipo
companies) are taxable on liquidation event.

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OliverJones
The "how we guesstimate" box didn't mention preferred shares, but it looks
like the $0 for low exits covers that.

Of course, there's probably also "participating preferred shares." I don't
think it's possible to really understand that without putting on a blue
pinstripe suit and bringing your $700/hr lawyer to the meeting. tl;dr it's
like the Blues Brothers' rubber biscuit. "You Go Hungry Baaaow Baaaow Baaaow."

Don't forget: when you work for stock options / restricted stock / equity ,
you are an investor in the company. You buy your investment with your scarcest
resource, your time. (The VCs buy their investments with a resource that is
NOT scarce for them, money.)

Smart investors ask questions. Honest founders answer them clearly. This web
site might be a really good starting place for your questions.

If the founders balk at your questions, don't invest. Seriously.

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eanzenberg
This looks like pre-tax

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pfortuny
While you cannot sell them (if this happens) then they are worthless (value is
market-intrinsic, not an inherent property).

Gold is worthless in a famine.

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anovikov
Something is wrong here, why is the probability of exit is lower for C than
for B stage and B stage lower than for A stage company?

~~~
CardenB
Companies can still exit at stage A. I don’t know what the actual
probabilities would be, but more funding rounds do not necessarily mean it’s a
higher probability of exit.

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allworknoplay
More than the other feature requests seen here, this needs to be adjusted by a
discount rate that reflects the risk over time.

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myrandomcomment
This is a better tool.

[https://comp.data.frontapp.com](https://comp.data.frontapp.com)

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psadri
I’m curious if anyone here has used an exchange fund (or swap fund) to
diversify a portion of their private shares?

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gumballhead
This is pretty accurate when compared to my own experience, which really
surprises me.

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r0f1
Why is Snapchat (Snap Inc.) among the top companies when you move the slider?
Since the beginning, Snap Inc. has had a clear downward trend.

~~~
spalas
Because it is based on the value when the stock options became liquid (when
they IPO'ed), not on the performance since.

~~~
jiveturkey
they should base it on the value 6 months after IPO, ie after the typical
lockout period.

