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This has caused me some level of sadness in the past. I worked for a startup (started 6mo after founding with only 20 people and stayed for 8 years to 200+ people and 50million in revenue). During a number of phases, I worked for months at a time giving up weekends, late nights, holidays and even vacation time to get product out the door and beat the competition. I racked up 50k options, mostly all for less than a dollar a share strike price. What was painful to me, was that when I left after 8 years (I grew weary of it all, especially management) I had 90 days to pay $34k to get my options or lose them. That was painful cause I didn't have the extra $34k I could just throw away (had no idea when they'd sell), but hated the fact that none of the thousands of extra hours I worked (I kept track) counted for anything. One could argue I was paid a decent salary. Only on paper though, since my effective hourly rate was 3/4 what I'd have made at a non-startup working a regular 40-50 hour work week (i.e., I had to work more hours to make the same pay I could have gotten for fewer hours at a non-startup).

After I left, 18 months later, the company sold and my options would have earned 10x the $34k of the strike price. I.e., I would have made $300k if I could see the future. I just find it painful that at that moment, all your time is effectively worthless, and only the $34k would have counted for anything, even though I gave far more than that in extra hours.

Needless to say, I am somewhat hesitant to put in too many extra hours anymore and almost never work weekends or holidays.

8 years of weekends, late nights, holidays and vacation for a net of $200K after taxes?

That's ~25K/year so if you would've worked a regular 40 hour week, 20 hours of contract work at anything more than $35/hour would have put you ahead. And you would've still had weekends, nights and vacation.

Yeah, that's the calculation that bums me out too. It's one of the reasons I am somewhat loathe to ever put in too much "extra" time anymore. I enjoy being a part of a startup for more than just the lottery ticket aspect, I enjoy creating things from scratch, etc. But the days of burning the candle at midnight are gone.

In startups, man exploits man. At other employers, it's the other way around.

Isn't the other way around still man exploits man?

That's the point. :)

To expand, it's a play on:

"Under capitalism, man exploits man. Under communism, it's just the opposite." which seems to be attributed (without any sources) to John Kenneth Galbraith:


I've also seen it as "Under capitalism, man exploits man - under communism it's the other way around." I always assumed it was a translated Russian proverb, along the lines of: "No truth in the news and no news in the truth" (Major Soviet papers were "Pravda" (the truth) and "Izvestia" (the news).

Enjoyed the sovietology fact :)

True words.

Can you explain the calculation to me? I am interested to understand the calculation so that I can perform similar calculations when I have two opportunities to choose from.

superqd mentioned he would have made $300K more (i.e. in addition to the fixed salary he was earning) if he had bought the options. I assume that after paying for taxes, he would have still made $200K. Since he worked for 8 years, this is indeed $25K of additional income for every year. If he worked for $35/hour for 40 hours/week for say 50 weeks in a year, his total income would have been 35 * 40 * 50 = 70K. How is this better than his original job which was probably paying him say $80K or greater than $80K as fixed salary every month? It sounds like it would have put him behind by at least $10K. What am I missing?

The >$35/hour number is incremental pretax income on top of his base salary, not a replacement for it.

A very similar calculation is why I left a startup recently and went into contracting. In many cases the realistic best case scenario from working at a startup isn't as good (financially speaking) as the non-startup alternatives. This leads many people to extremely optimistic assessments of what the future worth of the startup may be (worth > $1billion)

There are many good reasons to join a startup but if the financial motivation is the main one then it's probably not the best route.

I've worked for three startups, each fairly well-known at least at some weird level. Two early stage and one immediately pre-IPO. One of the early ones netted me nothing(1), while the other gained me ~$10K when they went public(2). The third was quite lucrative, and was the least demanding - by far - of life tradeoffs.

(1)Other than a feeling that I'd joined the Witness Protection Program when I fled after an engineering walkout.

(2)Offset by literally years of damaged self-esteem. Pedigree is heavily overrated - with one exception, all the famous people were pretty awful.

He just said that. Way to rub it in, bud.

I'm sorry this has happened to you. I hope it can serve as a warning to other HNers that companies are not your friends, and that it's never worth investing yourself like crazy in it as an employee. Any employer will throw you under the bus as soon as possible, and possibly has already planned that in the contract you signed. That applies to three person startups all the way to gigantic multinationals.

Enjoy your personal time, leave at 6PM, turn off work email/slack/anything and do things that make you feel better as a person.

Very much this. There is a bit of a lie we all participate in at many companies of nearly every size, though sometimes much more so at small startups. The lie is that we are all on the same team and all in this together. In reality, the team are those who actually own the company by virtue of the money they've put in (i.e., investors). Time is regarded as a non-asset, regardless of how much you invest into the company. So everyone else is there to help the real team succeed, and in so doing, hopefully get a little money yourself. Now, sure, I hope to find rewarding work and such, but I also choose riskier startups because of the potential upside (though likely small).

Sure there is always the possibility of landing work at a unicorn that is worth billions, but I think the problem is that many of us are too willing to give up parts of our lives in the hope of some very unlikely return. Either the industry needs to figure out how to value time as an asset in a meaningful way, or crazy startup-hours need to stop.

So you're saying that Silicon Valley is full of temporarily embarrassed Zuckerbergs?

Seeing it from afar, it's worse than that. Seems to me it's full of temporarily embarrassed Zuckerbergs that also happen to be blind to the reality of the world.

Or you just charge a good salary, since after all if one is to be an employee, let's keep things good for everybody. To the owners, this is your company, and for us, hell if you want to build a rocket to the moon I'll help but this is my fee.

> None of the thousands of extra hours I worked (I kept track) counted for anything

Yep, that's exactly what your management was counting on.

Yeah, it's the fact that time isn't regarded as an asset being contributed is what burns my mind. For the salary I received, I think there is a reasonable expectation from the company's point of view that they get 40-50 hours of work. Anything beyond that, in my humblest of opinions, is me investing in the company. There is a logistical problem in accounting for this, obviously, and I'm far from naive on this and other points, but the underlying point remains.

> I think there is a reasonable expectation from the company's point of view that they get 40-50 hours of work

The only reasonable expectation should be 40 hours a week.

I worked my ass off at a startup, sleeping under the desk, weekends. The usual. At one point I needed a break and informed them that I was taking a break. Two months cycling through Europe.

When I came back, they'd moved and I had the best cubicle reserved for my return. They missed me but only because I forced the issue.

Sorry I don't follow. So you came back, and the company had moved but they reserved a cubicle for you at the new office? What does you forcing the issue have to do with them missing you?

> the best cubicle

No small thing on a place parent presumably spent a lot of time.

It sounds like you realized you needed a break before it was too late (i.e. "burnout"), which is obviously good. But why did you return to this grind?

Interesting work and stock. I was partially vested and I could/should have looked around.

Don Knuth said something (about TeX): never spend more than 2 years of your life on something. I've broken that rule several times but I'd counsel following it on startups, especially someone else's startup.

Sounds like a good rule. One that I happen to have followed when it comes to work and broken when it comes to studying (which I know consider mostly a waste of time).


Sorry it sounds like the Stockholm syndrome.

I don't recall the Stockholm captives being well paid, free to leave at any point, with medical benefits and stock options doing interesting work with some decently cool people. Gotta Wikipedia cite on that, skipper?

What is the learning here ?

I have a similar experience -- albeit only 2 years -- when I left I was faced with $30k (pre-tax) and didn't have the money and was actually in debt. Not to mention the battle scars: anemic, overweight, depressed, and cynical. Luckily I've recovered now and started my own company. In addition to a 10 year exercise window I try to educate our employees and potential employees on this matter and to be as transparent as possible.

I now also regained my stamina to work hard and long hours but I know where my red line lies and take it easy when necessary. I also make "enjoyable work" for myself and our employees a priority. Call it naive or stupid but life is too short to slave away without enjoying the day-to-day of it.

I think an important point would be to ensure a meaningful work-life balance is maintained. Many folks may contribute "too much" time believing that extra time is going to somehow count in someway other than in simply getting product out sooner (though not necessarily of high quality). I was in an environment that was somewhat pressurized, to say the least.

I'm in a somewhat similar situation to you, but on the upward slope. If you don't mind, what was the breaking point for you? How did you approach your recovery? How much time and effort did you put into getting your business off the ground? How do you manage to combine enjoyable work with delivery (nowadays it is the mantra - everything has to at least help provide value for customer)? How do you handle employee's failures and your own?

I have started to think about these points a lot.

Given I basically have a coworking workshop (it's a 3 friend little webdev company), there is a lot to consider.

Solving and handing over of my current obligations, dedicating to my shop, or starting a new one my way, or finding a new place to soak in more experience (I'm 32, but somehow my brain still works well enough to quickly absorb new stuff).

>what was the breaking point for you?

It got exponentially harder to get out of bed and get to work. I just had to quit because I couldn't show up. I didn't give anytime to interview or find an offer. I was also in a weird situation with regards to immigration. So it was reckless but goes to show how much I had to leave.

>How did you approach your recovery?

Joined a big company, got myself on a path to be comfortable financially, took every weekend off. Picked up hobbies, coded for fun. Worked out, visited doctors, changed my eating habits -- got healthy.

>How much time and effort did you put into getting your business off the ground?

Part of 2015 and 2016 I started working and growing on an old side project of mine until got to a point where I knew I could raise money for. I quit in April 2016 and worked like crazy for a month to raise enough money to hire a couple of engineers, get to feature complete, and start selling (which is what we're still working on now). I wrote about it here: https://amasad.me/2016

>How do you manage to combine enjoyable work with delivery (nowadays it is the mantra - everything has to at least help provide value for customer)?

If you're building a startup it's one of the hardest thing you'll ever do so in my opinion you need to align the mission, the product, and the market you're going after with what you care about. Whether that social good, tech, or business. Given that, it's builtin the company that you should enjoy what you're doing. Then hire people that enjoy that too and it all (seems) to fall into place naturally. To sum up, you're in a position to design your ideal work environment -- do it! (You may fail, but that's better than being stuck with something you don't care about).

>How do you handle employee's failures and your own?

I'd be lying if I said I don't push myself and others around me to be the best they can be. You just need to give feedback regularly so that there are never no big surprises (this is something that you can learn by being at one of the good big companies) and always be kind.

Good luck with your workshop.

Oh you are the guy/one of the guys who made repl.it! I saw it on HN couple of years ago, it's an awesome product, congrats! I hope you succeed with it.

Thanks! :)

Thank you very much for taking the time to answer the swarm of questions. It's a ton to think about and make it my own.

Don't sweat getting older. My theory is that the capacity to learn doesn't really degrade much if it's used regularly, and that the real issue is that incentives change for older demographics.

Did you consider using something like ESO Fund to finance the exercise of your options? If so, why did you decide not to use them?

Assuming they're willing to do the deal, if your alternative is letting the options expire worthless, it seems like a no-brainer to take a loan with no recourse unless there's a liquidity event. You wouldn't have made the full $300k, but at least a solid portion of it.

The story I related was at my previous company from about 4 years ago. I had never heard of ESO Fund until this moment. Thanks for the info, I will definitely look into that (I currently have a lot of options at my current startup).

ESO Fund's website doesn't mention about their cut in case of liquidity event. Do you happen to know how much is it?

I think they price depending on the company and its situation and risk. I've heard of them taking half the proceeds, though.

You are correct! Our pricing depends on a bunch of factors including how much money it takes to exercise the shares and what we think the company can exit at. We aim to take less than half the proceeds. Sometimes if the exercise cost is higher and the exit isn't as high as we anticipate, we may end up taking more than half. For the most part, our business is a referral business and happy clients means they will refer their friends/co-workers.

If you think about it it is quite odd to give free labour to a company because you have shares (or some derivative of shares) in that company AND you are working for them.

Because you may also have lots of shares in companies in an aggregate fund (e.g. in a a pension) but you aren't working for free for those companies.

However people do get caught up in the emotional 'but I own a bit of it', and I think companies exploit this.

Yeah, the golden handcuffs really did shackle me emotionally. I couldn't part with the extra money to pay for the shares, even though I really wanted to leave the company much sooner. So I stayed since that was the only way I'd be able to keep the shares.

While employees may irrationally put in too much effort because of their perceived ownership value, the comparison to slivers of ownership of publicly-traded companies.

One person can make a difference in the value of a 20-person company, and if that person has a 1% stake in the company it can be rational to work longer hours to make that happen.

On the other hand, there is very little that a shareholder of a public company can do to materially affect the bottom line of that company. And as the owner of perhaps .000001% of that company, that person would see very little financial benefit from such effots.

Yes it all depends on the details. 1% stake !== option to buy 1%, based on the info presented in the link though.

A 1% option seems more like the poker game ante, but you need to keep putting more in (time, effort or even cold hard cash) to stay in the game :-)

If you are working for a small company, be a founder, not as an employee. Many folks mistake small companies as startups. Startup is a place where exponential growth happens. From what I see, this is a just a small company which had regular growth. Run if you don't see exponential growth.

Why didn't you exercise any of the options during the 8 years you worked there? I'm not trying to blame you, but it seems to me like you took the low-risk (short-term cap gains, exercising near an exit event) approach. You lost the compensation by not exercising, but you didn't have to give up any of your own money (free time though, which does suck). You said your salary was decent so you could have exercised at least some of the options to get different tax treatment fora riskier play.

This is a sad story: 90-day exercise windows are employee hostile, they should be much longer, especially when the company isn't public.

However, and I don't know how to put this more kindly, but I can't help but wonder if you understood how options work while employed at the company?

A simple technique to avoid having to quickly come up with a lump sum is to set aside enough money to excercise your options as you accumulate them.

In this case putting aside $4,250/year earmarked for exercising your stock options would have allowed you to save the $34k required.

But there's the opportunity cost and extreme risk in investing in something you have very little information on. Hopefully you're maxing your 401K and personal savings/investments before this.

In the end though it might be wise to hedge a bit and at least buy some of your options as you go if you believe the company is worth something eventually.

Yeah, it wasn't the case that I couldn't have come up with the $34k at all, it's that it was asked of me in the first place given that I'd already put in far more than $34k of extra hours and had no shares to show for it.

I worked for a "startup" that was going on 10 years old, $190 million in funding and was still not profitable.

I was stunned by just how many of the long-time employees had no understanding of stock options. One was actually flabbergasted to learn that each funding round was creating new shares and diluting the value of existing ones; he thought the founders were selling their own shares to raise the money!

The ignorance was due in part to the company being in a region where startups and stock options are not common. Another big factor was willful deception by the founders, who had been promising to start the IPO process for three years, and frequently estimated that their IPO valuation would be equivalent to Facebook's.

Fair enough, but you could not have known that your options would not go underwater either. At the end of the day, options let you become an investor on the cheap. Hindsight is 20-20. I think the only nice way to do it is a long window for exercising options. Lets you benefit from your hours and also protects you from the risk if it goes south.

Yeah, I get that and realized I could have easily lost money too. It's not that it was painful to me when the company sold, though it did bug me then too, but at the moment of my exit interview and I was given the reminder that I could purchase within 90 days. It was in that moment that I really didn't like that my invested time had no value. Granted, it wasn't the first time in my life I realized this, it's just that I had never invested so much before.

I get your point but I think a clarification is useful here: the risk for gp was not "options might get underwater" but rather "stock is too illiquid".

Options are underwater if the strike price is less than the current market price; shares in private companies might not have an actual market price but you can estimate them. Underwater options still have >0 value since there's a non-zero chance the stock price will decrease before the expiration date -- of course, if the expiration date is close by and the strike price is much higher than the current price, the option value might be very close to 0. Still, you practically never exercise underwater options (there are some rare exceptions not very relevant here).

In grandparent's case, the issue is not underwater options; they are about to exercise the options and get stock. At the time they left the company, the stock price was presumably way above the ~$1 strike price. They could have bought (say) $60k worth of stock for only $30k, making a profit on paper. The problem is, as the article says, you have to pay taxes on capital gains AND that stock is illiquid (you can't easily sell it if at all).

Thank you for sharing! Very helpful!

No problem!

Did you talk to a bank or someone who could lend you the $34k?

You do realize that this is the exact premise of risk and reward? That company could have been the next Google, Facebook, Amazon, etc, and in those 800-ish days you would have given up for weekends over 8 years you could have earned more than all of your ancestors probably have ever earned in their entire lives. All in a fraction of your single life.

And yet, we still get posts like this one, and comments like yours, that make it seem like somehow the employees are the ones who are getting shafted.

Could equity deals be a little more clear and fair? Sure, absolutely. Maybe make the window for options something more like 6-12 months. It's entirely subjective. But when the "make or break" lifecycle of a startup is 5 years, waiting 6 months to make a critical hire because you have options tied up in people who don't even contribute to the organization anymore is detrimental AND unfair to the current employees.

It shouldn't make you sad that you couldn't exercise your shares. It should make you sad that you didn't work more effectively the capitalize on your options sooner.

I realize I could have attempted to exercise sooner, but that isn't quite the point. The part that really bugs me is the fact that time is undervalued (or non-valued). If I have a high value asset, my time, that I contribute towards the success of a company, it's value goes severely underappreciated by management and the board. That's the problem. If person X puts in money, and person Y puts in time, the time is regarded as a non-asset. Now, you might be tempted to say, "but you got paid", and I did. But I put in far more time than would be required somewhere else. That is, I put in extra time, a non-fungible unrecoverable asset, into the company and had nothing to show for it. Asking for more payment (for the options) is the equivalent of asking me for more time, which I had given plenty of already.

I think this is a good point. If you're going to take options in lieu of part of your salary, they should for fairness be options on preferred shares, because you're effectively contributing cash.

Of course, nobody gives employees options on preferred shares.

So were you the only one working longer hours? And if you felt so undervalued, why didn't you ask for a raise at any point over those 8 years? Perhaps your work ethic is why you were given the options in the first place?

It seems like you're whining about something that you had complete control over, and chose not to exercise.

people make companies and the rules. you are a person and agreed to this and acted as if you agreed. you took a bet and it didnt come out financially the way you want. you probably learned alot about startups and what works and doesnt tho.

Well, yeah, the only person I was angry with was myself. The rest of my emotions at the time were mostly of frustration and sadness with a system that undervalues an asset I had invested (my time above and beyond).

A lot of times a company will have a decent idea of what their exit is, based on how much money is in their market, or how much similar companies have sold for. When that's the case, you need to ask.

1/3% (and that's generous) of a potentially $1B dollar company might seem like a lot, but after 10 years of dilution how much will you really have left? If your options dilute by 1/4 (also generous), you've made about an extra $80k a year, and that's not even with taxes subtracted. And don't forget the likely higher salary, raises, bonuses, stock grants, and medical care you get at a big 4 company.

It's possible that you can be be assured to make no extra money working for a startup, even with all the extra risk, depending on how those factors play out.

I think the point is employees under estimate the risk involved. I could make a start up that pays people in literal lottery tickets but I'd be unable to hire anyone because prospective employees can easily see it's a bad deal. Not the case for start ups.

I was thinking yes, but then no?! I bet you could hire a bunch of people with lottery tickets!

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