>Importantly, these projections assume a successful outcome for your company and don’t account for relevant factors such as dilution, timing, and liquidation preferences.<p>For me, this is the big one. I've never had ISOs in a company that had an IPO event, but I have had them (over 1% of total equity in one case) in two companies that were acquired. In both cases, there was nothing left once investors and/or founders got paid, so total value of my ISOs was $0.
A few thoughts:<p>I've seen Tender Offers mentioned a few times in various articles, but I've always been curious about how such an event would affect the 409a valuation. Are Tender Offers usually closer to preferred or common pricing? Does it just depend on the company and that's why there's so few resources?<p>Also, I see liquidation preferences mentioned very very briefly, but in my opinion it's insanely important for prospective employees to get a sense of the cap table.<p>Also, if you're joining very early and a sought after talent, negotiating a longer post termination exercise window is doable, rather than the typical 90 days.
Exercise windows are a super important issue that are touched on briefly here, but worth expounding on. Early-exercise mitigates some of the issues of a short exercise window but only for employees with deep pockets. [1]<p>[1] <a href="https://cs.stanford.edu/~rishig/90-day-exercise-windows.html" rel="nofollow">https://cs.stanford.edu/~rishig/90-day-exercise-windows.html</a>
It's talked about a little, but there's two classes of shares (common and preferred). Usually startups will value your options in an offer using preferred, so they might say you have 100k options at a $1 value each, with a 5 cent strike. But the reality is even if you manage to get liquidity, perhaps through a secondary, you probably won't be able to sell at the preferred price! If you wait until IPO then common equals preferred and it doesn't matter, but it always felt wrong that the value of your options was only true if the company IPOs, versus taking in to account an appropriate discount.
The table doesn’t make much sense to me. If the strike price is $1 for options on 100,000 shares, then my understanding is that the “Cost at exercise” column will be $100,000 no matter when you exercise. Am I missing something?
Unless you're willing to sacrifice several of your best years for the startup <i>and</i> hold a winning lottery ticket, your options are worthless, in fact they have negative value because you have to waste the fucking time and energy hearing about them and signing documents. There's your guide.
Interesting. It seems that Compound is a direct competitor of Carta (formerly eShares Inc.).<p>Does anyone have experience exploring both of them? Pros and Cons?<p>Btw, Carta has A LOT MORE content on Equity guide for employees.[1][2][3][4] etc.<p>[1]: <a href="https://carta.com/blog/category/employee-resource-center/" rel="nofollow">https://carta.com/blog/category/employee-resource-center/</a><p>[2]: <a href="https://carta.com/blog/equity-101-stock-option-basics/" rel="nofollow">https://carta.com/blog/equity-101-stock-option-basics/</a><p>[3]: <a href="https://carta.com/blog/equity-101-stock-economics/" rel="nofollow">https://carta.com/blog/equity-101-stock-economics/</a><p>[4]: <a href="https://carta.com/blog/equity-101-exercising-and-taxes/" rel="nofollow">https://carta.com/blog/equity-101-exercising-and-taxes/</a><p>They even held workshops for startup employees at Union Square Ventures office in NYC a few years back in addition to a number of other meetups and talks at conferences.
If the goal is to make life-changing amounts of money, the example they showed in the table means that it would be foolish to early exercise: if you win the ipo roulette, your life is going to change pretty significantly and in a very similar manner whether you make $4m or $6m. On the other hand if you get the more typical startup outcome, you're going to feel a big difference between making $0 and losing $100k...
Unrelated to the post but it's hard to trust a wealth management company offering a "Financial OS" which has no team page nor any Google-able profiles on AngelList or Crunchbase.<p>edit: A Jordan is mentioned on their careers page, eight searches later I found them: <a href="https://news.ycombinator.com/item?id=20615760" rel="nofollow">https://news.ycombinator.com/item?id=20615760</a>
Any companies that offer ISOs without at least a ten year exercise window is just spitting in your face and trying to leave an avenue to clawback your hard earned and well deserved compensation.<p>It’s not that early stage equity is worthless. It obviously isn’t, it can be worth a ton. It’s the instruments that VCs and founders use to offer early stage equity to employees that is worthless. That is a huge distinction that’s worth emphasizing because when people say “oh it’s probably worthless” it’s not just saying that the company is unlikely to succeed, but that if it does succeed you will be scammed out of its value via exercise windows, dilution, getting common instead of preferred shares, etc
This was an odd page to read. On one hand, it assumes some level of sophistication (what’s a 409A?). On the other, it leaves out some really big things that you care about with early exercise (e.g., QSBS).<p>Regarding the thread on liquidation preference, I don’t think any amount of liquidation preference is on standard VC terms in this market.
I work at a public company, about half of my TC is stocks. I get them “for free”, and I can immediately sell them for real money (which I do and buy index funds).<p>AIUI, startups “compensate” you in paper stock that you can’t sell, and even worse, they actually make you <i>pay them</i> for it! This seems like a completely terrible deal.