shoo 24 days ago [-]
You may wish to read:

https://danluu.com/startup-tradeoffs/

and

https://danluu.com/startup-options/

Quoting danluu :

There are a number of factors that can make options more or less valuable than they seem. From an employee standpoint, the factors that make options more valuable than they seem can cause equity to be worth tens of percent more than a naive calculation. The factors that make options less valuable than they seem do so in ways that mostly aren’t easy to quantify.

Whether or not the factors that make options relatively more valuable dominate or the factors that make options relatively less valuable dominate is an empirical question. My intuition is that the factors that make options relatively less valuable are stronger, but that’s just a guess. A way to get an idea about this from public data would be to go through through successful startup S-1 filing. Since this post is already ~5k words, I’ll leave that for another post, but I’ll note that in my preliminary skim of a handful of 99%-ile exits (> $1B), the median employee seems to do worse than someone who’s on the standard Facebook/Google/Amazon career trajectory.

From a company standpoint, there are a couple factors that allow companies to retain more leverage/control by giving relatively more options to employees and relatively less equity to investors.

All of this sounds fine for founders and investors, but I don’t see what’s in it for employees.

quaquaqua1 24 days ago [-]
If they're willing to give out 5% equity for example, keep in mind that they would barely have any majority equity left one the table left to give in future rounds (100 / 5 = just 20 employees).

Unless of course they dilute your shares in the next round of raising, which they probably will do. So your 5% stake becomes 0.5% when they give themselves another x amount of shares and you get nothing.

Additionally, large investors routinely chastise founders for having "messed up cap tables" where there's lots of individual holders of Class A stock that conceivably should have a say in how the company is run.

Good luck in your hunt!

hellocs1 24 days ago [-]
Could they dilute people like that? From 5% to 0.5%? That dilutes everyone else as well though, right (I guess the new shares can be given to the founders so they aren't diluted).
quaquaqua1 24 days ago [-]
Exactly, yes. Founders can give themselves 1,000,000 shares to prevent dilution while giving previous equity holders 0.

It's quite an interesting deception if it isn't explained transparently!

gesman 24 days ago [-]
Maximize salary/cash pay.

Early stage startup "equity" is worthless.

hellocs1 24 days ago [-]
If I would maximize that I'd just go to Facebook or something like that. Sticking to startups for now.
p1esk 24 days ago [-]
So you’re not trying to maximize salary but care about equity? Not sure I understand. Equity at seed stage startups is like buying lottery tickets, with the main difference that even if the startup has a successful exit 5 years later, you are not likely to get much if you are a salaried employee. Say you get $100k salary and 1% of shares, which becomes 0.1% after dilution. Say the company is bought for $1B. You will get $1M. So the total you have made after 5 years would be $1.5M. If you were working at Facebook at $300k/year you would have earned the same amount. Only the chances of this happening at FB are close to 100%, while unicorns are called unicorns for a reason.
gesman 22 days ago [-]
Good luck, commander.

In 5-10yrs you'll be giving this advise to new wave of enthusiastic developers bought for lots of "equity" and little cash.

Use your FB salary and fly to Vegas. You'll have better return on investment than from average startup equity performance.

muzani 24 days ago [-]
First engineer? I've seen it go as high as 60% especially if the engineer has entrepreneurship or upper management experience. Some can probably negotiate for more, but at some point, the other founders lose interest.

If you're getting a salary either freelance or FT, it's unlikely you'll get more than 10%.

Rule of thumb is that giving equity increases valuation by 1/(1-x). So a 5% share should increase speed/valuation by 5.6%.

nairobi222 24 days ago [-]
So you’re not trying to maximize salary but care about equity? Not sure I understand. Equity at seed stage startups is like buying lottery tickets, with the main difference that even if the startup has a successful exit 5 years later, you are not likely to get much if you are a salaried employee. Say you get $100k salary and 1% of shares, which becomes 0.1% after dilution. Say the company is bought for $1B. You will get $1M. So the total you have made after 5 years would be $1.5M. If you were working at Facebook at $300k/year you would have earned the same amount. Only the chances of this happening at FB are close to 100%, while unicorns are called unicorns for a reason.