Wow I guess since employees should already value most stock options at near zero it's hard to value them any less.
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.
No one gives a shit. Sometimes it works out well.
You also won't be told when they take on a funding round with priority, even though all their prior rounds were funding with no priority. Personally experienced that one.
If the industry wants employees to value their options above zero, give the employees legal protection that would enable them to do so. Otherwise it's VC firms getting butthurt that people aren't accepting their scrip as real money.
If the industry wants to change this perception, then there should be a widespread standardization on a contract that is fair to the employees and it should be easy for employees to understand any diffs from that standard.
It goes without saying that I've rarely found the contracts I've signed to be opaque.
It's the company who will spend thousand or tens of thousands of dollars having the contract made. It's the company who gets to amortize the costs of a complicated contract over many hiring interactions. It's the company who has the advantage of a strong information and experience asymmetry.
In short, the company has a lot more power. If somebody with power screws somebody without, I save most of my blame for the people who set things up.
It goes without saying that employment contracts all use the same language, I have never personally run into a clause I found opaque or confusing.
It's not just a matter of not understanding the entire legal contract. Someone could understand every single thing, but not realize, like you said above, "you won't be told about funding rounds if your contract doesn't mention it." They wouldn't even think about that because they aren't experts in that field.
I've negotiated plenty of employment and IP agreements. I've found 100% willingness to, at the least, discuss them. But employee options grants must often be the same for everybody. And for a normal employee (as opposed to some C-level executive hire), once you start negotiating "in case I leave early I want more rights" you are signaling bad things.
Really, all I'm telling people is "if you don't understand something fully, assume it's worthless." Your reaction is that, for some reason, employees should jump into the deep end of the pool and try to outsmart the VCs at the game they play every single day of their lives. And for what purpose? The vast majority of the time the options are going to end up at $0 anyway.
I say no. Assume legalese is written in order to screw you over. Smile and accept the options because you might get lucky, but never ever stay late at the office imagining how they will make you rich.
But at the end of the day, they could well be worthless, and they will never mean as much to an employee as they do to me. I had to just accept that people would value them at zero. For those interactions, I just had to think of the options as something we were doing so that in case we won big, we'd all feel good about the outcome.
My critique is not of generic, anodyne advice. It's of your assigning of blame to the weaker party.
I think stock options should be valued at zero. In an a-will employment state you, and with a typical contract, you can get fired at any random day and if you don't have enough money to exercise your vested options within 90 days, they're gone. I don't consider that reliable.
In regards to the parent comment of yours, I think if it was stated as "proactively answer" vs "answer" it'd be less arguable.
Evernote and Foursquare are still around - your options are worth less than their private valuations if you joined 4 years ago, but they are not worth 0, even after dilution. Foursquare is still a $650M company. And only in some twisted world is Dropbox not a success. They're a friggin multi-billion dollar company even if they aren't a 50 billion dollar company (the horror).
I also didn't say you're going to have a 100% stock option hit rate for companies that are pre-IPO. You are still taking on risk. But your hit rate is going to be a lot higher.
It's also rather telling that these are among the worst examples of pre-IPO tech companies you can think of.
Nah, just the first ones that came to mind. Theranos is another good one I should've mentioned.
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.)
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 $$.
The Googles and Apples and Facebooks of the Valley employ a lot of people vs the (granted, numerous) small moonshot startups.