Most engineers figured out that the options/stocks of startups are worthless.
Rules of thumb for the green engineers:
- Take salary/health insurance over stock in almost all cases.
- At some companies employees who are greener and greedier will fight/sabotage all their peers to get rid of them, is this the type of place you want to be at? Insider fighting is often a big part of why these companies fail.
- Never pay into start up equity. If a company "offers you the chance to buy their stock" after X months/years don't do it and if you do, don't put much in. Have an excuse so no one gets offended like "I am saving for a house" or something. If you're looking at a 5k minimum simply don't do it unless that is peanuts for you.
- Make sure anything offered is in writing and completely understood before joining. Lots of things are said at final stage interviews. If it isn't in writing you are not getting it. Ask questions be annoying.
- Negotiate. Its the only way you can actually get what you want. If the stocks mean nothing to you unless you get them quick, negotiate that. Start ups close doors extremely suddenly every single day.
For instance, if I got $5,000 worth of options when the company was “worth” 1 million, is that a safe bet to buy into?
Like surely the founder would be able to sell the company for 1 million dollars instead of crashing and burning… right?
That is absolutely not guaranteed at all! It's not even guaranteed that the next funding round will be on a better basis, or not dilute you.
The pre-IPO market for companies is illiquid and bad at price discovery.
It's not even guaranteed that there will be a funding round at all. Raising money is extremely hard, for most companies.
This generalizes to a rule of thumb, "Don't accept any deal you didn't go looking for." Same as a trapdoor firewall doesn't accept any incoming connections.
Someone on the street offers to sell you a bridge, say no. You get brightly-colored letters from your credit union selling you car insurance, recycle them. Your friend wants you to buy a bowling alley with him, refuse.
It almost always works.
Golden words to live by.
Also, if the startup gives you options/stocks without showing up the cap table, they are giving you a numerator and not a denominator.
https://en.wikipedia.org/wiki/Capitalization_table
Never trade real cash for imaginary money unless you have the facts
I didn't go for big tech but I did pick a job on a YC startup that, while demanding, allowed me to purchase my own house and work on my own stuff in the evenings.
I recently left a job at a startup where I had some options vested. It would be like 6k to exercise them. I was leaning towards leaving em, and now this thread has kinda convinced me
There’s nothing inherently wrong in the latter, but it’s super unusual, and it’s pretty safe to be wary of startups shouldn’t do unusual things with their financing / cap table.
Exercising options post departure, on the other hand, is par for the course with any option-based compensation (note that this shouldn’t apply to RSUs, since those are usually owned outright after vesting).
A similar question arises with payment of taxes for 409a elections. Can be pricey, but it doesn’t raise the same red flags as a founder asking you to pay to work there.
But it's all shares. First from being early in a marketing startup that recently closed, second from being one of the first engineers of an event ticket marketplace that's holding on for dear life, third from a tourism unicorn that paid half my salary with instant-vesting shares during Covid.
I'm in Berlin. Houses are expensive here, but still possible with a Startup salary.