Plus: Anyone who is "top talent" is probably well aware of the negative effect of liquidation preferences on employee common stock value in an acquisition (the topic of the article). So $1B valuations with heavy liquidation preferences are not a good thing to these folks.
Once your become a $1B+ startup, your options for liquidity events reduce greatly. Fewer and fewer markets can buy your company. Often when a company has a high valuation, people think it's 'too late' to join the unicorn. If the company isn't profitable on some level yet either, it's even worse.
This is a good point. The converse is also true, though: high valuation means you have lots of dollar-valued equity to use to entice possible employees. And that scales with your valuation.
Fun fact, a friend was complaining to me about how hard it is to hire Android engineers, because he keeps getting outbid by Uber. He's at a public company, by the way, but couldn't match their pay packages (including ~$1m in stock options).
Yes, you won't necessarily see the same crazy run up in stock value as if you joined at the ground floor, and yes, you'll owe taxes on the nominal value of the option price, etc... but that's still a lot of money, and it's arguably de-risked relative to an A-series startup. (Then again, if the company you're looking at isn't profitable, maybe it's not de-risked... buyer/employee beware.)
If you join Uber at this point, you're only getting RSUs, not equity. They're way too large to offer shares to any more employees without triggering SEC disclosure requirements.
TBH, RSUs are better if you cannot afford to early exercise. Otherwise you have the 90 day option expiry problem after leaving your job, unlike most RSUs. Options also get bad with AMT tax if you didn't early exercise either. RSUs stay with you even after you leave the company.
Oh well, you lose long term capital gains tax benefits, but most people do not have the money to even exercise their vested options, so they sell during IPO and have equivalent tax treatment as an RSU.
Some companies now have option expiry dates at 7 years, but those can be counted on one hand.
This is a severely under-appreciated situation. One has to wonder how many good employees a company misses out on because the traditional style of Silicon Valley capitalism is to be one of the first 20 people in the company or you'll be clawing for scraps like the next 2,000.
Is there an opportunity for any meaningful equity/options when joining a company that size? Or should candidates be focused on salary and other benefits at that size?
Absolutely. In fact it's somewhat better. If you join a big company like that, they're not going to be able to give you 1% of mythical future company value, but they CAN give you X shares now with very real value. If you join a 500-2000 person company with a $1B+ valuation and stick it out for four years of hard work and promotions - you can easily be looking at a $500k-$2M payout (above and beyond your high salary). More is possible too. This is why even giants like Facebook and Google can still attract top engineers - they can give you equity that's basically equivalent to cash - and lots of it.
Joining a smaller company gives you the chance at a massive payout of $10M+ - but I'd bet your 4-year "expected value" would be much less than joining a bigger company. For one - your options are going to be worth anywhere between $0 and $1B - but heavily weighted towards zero. Two - you have to actually buy your options with cash, which reduces mobility because this is very risky! This often costs $20k or more. So you may leave your options on the table. Very few people would be leaving options on the table at somewhere like Uber today if they quit. You'd find the money and buy your shares. Three - your potential exits are numerous but many of them are the sort of deals that kind of devalue your equity to near worthless (due to LP) and instead buy the team with employment offers and new golden handcuffs - which can be highly variable. An IPO or mega acquisition is a clean transaction for common stock holders.
This is highly situational. I would love if the best of "X" type employee out there were all hunting for 2-5M valuation (or whatever you consider low) startups - but that isn't as common. Many people are risk averse.
I think part of this scenario is that companies raising tens or hundreds of millions at billion++ valuations are hiring "scaling talent".
Scaling as in hiring many good to great people, but lots of them, some of whom overlap. Multiple product managers, many great engineers, great heads of sales/ HR/ operations.
Oftentimes they are focused on becoming huge, scalable, consistently growing revenue generating operations.
Yes. Not always easy to answer. Some factor of revenue growth, margins, how much capital the company has already raised, understanding the burn rate, how much has been spent vs dry powder, liquidation preferences assumption. Probably a lot I'm missing. There should be an easier way for a prospect to simulate a cap table with a simple set of assumptions.