I think you mean lower expected value, no? The way you put it cash is strictly better in every way than options - both higher expectation and lower risk. According to you there's no upside to options relative to cash.
The main reason that options are handed out is to compensate for below-market salaries, and the main reason salaries are below market is that the company wants to increase its runway. Some specific valuations or offers warrant cynicism, but remember that any startup with negative cash flow (even successful ones with near-market salaries) should be giving out equity to keep their salaries costs down.
Yes, but most of these companies fail and the options thus worthless. I mean it's great when it works out, but like lottery tickets they usually aren't worth the paper they are printed on.
Right: startups give out options, and those options are likely to be worthless. Your previous comment, however, was also suggesting causation: startups give out options because they are likely to be worthless. That's certainly not the entire reason. Like I said, a startup doesn't want to pay market salary because it would effectively ~halve their cash runway versus shifting compensation towards equity.
Generally companies hand out options because their expected value is Less than cash. Put another way, they could also just hand out stock instead of stock options.
The upside is a non-zero chance of becoming filthy rich. Some people are willing to put up with a lower expected value in exchange for that chance. It's a fancy version of the lottery, which many people also play.
You shouldn't be able to influence a lottery outcome. Presumably, you can influence share prices if you work for a company that you have an ownership claim on.
Do you actually believe that as a non-founding employee you'll be able to make the difference between the company delivering "a life changing amount of money" to employees instead of the far more common outcome?
I guess the same type of mind that believes meritocracy really exists could believe such a thing...
> Or do you think employees are entirely fungible?
This is what every self-respecting capitalist believes and knows in their heart. Employees are resources. If a founder doesn't know that they will fail.
Maybe you thought startups were an exception and that startup employees are unique snowflakes but BigCo employees are drones?
> Does my last employer not have a large contract with Prudential, because of my work?
If that contract is what made the business viable, then the company must be completely fucked without you and be on their way to failure. If the contract didn't make a substantial difference in the company's outlook, then how does that relate to my point?
> If that contract is what made the business viable, then the company must be completely fucked without you and be on their way to failure.
In any startup with <5 employees if an early employee leaves it's a huge risk to the company that may result in bankruptcy or failure of the company. Engineer #1 is as important as a founder in the startups I've worked at.
If there are 3 founders and 2 non-founder employees, then typically each employee is doing (approximately) 20% of the work. Not many small companies can just shrug off losing 20% of their workforce.
> This is what every self-respecting capitalist believes and knows in their heart. Employees are resources. If a founder doesn't know that they will fail.
I hate to be rude but WTF are you talking about? I've known several successful startup CEOs and they keep good employees close and well taken care of. For one thing, startups usually fail, so you're going to have to keep your good employees open to working with you on your next attempt, and if you keep treating them like slaves/resources they won't come with you to your next venture. Second, how are you going to recruit new talent if your reputation as a founder is that you treat your employees like interchangeable "resources"?
It was a consulting firm trying to break in with a larger client, so they had to move to other projects. Last I saw, they were working on Android projects.
>Maybe you thought startups were an exception and that startup employees are unique snowflakes but BigCo employees are drones?
No, I just don't think anything can be done without people and that one person is not the same as another.
you are correct to point out the "flaw" in what s/he said.
I don't know the actual answer (and it would be difficult to convince me that anybody has all the data either) but many people "experienced" with startups believe that so many more options come out worthless that cash is strictly better, better expected return at lower risk.
however, in the same way that the freakonomics guys explain people playing state lotteries even thought they are "not worth it": state lotteries (and startups) offer some of the few chances that most people have to actually get rich, so even though they don't pay off on average, they are "the only way" and "worth it" to some people. Not claiming that these people have clear ideas about either expected values or risks involved, but they have clear ideas that "it's the only way". For workers at many skill levels, they may have a sense that in their industry they won't be too much worse off in the long run so why not take a shot.