[danieltillett]

I have always thought that companies should work out the salary of a new employee in all cash then once the parties are happy allow the employee to trade in whatever percentage they liked for equity. If you value the equity at zero why should the company give it to you and if you value it very highly why should they give you cash?

[21echoes]

Because startups are, effectively by definition, equity rich and cash poor. Trading $100k/yr in ISOs for $100k/yr in cash across 10 employees increases your cash burn by $1M/year, which is make-or-break for a lot of startups.

[danieltillett]

But this doesn’t work if the employees doesn’t value the ISOs. If I want to hire you to come and work at my startup and you will only come if I pay you $200K then I either have to give you $200K cash or cash and some number of ISOs that you value at 200K as a package. If you don’t value the ISOs and I offer you 100K cash and ISOs that I consider are worth 100K then I have just offered you 100K. My value does not equal your value and me pretending is does not make it real.

The nice thing about cashing out equity like this is it signals your true valuation of the company, both to yourself and the company. Just giving options on top of cash tells nothing.

[21echoes]

Of course, no one is saying that companies and employees have to value ISOs the same, but no one is saying employees who value ISOs at zero should be working at a startup either