[maerF0x0]

> If you leave the company, your options will expire if you don’t exercise them. Let me repeat that: if you leave the company, your options will expire if you don’t exercise them. The exact timeline of how quickly they expire depends on option type and company policy, but the termination window is commonly as short as 90 days. So, exercising your options enables you to actually own what you helped build.

This is why I choose to not work for companies that do not have extended exercise windows -- and IMO neither should you.

[1]: https://blog.samaltman.com/employee-equity#:~:text=2)%20Most....

[2]: https://github.com/holman/extended-exercise-windows

[lumost]

I only had options at one firm which was Series D and had ~300 employees. The company issued them at a price which was rich, then steadily issued new options at lower price points. The management made it a practice to have periodic calls which would talk about how they were 12-18 months away from IPO and the price target was going to be ~5x the rich price. Then there would be talks where engineering management would pitch fantasies about how stock pricing worked for IPOs.

Meanwhile growth had stalled, and competition was getting stronger. I left all my options un-purchased. 6 years later when they had a Private Equity buyout I probably would have made somewhere between a -50% and 2x return (depending on liquidation preferences, subsequent issuance, and debt). At best.. I would have had an non-liquid 12% rate of return, losing out to the S&P500 over the last 6 years.

[sbierwagen]

As you say when you mention liquidation preferences, I wouldn't be surprised if a PE buyout of a distressed company zeroed out employee equity.

[lumost]

Yeah, it’s tough to say. Company wasn’t distressed, but it “only” 2x’d over 8+ years. Pretty much a classic flat/no growth situation with modest profitability.

[fatnoah]

It wouldn't have to be a PE buyout for equity to be zeroed out. Any buyout could lead to this, even in a non-distressed company (as pointed out by another poster).

Source: Me w/options in two startups that were acquired by public companies.

[ggm]

long-term average is 6-7% in the big picture. 12% is good, even if it not S&P good.

[spookthesunset]

Yes but remember to think in terms of expected value. Which is kind of the “average” value of all the different return values you might get.

12% is the high end, but what are the probabilities of smaller results? 12% might be the outlier and the expected value might be hovering around zero or less.

[lumost]

Yes, however in a less aggressive tech market the return would have probably been 0. This was also the best case, the P/E buyout and subsequent funding injections may have diluted the value of those shares.

[ggm]

My point was to the people aiming for 100x or better gains. I didn't speak to the downside, you're correct of course: no specific vesting tends to the aggregate, and many are a long way adrift.

[dijonman2]

Options are typically not profitable unless you win the lottery. I view them as a scam and RSUs are met with the same level of skepticism.

[justin_oaks]

Any options a company offers me, I'll value at $0. That doesn't preclude my working for them if they have an otherwise compelling offer.

[d357r0y3r]

All other things being held equal, a company choosing a longer exercise window says that they are employee-friendly in at least one respect.

I know the conventional wisdom here is that options never matter, but the reality is that they sometimes do, especially for companies that are experiencing solid growth. I recently made several hundred thousand dollars off my options from a liquidity event, and I hadn't been at the company for a few years.

It's a great perk, even if it doesn't end up amounting to anything.

[ransom1538]

Agreed. You would be surprised how much companies are worth on the market. Private liquidity events can cause whacky things outside the original conventional stock contracts. EG. "The acquiring company can also accelerate the vesting of options or awards, choosing to pay cash or shares, in exchange for the cancellation of outstanding grants". That can be serious cash for someone somewhat new to the company - eg 1 year in.

[bradlys]

This is a bad take. If you truly value options at $0 then you’re often getting a garbage deal wherever you go. If you’re only negotiating over salary - you’re screwing yourself.

Options is how you actually make money at startups. The salary is only enough to make sure you can afford to exercise your options regularly and not starve to death in an extremely HCOL area.

If you value options at $0 - just join FAANG and never join a startup.

[ptmcc]

The vast, vast majority of startup options are worth less than toilet paper. To say nothing of the shenanigans like dilution and liquidation preferences that will screw you.

They are lottery tickets at best. Yes, sure, someone sometimes wins big, but the odds are not in your favor.

[bradlys]

If you think they're lottery tickets - pick a better startup. Seriously. You shouldn't be joining startups unless you think they have a chance of liquidation for you.

If you really do think they're worthless THEN JOIN FAANG.

[whakim]

The average time to exit is something like 8-10 years right now. Are you suggesting you can pick the startups founded over the last year or two that are going to have a big IPO in 2030?

[indecisive_user]

Even if you magically knew which startups could be viable 8 years down the road, there's tons of factors completely outside your control that could tank a startup in an instant; e.g. covid, a world war, regulation, etc.

That "carpool as a service" startup might have had a great business strategy up until a pandemic showed up. And if you're spending 8-10 years waiting for a payoff, you only get ~3 shots to pick correctly.

[jjeaff]

If you think your lottery tickets are worthless, then pick better lottery numbers!

[ricardobeat]

Unfortunately I think most people will miss the sarcasm on this one.

[ptmcc]

I wish I had your unimpeachable knowledge and foresight of which small fraction of startups will not only succeed, but succeed so much that your options will actually be worth something meaningful.

I would wish you the best of luck, but sounds like you don't need it.

[scarface74]

VCs are not able to “pick good startups”. They diversify and don’t care if nine out of 10 fail.

For every one person who got lucky and think it was because they chose well, there are nine you never hear about.

[zwily]

One out of ten odds are also much, much better than the lottery though.

[aahortwwy]

Lottery tickets aren't worthless, and the expected value of a startup option is higher than a lottery ticket.

You shouldn't value them at $0.

[xmprt]

This is an even worse take. The only way startups are a good way to make money is by working at a VC. And that's only because they can buy into 10s or 100s of startups at once and only need one to succeed.

> If you value options at $0 - just join FAANG and never join a startup.

This assumes that people only care about money and not about job satisfaction, mission, team, more scope/control over the company's future, etc. There are many good reasons to join a startup. Making money isn't one of them.

[8note]

Valued at $0 because thats what theyll be treated as when the founders and moneyed investors get paid out first.

Sure, options are how you get rich from a startup, but you dont get rich at a startup by working for one, only by being a founder or an investor.

That's why I work at a FAANG:P startups exist to screw their employees

[JumpCrisscross]

> you dont get rich at a startup by working for one, only by being a founder or an investor

I’ve written small (<$50k) Series A cheques into companies where employee no. 20 made more than I did. That’s fine. They invested a hell of a lot more and put much more on the line. Options shouldn’t be counted on. They’re high risk. But no need to be that cynical. Plenty of people want the ones they were in the trenches with to win big when they do.

[ricardobeat]

I bet that employee didn’t have 50k in cash to invest in extremely high risk equity. Even people making 200k/year wouldn’t consider 50k a small amount (it’s almost half of your net). A higher-than-average salary is quite different from “getting rich”.

[JumpCrisscross]

> A higher-than-average salary

Sorry, I meant on exit. They built up more equity over the years through employment and cashed out. This wasn’t a blockbuster exit either.

[matwood]

I mostly agree with you, but I would just add 'on average' to your comment. There are exceptions, but the most surefire way to reach financial security is to get a job in big tech.

[RexM]

That’s a new one for me, what’s the P?

[kzzzznot]

I think it combined with the : (missing a preceding space) was supposed to be a sticky-tongue-out emoji

[highwaylights]

I love the way your advice to people is just join FAANG like everyone gets to.

Why not just become The Rock? Dude makes way better money than Google pays.

[matwood]

I didn't read it that way. Startups live on the backs of people who either can't or don't want to work in big tech. The US in particular glorifies entrepreneurs and scrappy startups, but it's super hard and most fail.

If I thought I could pass the tech screening, and then deal with big company bureaucracy I would tomorrow. Instead, I'm a tech generalist who also doesn't mind handling business or selling, and I have a low BS tolerance. I've done ok in small companies over the second half my career, but I certainly made less than big tech.

[scarface74]

I would say until the last three months, it seems like with a few years of experience and “grinding leetcode” anyone could get into one of the BigTech public companies.

I got in by doing a slight pivot from software engineering. But I definitely tell a couple of younger relatives who just graduated to do the monkey dance.

[skinnymuch]

What is diff about last few months? I’m going to be doing the monkey dance too. I don’t get satisfied from doing more enjoyable coding work compared to salary increases. Even if I don’t get to big tech until after a recession possibly hits.

[scarface74]

Companies are slowing down hiring and the startups and recently public companies are laying off people and freezing hiring.

I’m older (48) and fell into BigTech via the cloud consulting division - cloud application development. I never had to go through the leetcode grind. But my path was very narrow and I recommend that people go through the leetcode grind.

[jjav]

> If you value options at $0 - just join FAANG and never join a startup.

Basically, yes.

Most (large majority) of startups can't pay market rate salaries. So if you value options literally at $0, then a startup is only an underpaid overworked job, so skip it.

So to even consider a startup job, you need to mentally give some expected value (probability * value) to those options. The probability is going to be very low, so the potential value needs to be high, i.e. don't join without a significant option grant.

[jokethrowaway]

But I don't want to work in the office in a hcol or study algorithms for three months or get bogged down in performance reviews.

Tons of startups and mid sized companies give you an ok salary and some serious advantages.

Even ex fangs end up there because of those advantages.

[fatnoah]

I've done startup, FAANG, and everywhere in between. Each offers advantages and disadvantages, but I learned far, far, far, far more about building software in my many years at startups. I've done everything from standing up infra, configuring routing tables, doing tech support, helping with sales, writing code, being a product manager, being a people manager, being an executive with a 40+ person distributed org, going through an acquisition, living through dotcom boom and bust, 2008 crisis, etc.

FAANG pay was ridiculous, and there are also great things to learn there as well, but I value my startup time much more in terms of my own growth.

[kelnos]

I think there are plenty of valid reasons to want to work for a startup (rather than a FAANG) that have nothing to do with compensation. Not for everyone, of course, but that's fine too.

[sunsunsunsun]

That first article sure is funny. 10% to the first 10 employees... my current employer gave me roughly 0.001% in stock options and I'm employee #5.

[8note]

That sounds like either they didn't need you or you made a poor choice? Or you were paid in cash instead?

[brabel]

Yeah, not OP that's my situation... they paid me way above market though :D so I am happy.

[maerF0x0]

or possibly it's an extremely capital intensive startup and sunsunsunsunsunsunsuns didnt put up any money.

[dchftcs]

If the company goes to a billion, you get 10000, and that's without dilution. Sounds like a really bad deal, unless you're already paid a lot of cash.

[subroutine]

Was that like 100 shares?

[subroutine]

Downvoted, but I'm genuinely curious. At that point (5 employees) the company probably had the standard 10 mil authorized stock.

10 mil * .001% = 100 shares

[xhrpost]

Tax benefits are still limited to 90 days. Personally I feel if the stock is really important to you, start saving into an "exercise fund" for yourself so that you're able to exercise when leaving rather than waiting for your next gig to start.

[bergenty]

Can someone explain to me why stock options are better than RSUs?

[rrdharan]

If you get ISOs (not NQSOs) and you early-exercise them such that the spread is $0 (or at least negligible/low) and you correctly file an 83b and the IPO or exit is more than two years from date-of-grant and one year from date-of-exercise, then you can get the more favorable long term capital gains tax treatment on the generated income from the exit event.

That’s a lot of conditions, so IMO they don’t make all that much sense and I much prefer RSUs (maybe I’d think differently as a founder). Plus there are sharp edges like AMT. I’ve been an early employee multiple times at companies that had successful exits and never successfully had all conditions satisfied, and have ended up paying regular income tax rates but had more complicated taxes to file.

If joining a company as a non-founder I’d just take straight RSUs.

[peyton]

You talking about late-stage? Aren’t employee RSUs usually double-trigger? Not sure if good idea to take RSUs as early employee…

[bergenty]

How much more favorable are the tax implications. I recall paying more than 40% on vesting my RSUs.

[zht]

you can early exercise nqsos too...

[caseysoftware]

Generally, stock options are granted before the company is liquid (aka pre-IPO) and you pay $X with the hope that they're worth more and liquid someday. As you hit vesting dates, you can purchase more of them up to your total grant. (There's also stuff around early exercise, don't worry about that.)

RSUs are just shares you don't own yet. When you hit your vesting dates, you don't have to DO anything, they just become yours. You don't have to pay anything to execute and often the company will sell some for you to pay the taxes on them.

I wouldn't say one is definitively better.. there are tradeoffs:

RSUs can be better because you don't have to spend money to get them and they're liquid immediately (or at least soon).

Stock options can be better because your pre-IPO price may be better than the public price but you have no guarantee they'll ever be liquid.

[bpodgursky]

- RSUs are taxable at vest, and if the shares aren't liquid, offloading enough of them to pay taxes is a huge headache (sometimes the company will help buy some back, but it's also a headache for a startup to do this, so they often don't)

- Stock options are "cheaper" for a startup to give out than RSUs, so you get more shares, ie your equity is higher-leverage. So if things go well, you end up with much much more money than had you gotten RSUs (and yes obviously if things go terribly, you get nothing).

[rrdharan]

> Stock options are "cheaper" for a startup to give out than RSUs, so you get more shares, ie your equity is higher-leverage. So if things go well, you end up with much much more money than had you gotten RSUs (and yes obviously if things go terribly, you get nothing).

Is this generally true? I’m not sure it applies for the typical engineer joining a larger company (a Databricks or Stripe, say) where you’re not really affecting the cap table all that much. Do companies really give out more options than RSUs?

My one personal piece of anecdata here is when considering an offer from a startup (that I didn’t take), they offered during negotiations to change the mix of RSU+options into just all RSUs (same total number).

[bergenty]

How much cheaper is it for a startup to give you options? Assuming the company is public is it like 20% more or much higher on average?

[barrkel]

Cheaper by the strike price times the quantity, because the company gets that as capital when you exercise.

[barrkel]

RSUs are better but you can't get them before a company goes public. RSUs will have non-zero value. Options might never be exercisable but they're the normal way you get a stake of ownership at a startup (you don't get stock). So if you want to own part of a company before it goes public and you're not an investor, options are usually the only way on offer.

[bradstewart]

You can certainly get RSUs in a company before it goes public. You won't (generally) be able to sell them very easily, but being a publicly traded is not a requirement for issuing stock to employees.

[sbf501]

One step further: Options are just a way for companies to get out of paying you a salary. (I got them from Microsoft, and from Intel before they were offered to all employees.)

Options = salary

In other words: exercise them as SOON as they vest. I had two financial planners tell me that over 15 years (I fired the first one), and both were 100% correct in hindsight.

[bmitc]

But how do you determine if (not when) you should exercise? I am trying to make this decision for a company I recently left. I don't know when they'll IPO. I know they wanted to, but the market is getting slammed, and they just announced layoffs. I don't have much confidence in the company, so I am having a hard time understanding the risk. I don't really even understand what happens if they don't ever IPO and I have purchased options.

[sbf501]

You are in a space I don't understand. (I don't even understand how/where you purchase options if it is not publicly traded and you are not an investor!)

Sorry, that's a PhD-level question, I'm still at options 101. :(

[bradstewart]

The company itself issues you the options, usually as a form of compensation because you're an employee, etc.

That option is a certificate that gives you the ability to purchase a share of the company at a specific price (the strike price). Usually when people say "buy their options" or "exercise their options", they are referring to buying the _stock_ that their options gave them the ability to purchase.

So if I join a startup, they grant me 100 options with a strike price of $0.50, and I decide to exercise them, I would write the company a check for $50 and get 100 shares of the company in exchange.

[bradstewart]

It comes down to whether or not you think the company will have a successful liquidity event.

If you think the company is going to shutdown, or sell at a lower valuation than your option's strike price, don't exercise them. Your shares will be worthless.

If you think they'll succeed and IPO or get acquired at a higher price, buy them (factoring in any potential tax implications, like AMT). It is a risk.

[indemnity]

Yep. Screw belief in the “mission”, convert it in to cash ASAP. Dollar cost averaging in away, I sold my tranches as soon as I could, every year.

Over 8 years this paid off my house in a HCOL area. Sure am glad I turned them into a real asset!

[skinnymuch]

Why did you fire the first?

[sbf501]

"Fire" is the wrong word, "stop seeing" is more accurate. Because he kept pitching his friend who sold annuities, who was one of those awkward guys that starts his pitch with 15 minutes of "this is how to invest, and 90% of americans don't .... now buy my life insurance annuities." Really didn't like that.

[FatCat321]

What if you could evaluate a company in a way that you maximize your chances. So look at things like options expiration, founders. Kind of what VCs do. Maybe that's why you should assess the startup you want to work for.

[enigmatic0202]

Yes, extended exercise window is preferable, but that also means the ISOs have to be converted into NSOs, which are less tax favorable assuming an exit happens. So while flexibility is nice, it's not a free gift either.

What you can control though are:

1. Knowing your exercise cost in advance - sometimes you can negotiate for a bonus that can subsidize the cost

2. Getting a fair salary and equity cut based on the funding stage; even if you don't exercise all your equity, your package can at least be used in future negotiations: https://topstartups.io/startup-salary-equity-database/

3. Asking for the option to extend exercise windows if you choose, turning ISOs into NSOs