[JumpCrisscross]

Yes, from the employee’s perspective in early-stage start-ups; no the rest of the time.

For an early-stage start-up employee, a stock option is akin to a lottery ticket in that its value is binary (lots or zero). For a late-stage start-up, the distribution is less binary, so I’d liken it to several rounds at an unbiased casino more than a lottery ticket. For a public company or private company with liquid stock, no. Those options are straight-up compensation with a variable component.

Systemically, employee stock options are totally unlike lotteries in that they’re part of a positive-sum system.

[metadat]

As an employee, the options are generally worse than a lottery ticket, because the terms of ownership % can be changed later in closed board meetings, then you're screwed.

Very few success stories for early non-founder employees making a big payday. You can do okay, but on average it's not better than getting Meta RSUs or equivalent.

[JumpCrisscross]

> options are generally worse than a lottery ticket, because the terms of ownership % can be changed later in closed board meetings, then you're screwed

This is demonstrably false given there is a market value for common stock in private companies, even early ones, whereas few people would pay face value for a secondhand lottery ticket (even assuming zero risk of scam).

[PopAlongKid]

>given there is a market value for common stock in private companies, even early ones

I don't understand what you are talking about. I exercised stock options in a dot com startup within its first year and at no time in the ensuing eight years was there ever a market where I could sell my stock, which eventually became demonstrably worthless. As someone who knew more about it than me later explained, he didn't exercise his options because he knew there would always be millions of dollars in line ahead of him, because of the "board meetings", as stated.

And why wouldn't someone pay face value for a valid lottery ticket from a private party, if more convenient than going to an official seller?

[JumpCrisscross]

> he didn't exercise his options because he knew there would always be millions of dollars in line ahead of him, because of the "board meetings"

You’re describing standard liquidation preference. There are shenanigans Boards can get up to, but assuming you’re incorporated in Delaware, there are limits.

[blackeyeblitzar]

I am not sure what you mean by “market value”. What’s the market exactly when employees cannot freely trade their vested options? Most companies restrict that, which is very unjust. For a secondhand lottery ticket, if there is zero risk of scam, I’d say its value is at least its original retail value, and there is no restriction on trading it. So if someone wanted to make a market, they could.

[JumpCrisscross]

> What’s the market exactly when employees cannot freely trade their vested options?

The underlying stock, including with companies that restrict transfers, is traded to the tune of hundreds of billions of dollars a year.

> if there is zero risk of scam, I’d say its value is at least its original retail value

Why would you ever pay a premium? It’s worth at most the cost of a new ticket; the discount is because you’re offering liquidity. The only way it could command a premium is in convenience.

[blackeyeblitzar]

> The underlying stock, including with companies that restrict transfers, is traded to the tune of hundreds of billions of dollars a year.

Can you explain this? How are they traded if they are restricted?

[JumpCrisscross]

> Can you explain this? How are they traded if they are restricted?

Board approvals, forwards, SPVs. Uber, Airbnb and Neuralink rarely formally recognised transfers, but the shares are liquid for anyone with more than $100k, more so $1mm.

[mavelikara]

> This is demonstrably false given there is a market value for common stock in private companies

For most startups no body is making a market for common stock. So I don’t understand what you mean by market value here.

IRS does impose that startups do a valuation process. Is that what you meant?

[alephnerd]

> You can do okay, but on average it's not better than getting Meta RSUs or equivalent

Most people aren't getting hired by Meta, and compensation packages at late stage companies will try to be competitive with peers.

That said, late stage options might not always be a good bet. You as an employee need to do due diligence and ensure their meeting their metrics.

[metadat]

Most people who work at a startup have a decent chance of getting hired my Meta or another FAAG. Don't underestimate yourself!

[toomuchtodo]

Where do you delineate between early and late stage? Series A?

Edit: Thank you!

[JumpCrisscross]

> Where do you delineate between early and late stage? Series A?

Conventionally, it’s around Series C, though anyone who’s worth more than $1bn counts in my book.

For purposes of this discussion, the annual failure probability for American businesses seems to drop below 5% around the fourth year [1]. At that point, if your options aren’t underwater, it’s fair to consider them to be less like lottery tickets. (I couldn’t find failure probabilities by VC round or capital raised, so this is probably conservative inasmuch as small businesses fail at a higher rate than venture-backed companies.)

[1] https://www.bls.gov/bdm/us_age_naics_00_table7.txt

[alephnerd]

Also depends on the trajectory of the late stage startup - especially with a number of the startups that raised during COVID.

A lot of FOMO investors in that time period made some not-so-great bets which lead to unrealistic valuations and then firesales.

Wiz's $80M ARR but $9B valuation def takes the icing on the cake. (Edit: Lacework, not Wiz - was a brainfart)

[toomuchtodo]

They just raised $1B at a $12B valuation, but that’s likely predicated on them going on an M&A spree to roll up less healthy competitors or offering compliments before they IPO, vs organic growth.

[alephnerd]

I brainfarted. I meant Lacework, not Wiz.

Wiz actually has an M&A strategy (Aqua is definetly on the table, as well as Tamnoon) seems to and some greenfield product development in progress.

Lacework on the other hand mismanaged a lot of hiring, and there were some shenanigans in the sales org.

Wiz actually has a healthy pipeline and execution, but Lacework never had that when they did their raise.

[toomuchtodo]

This is helpful, appreciate the context.