[Iftheshoefits]

Do you know what I call a 1%/4-year vestment "equity" plan? I call that an ESPP (employee stock purchase plan) by another name, with inflated valuations due to startup hype.

Why would anybody agree to that? At least insist the first half percent vest proportionally over the first year with each paycheck.

[mtviewdave]

The standard Silicon Valley employee stock option plan is X number of shares vested over 4 years, with the first 25% vesting all at once after 12 months, and the remaining 75% vesting in even installments once per month over the remaining 36 months. This has been the standard for decades.

If you can arrange something more advantageous, by all means do it, but I think you're going to have a hard time negotiating away the cliff. Having the cliff ensures that employee has proved herself before getting a stake in the company, which most investors and founders believe is important.

[Iftheshoefits]

That may be standard, but it's entirely not in the interests of any employee to play the game. The founders' and investors' beliefs regarding "skin in the game" are missing one key component: the reduced salary one takes at a startup. That reduced salary is skin in the game, as is the acceptance of risk by agreeing be compensated in equity in the first place.

I don't object to 4-year vesting. I don't object to cliffs, either, per se. But I wouldn't consider being treated that way for such a tiny stake as 1%.

[aetherson]

I think that people talk past each other a lot, and part of it is understanding that 1% is not 1%.

Like, if I'm joining a company that has started to get traction, is well-funded and pays me say 80-90% what Google would pay me, and is likely to either fail or experience a monetization event in the next 3-5 years, and I get 1% of that company, holy shit guys that's amazing. Maybe still overall less compensation than Google would've given me, but more likely to change my life.

If I'm part of the founding team of a company with no product out right now, that's paying me 20-50% of what Google would pay me, and any monetization event is clearly 7+ years off, 1% is a lot less exciting for four different reasons: 1. Obviously I'm giving up more salary. 2. Payout is less likely. 3. Payout even if it happens is farther away. 4. (Crucially) My stake is very likely to be much further diluted before any monetization events.

If you ACTUALLY get 1% of the monetization of any reasonably successful company, you're probably doing pretty damn well. A medium-sized acquisition at $300 million, 1% of that is $3 million. 1% of WhatsApp would've been around $200 million. 1% of Facebook would've made you a billionaire.

Trying to get more than a genuine 1% isn't very important. Trying to figure out what the percentage that they quote you in your job hire process will turn out to be during a monetization is very important.

[harryh]

This is the best comment in this entire thread. People see 1% and immediately think small when that is not, in fact, the case.

They have almost never thought through the fact that it generally takes a lot of people to build a successful company so that 100% needs to get divided up into a lot of little pieces.

[Iftheshoefits]

It's pretty tiny when the expectation is that one will be treated like a regular employee with respect to compensation and benefits but expected to behave like a 20% (or more)-equity founder with respect to passion and (especially) effort.

[harryh]

That's not the expectation.

[jedberg]

The cliff just creates artificial scarcity from what I've seen. When an employee is let go before 1 year, or quits because it isn't a good fit, I've always seen the company give what they would have vested in anyway (leave at 10 months? Get 10 months worth of vesting). It's really just the right thing to do, since they put work into your company.

[lawnchair_larry]

No one does this ever.

[jedberg]

My experience is very different than yours. I've never heard of anyone leaving before 1 year and not getting anything.

[prostoalex]

Your strike price stays fixed so any bump in valuation is your gain. Of course, if you're a late employee at a start-up that has just experienced stratospheric growth, the probability of further upside declines, but if you're in that position, you're likely to get RSUs anyways.

[danielweber]

Because if someone doesn't work out, you want to get rid of them and have them gone for good, not hanging around your stockholder meeting. A year is enough time for that.

Firing someone just before things vest might trigger ERISA. Don't do that.