There's a huge difference between early stage and mid-late stage private companies. For the latter, you are almost always getting RSUs rather than options, so you don't have to pay taxes out of pocket to exercise them. It's also wrong to automatically consider all stock grants to be worth $0 just because you can't immediately sell them. If Stripe or Databricks offers you a million dollars worth of shares today it'll be foolish to say no.
Yes! This advice to value shares of private companies at zero is buried deep in the article, but I think it renders the article quite misleading.
The right thing to do is to use your own judgment to estimate the value of the stock. A small stake in a promising early-stage company really is worth something. There just isn't a clean formula for how much it's worth.
When you really think hard about it, this will push you toward working for companies that are more likely to succeed. If you treat all stock offers like they are worth zero, that will push you toward working for companies that don't offer their employees stock, and that are not likely to succeed. Over time, those companies just don't attract the best coworkers. So you're really hurting your career if you decide that you don't care about the stock, even besides the direct financial hit.
Important tip for people considering startups: only join ones that recently raised an A or B round from one of the top VC firms. VCs get to see all of the numbers and won't invest unless there's some sign of upside.
Yeah but after each "validation round", the stock option grant for new hires becomes 0.1x before the validation. Kinda sucks to join right after Series A, get a tiny % (say less than 0.1%) of the company even after 4 years of grinding away, and even then the company doesn't go public so your options are still worth a tiny % of... zero.
Right now it only kinda makes sense when you join as a co-founder (at most seed round; definitely not post-series-A), or pre-IPO.
All of the rounds have shifted a bunch lately and companies are going public sooner than they used to. What I really meant was that you should join companies that are on a clear path to have a major exit within the next 2-3 years.
What companies are exiting within 2-3 years of raising a Series A, B, or even C? Strongly disagree that companies are going public sooner, if you compare when eg msft / goog went public vs airbnb / uber the market cap is radically larger and the companies are much older.
Before 2018-2019 the common wisdom was to stay private as long as possible because Softbank and other late stage firms were willing to throw a lot of money around in private rounds. Now VCs are trying to throw their companies over the fence as soon as possible.
Yeah, and once it starts to boom, the dilution of shares is crazy because the investors start to pile into their pool (which is also your pool if you're an employee). Founders shares are really the only good ones, because that pool doesn't dilute the more money they raise. I'm not sure if this is always true but when I started contracting for startups I hear a lot about this.
Even the ones that don't fail usually don't work out that well for employees because of liquidation preferences. It only takes one down round or mildly successful acquihire to wipe out employees.
> You should judge these deals based on expected value.
Which is what all the comments you are replying to are saying. However the expected value isn't automatically $0 as the article suggests. You can apply a fair bit of your own judgement.
It's close enough to 0 to be a rounding error. Even some of the recent unicorn IPOs didn't return enough for employees to offset what they could have made working at FAANG.
Before Facebook was the F in FAANG it was a private company (as were the others obviously). The IPO was only in 2012 - a large number of people became millionaires.
The same was true for Snapchat, Asana, Roblox, etc.
The same will be true for Stripe, Robinhood, and others.
A subset of those people go on to become angel investors themselves.
FAANG pays a lot and there are outliers, but most FAANG employees are not clearing >2M. People at Snap made >20M.
I’m just suggesting people value it seriously and don’t reflexivity value it at zero - that’s all. I think pretending it’s zero is a mistake and stating this repeatedly on HN is a disservice.
Things are getting a bit wild since the pandemic but prior to 2020 we only had a handful of tech IPOs per year, for every Uber there were thousands of promising failed startups.
That's why in my other replies in this thread I recommend only joining later stage startups that are backed by top VCs and have clear product market fit. At that point things are derisked and compensation is pretty competitive with larger tech companies.
When I was graduating I had an option to work at Google or be the first employee at a very promising startup. I chose the startup and worked my ass off, the company raised a ton of money and got too big to be an acquisition target but not successful enough to IPO. My friends who went to work at Google made 2-3x more than me in salary and their RSUs 10xed during that time, all of them have millions in the bank. I bounced around incubators and in the startup ecosystem and have not met many people who did better than an average engineer at FAANG, in most cases the ones that did were founders.
The only people consistently getting rich off of startups are VCs.
EDIT: I do have to admit that I enjoyed startup life and got to work on and learn things that I'd never get to at a large company.
EDIT: Also if you're set on startups I'd recommend working at FAANG for a few years first, saving up and then bootstrapping your own company for a year or two before you think about investors. Being a founder is a completely different experience than an employee, you hold a lot more equity and have much more control over things.
They are a big lottery ticket. Lottery tickets doesn't have 0 value but you can't count on them having more than 0 value.
Lets say you could choose between 1% chance of getting $20 million and 100% chance of getting $1 million, what would you choose? You'd pick the $1 million every time, since it is really easy to transform $1 million into a bunch of risky investments if you prefer the low probability big pay-out, while the 1% of $20 million isn't worth that much.
