>> So what is your equity really worth?... >> ... >> The difference between the most recent FMV (409A) valuation and your exercise >> price. ... >> The difference between the Preferred Price and your exercise price....

The real answer is that it is probably not worth anything unless they have stock liquidity events that only a handful of large startups have (e.g. Stripe.)

If you dont have that, the price is purely theoretical. Further, if you cannot see the cap table and the preference overhang -- and most startups wont let you see it -- then you have no idea what the real price is regardeless of a theoretical 409A value.

Even if you can see the cap table, spending today-dollars and exercising options for the right to sell stock 5 or 10yrs into the future almost never works out -- the cone of uncertainty across 5 or 10yrs is far too great. The better move would probably to be to use that money to purchase long-dated LEAP call options on the Nasdaq Composite

I think the main takeaway from any startup stock advice is what this article starts with: you need to pick a good startup.

The details all matter, but they all matter far less than that fact.

People shouldn't lump all startups together and should have a long think about whether they actually believe in the startup they're joining.

I don't think that's the main takeaway. IMO, the main takeaway is there are, in the best case (exit for >100% of latest 409a), ~three classes of shareholder in a startup: those with preferred shares (investors, occasionally founders if they have a lot of leverage), those with >=1% fully diluted common shares, and everyone else.

In the most common positive case (i.e. sale price is <100% of invested capital), or negative cases, the three collapses into into preferred holders vs common holders.

If you're in the lower class, you should assume your equity is worth zero. No matter what startup you're joining. You're here for the cash comp and to be surrounded by a growing cast of ambitious, upwardly-mobile people.

If you're in the "middle" class and highly value future wealth over present matters, you should act "like a founder" (sacrificing your life to, one day, make 1s or 10s of millions) if the company is on the ups, and you should act "like a mercenary" (leaving to some place where you can resume acting "like a founder") if the company is permanently plateauing or on the downs.

If you're in the "upper" class it's a different game entirely. That's not really the subject of this thread (valuing equity from a typical prospective employee's POV), so I won't go there.

Whether a "good startup" (great founders, great business, great investors) results in "a meaningful outcome for holders of <1% of common shares" involves so much luck and non-determinism that's beyond your influence as a <1% employee that you would be foolish to write it off to anything other than zero. The same is not true for >=1% and founders, of course, so they should value their equity differently.

Edit: the "magic" that many startups try to get away with is convincing people in class X that they're actually in class X+1 (even X+2!) and that, you should therefore act like it!! Be wary.

Don’t take a salary if you’re in the upper. Live for the equity as a price of the pain of solving a real world problem. Not the vanity of launch parties or bell-rings X-D //that’s meant to be an emoji

Not sure if you mean that seriously, or with tongue in cheek. It takes a very healthy dose of luck and market timing to be successful. Even the VCs, the experts, don't know how to pick winners. They expect a 90% failure rate, and this is among the ones they picked!

As an employee you don't have the same profit structure in play -- you can only work at one startup at a time. You cannot spread your bets around and let that one winner make the math work. You have to be 10x better at selecting a startup than the experts, probably 100x better if you expect to beat a big tech salary.

That all is correct and leads to a very simple conclusion: working for a startup has a very low probability of making you rich. Doesn't mean that people shouldn't do it, but it's better to have healthy expectations.

I still think its good for college grads, gives you a lot of leeway and space to play around with many different hats and find one that fits you better.

Incredibly lousy way to make money though, odds you will hit jackpot are none unless you're one of the founders and even then odds are still small.

If a college grad is choosing between faang and no-name startup, their career will likely go over much better than no-name startup. Having the big name on your resume does wonders. Even for experienced candidates, keep taking the big name. The market rewards it. (Including startups - compensation packages for people with faang resumes usually are better)

I mean, it's still a pretty good way to make money, when compared to other fields and not to other engineers at FAANG.

Yep. There’s very many reasons to work at a startup. Thanks for mentioning that.

I do mean this seriously.

YC manages truly incredible returns, and you can just... join those companies after they have gotten the YC seal of approval (or any other signal you like).

Unlike a VC, you do not have to "return the fund", so you are excited about a much wider range of outcomes than just the top outliers, and you are not locked in and can leave.

It is also much easier for an employee to get into a hot startup than an investor.

You also don't have to deploy a certain amount of capital or join a startup if you don't see one that you think will be successful.

Particularly in the b2b space, I think it's quite straight forward to see if the company is doing something valuable or if their idea is dumb and bad.

> [Among YC companies,] 45% secure Series A (vs. 33% average), 4% to 5% become a unicorn (vs. 2.5% average), and 10% achieve an exit.

https://www.lennysnewsletter.com/p/pulling-back-the-curtain-...

Of those 10% exits, 50% are acquisitions. Acquisitions are rarely lucrative for rank and file employees. But even at 10%, you need to have a crystal ball as an employee. YC is not an especially strong selector. And unicorn is baseline success these days (the data is from 2025), so we at the 5% level not 10%. Maybe you aren't aware of typical equity grants beyond, say, employee 10. You need at least a unicorn exit to match a big tech salary.

I mean you're right, you don't have to return the fund. You have to match (risk-adjusted) the opportunity cost of a big tech salary. Incredibly hard and luck is the most relevant factor. Meanwhile, if you job hop out of the startup after startup because they mostly go nowhere, your resume quickly becomes uninteresting (ye olde 1 year of experience 5 times problem). So you do have to stick it out.

> idea is dumb and bad.

the idea rarely matters. ideas are free. execution is king.

This is a very cynical read of the data. Most of the companies discussed here are still too early to have an exit.

If you look at the early batches (which are the only ones where all the companies are dead or exited), then more than half of them got to an exit.

And looking at all the companies, only 13% have failed so far, compared to 10% with exits. And failures generally come way before exits, so the data is incredibly biased if not taken on a cohort basis.

I disagree that acquisitions are rarely lucrative. I have been part of several and they have both been good for rank and file (me).

> the idea rarely matters. ideas are free. execution is king.

This is true at the earliest stage where the idea is very fungible. And execution always matters, but there are people out here working on the 50th Travel Booking Assistant who you should not go and work for. If the idea didn't matter, YC wouldn't ask about it.

> your resume quickly becomes uninteresting (ye olde 1 year of experience 5 times problem)

Nobody is forcing you to spend your entire career doing 1 year stints.

Ok, now tell us how we differentiate across 10-person, pre-revenue startups. This advice is like buy low, sell high. Thanks.

You conduct your own due diligence and make an educated decision. You won’t necessarily pick a successful one but you can avoid an obvious failure.

IME picking a good startup is extremely difficult, because even the ones with PMF and growing customers can so easily fail at execution: the human factors are so huge there. You can definitely narrow the field (use common sense: evaluate their business), but long term it’s impossible to know.

Correct, the 409a is only going to show you the maximum possible value.

Realistically, investors get their money back first, so 50% (picking an arbiter number) of that valuation value won’t ever been seen by employees. Then it gets even worse with multipliers and preferences.

It's the preference and its multiplier that gives investors their money back first. These aren't different things, they're one thing, and generally only matter if the company exits for less than the valuation the investors invested at. The exception to this is if any investors have a liquidation preference > 1x (you should avoid companies where this is the case).

Preferences also don't stack with the rest of a liquidity event. E.g. say an investor puts in $100m at a post-money of $1b with a 1x liquidation preference. If the shares go for $900m, the investor gets back their $100m, and that's all. They don't lose money, but they don't make money either. If the shares go at a $1.1b valuation, the investor converts their preferred shares to common shares like everyone else has. The investor doesn't get their money back first and sell more shares on top of that. It's either/or.

Whether it's and vs either/or is the difference between a liquidation preference or a participating liquidation preference. And indeed the more than 1x cases are also problematic for common stock holders.

But I do assume the 409A for the fair marker value of the common stock takes these into account? Not a US tax expert :-)

You can construct any arbitrary deal terms you like, of course, but in the Silicon Valley ecosystem nobody you'd want to raise money from does this. Deal terms are broadly standardized and the desirable investors only do clean term sheets. Quoting myself from another thread a couple years ago: VCs make their money from outlier companies, so the competent ones don't optimize for worst-case outcomes. You'll never see a dirty term sheet (e.g. liquidation preference > 1x) from Sequoia, for example, because they don't return 8x on a fund by squeezing pennies out of failed startups.

To answer your question, yes, doling out company value to different share classes is part of the 409A calculation. I've used Carta and Pulley for this, but it looks like neither has their docs posted publicly. Here's Pulley's overview page from our last 409A, though:

Valuation Analysis

To determine the fair market value of the Subject Interest in our analysis, the following steps were taken:

Step 1 - Determine the value of the Company using an appropriate methodology(ies)

Step 2 - Allocate the value of the Company to the various share classes taking into account share classes economic rights and preferences

Step 3 - Apply a discount for lack of marketability (“DLOM”) to the resulting per share value of common

Step 4 - Analyze any secondary transactions that have incurred in the past and determine to what extent they should be considered relevant in determining the value of the Subject Interest in the analysis

The system is built to handle non-standard liquidation preferences, but anything more esoteric (e.g. your participating preferred shares) probably needs a bespoke valuation. You won't see this stuff from successful VCs, though. It would be a bit like investing in SpaceX, but having one of the terms be an increase in Earth's gravity.

>>> VCs make their money from outlier companies, so the competent ones don't optimize for worst-case outcomes. You'll never see a dirty term sheet (e.g. liquidation preference > 1x) from Sequoia, for example, because they don't return 8x on a fund by squeezing pennies out of failed startups.

Serious question -- if you are right, then why hide the cap tables?! Typically cap tables are even hidden from employees who have millions of theoretical dollars riding on the company.

Transparency is usually an indicator of above-board terms, and opaque things are usually opaque for a reason.

The cap table is just a spreadsheet of who owns what. Employees don't need to see that level of detail to understand their shares, so there's no particular reason to pass it around, and plenty of reasons not to.

Many startups are happy to give relevant details, though, like the percentage of fully diluted shares you own, the last preferred share price, whether any investors got non-standard terms, etc. Rather than asking to see the cap table, ask the questions you want the cap table to answer. If they won't tell you, maybe pass on working there.

> the 409a is only going to show you the maximum possible value

While the points about uncertainty of options are quite accurate, this detail isn’t really true.

For the most part a 409a is the lowest reasonable valuation the company could talk the auditors into accepting. The lower it is the less tax paid and everyone knows that.

You're correct about valuation, but the parent post was meant to address "how much liquid dollars should you expect to receive vs. 409a." You are likely to receive less in most cases (read: unless there are wildly successful public liquidity events) due to liquidation preferences.

Plenty of (non-VC backed) startups raise some money and then sell privately; it’s often the case that preference does not cause the common stock value to drop below the most recent 409a in these cases.

(In my experience, the 409a is on the order of 20% of the most recent raise, and preference is not more than 50%, in my area. And obviously you hope to sell for more than the last raise!).

Any reasonable 409a will be fully aware of those preference terms and will have factored them in.

>> Then it gets even worse with multipliers and preferences.

Yeah, and most companies wont share the cap table with you, so you do not know the multipliers and preferences. Its like you get $(409a/X) in value, but you dont know what X is and they wont tell you -- but you still have to buy in or lose everything (you typically have to exercise all options upon departure, or lose it!)

Then, once you exercise, you wait for 5yrs to 10yrs for a liquidity event, if the company even survives that long. My annual discount rate would be like 10% or higher.

> The real answer is that it is probably not worth anything unless they have stock liquidity events that only a handful of large startups have (e.g. Stripe.) If you dont have that, the price is purely theoretical.

This is not true in Australia, where they are proposing a new 15% tax on gains attributed to the portion of an individual's retirement account larger than $3 million, including unrealized gains. That means people must put a dollar value on each asset at the end of each income year, including startup shares or venture fund interests.

> spending today-dollars and exercising options for the right to sell stock 5 or 10yrs into the future almost never works out

There are places that will, no recourse, loan you the money to exercise and pay the tax, in exchange for some percentage of the profit, provided it's for a company they like. Meaning, they lend you the money, but if there's no IPO/liquidity event, you don't owe them any money. 70% (say) of a big number may not be as big as 100% of a big number, but 100% of zero is $0. Which isn't financial advice, just a bit of math.

If you find a company they accept you should keep your shares if possible. Most companies will not be accepted for good reason.

>> There are places that will, no recourse, loan you the money to exercise and pay the tax, in exchange for some percentage of the profit, provided it's for a company they like.

Yes they do this, but only for select companies. They wont touch most startup equity.

One thing I've learned working for startups is if you're working for a founder who's already had a previous successful startup exit(s), two things are true:

1. the founder already has generational wealth and this current company means practically nothing to them.

2. they've already learned every trick in the book to keep the company's value in their own pocket and out of the hands of their employees.

This seems highly cynical. If the current company means practically nothing to them, why would they be bothering with it at all, especially given that they could be doing almost anything else they wanted, given their generational wealth?

They’re doing it for fun / dick waving contest / it’s all they know / “sigma grindset” mentality

Why do dogs chase frisbees?

If one successful exit teaches you every trick in the book, I understand why I know so many masterful M&A attorneys who didn’t go to law school.

I'm working for a founder with a previous successful exit and neither of those statements are true of him.

OP is making broad statements, and you might even be right about your guy. But even if your founder is not super wealthy from the first exit, your current startup could go under and if that happens employees will be left with absolutely nothing. Him, on the other hand, will probably have a golden parachute to land with. Either way he will be now be a "serial entrepreneur" and will be able to utilize his VC friends to start the next thing in no time. He's going to be fine.

And there's no telling what he will do if your startup does actually end up being worth something. Transfer the IP to a new company and fire everyone? Introduce new share classes for investors and dilute everyone else to zero? Sell the employees (acquihire) to some horrible BigCorp™ and then retire to Hawaii? No shortage of stunts they could pull once real money is on the table.

I've been on HN since 2007 and believe I have seen literally every possible permutation of this particular debate, and I don't have a stake in it. Value your equity at $0 unless you have a very good reason not to. The comment I replied to make falsifiable claim, and I felt it was worth falsifying, so that's what I did.

The first time founders I had couldn't keep 100% of the equity out of the VCs pockets, so YMMV.

A special case of early stage share options aren't worth shit.

Unless you work in SV, I think the advice for the rest of us is: take equity/stocks/options as a lottery ticket. Very unlikely that you’ll cash something, therefore base compensation is king.

It's the same thing in the SV. Unless the company is doing liquidity events the early, but post-founder equity is unlikely to pan out for employees.

And it can motivate employees to stay at the company way beyond what's good for them, as leaving the company means either abandoning your equity or exercising your options and paying real money for a very risky and illiquid asset. My 2c.

The problem becomes they (the company) talks/treats it as money paid and expects a lower salary (or additional passion like being happy to wake up at 4am to deal with an issue randomly) in exchange. They also want people who buy into the lie.

Exactly

If you work for a moderately large company, it probably won't go to zero (though it could so you may want to hedge your bets). Not sure what SV specifically has to to do with it. I agree in general about focusing on cash on the barrel.

Just something I’ve seen lately at all of the startups I’ve worked at…

The founders, early investors, etc., will cash out way before you do and you will not have the same ability to sell as they did. I’ve seen it tear companies apart. YMMV

Yes in my experience they made out like bandits while employees were locked out for a while after IPO.

So what is your equity really worth?

"The difference between the most recent FMV (409A) valuation and your exercise price."

This will almost never be the case. This doesn't account for different share classes, liquidation preferences, preferred stock, all of which get exercised before common shares.

A better description would be "the most recent 409A valuation, minus preferred treatment, and your exercise price."

All of that is moot though, as an employee wouldn't have access to the cap table or liquidation stack. The short answer is you'll have no idea how much your equity is worth until you get the wire transfer into your bank account.

Equity as an incentive truly favors the employer. With vesting, equity rarely works out to be better than having a market rate salary, unless the company becomes a household name.

>This will almost never be the case. This doesn't account for different share classes, liquidation preferences, preferred stock, all of which get exercised before common shares.

>Equity as an incentive truly favors the employer. With vesting, equity rarely works out to be better than having a market rate salary, unless the company becomes a household name

I've worked at 4 different startups. Two were acquired and two are still going, with one making a small profit and being a lifestyle business for the founder, and the other having a great product and still growing.

For the two acquisitions, one of which I held 1% equity in, the value of my options was $0, which was very disappointing. In that case, I did get a cash bonus as the VP Engineering and an offer from the acquiring company that was 3X my cash comp, but the stock was worthless.

At this point in my career, I value stock in private companies at exactly $0 and treat it like a nice bonus should it ever amount to anything.

409a valuations explicitly take into account share classes/liquidation preferences. That's kind of the point. If the Preferred last sold for $1.00, the 409a might value the Common at $0.10 per share, which would then typically be the FMV strike price set in the next round of issued options.

If the Common FMV has been steadily increasing from when you received your options, that would typically be a positive sign. Of course, 409a valuations are based on mathematical models. Since Common shares are so illiquid in a private start-up, you don't "really" know what they're worth until a liquidity event.

Until the next financing round which might include more liq pref, full-ratchet anti-dilution, new shares issued, etc.

Ultimately the 409a is for the IRS, not a mark for employees

The next financing round might also include a lot more money on the balance sheet too!

>AMT is a pretty complicated calculation

Actually, it is not. It only seems complicated because it is backed into after calculating the regular tax when you use the IRS tax forms. In other words, first you calculate ordinary tax, then you make plus/minus adjustments for the things that are different under AMT.

If there was a Form 1040-AMT which simply calculated the AMT the same way we calculate regular tax, you would see that it is actually simpler than ordinary tax. (depreciation is simpler, itemized deductions are simpler, personal exemptions for kids go away, the standard deduction is much higher, and so on).

If we did it the other way around - calculate AMT first, then make adjustments to back into ordinary tax, then you'd say ordinary tax is complicated.

Most people don't understand that under the TCJA temporary provisions enacted in 2017 and expiring in 2025, most of the changes just involved moving AMT provisions into the ordinary tax calculation.

I agree AMT itself is not a particularly complicated calculation. But I don't think that was really the point of that quoted statement. The complicated part is figuring out if and when AMT applies to you, and, essentially, for how long it can raise your taxes.

As you said, the tax code requires you to calculate your taxes twice - once using the "normal" rules, and another time using the AMT rules, and you pay whichever is higher. So, depending on your individual circumstances, it's non-trivial to know if AMT will apply to you when making particular money movements during the year. Also, if you have to pay AMT in year one, but then in year two the calculated AMT is below your normal tax calculation, you get a credit for the excess amount (i.e. amount over the normal tax from year 1) up to the delta between the normal tax and the AMT amount. In other words, AMT can often times just cause tax to be paid earlier, but the total amount of money (over years), ends up being the same. Of course, the time value of money comes into play - paying a tax earlier is losing money.

So, point being, there are complicated considerations to take into account.

So basically being a startup employee is a very bad deal, and you should either be employed at big tech, or be a founder yourself.

But how startups find early employees then?

There are some non financial benefits.

Many early stage startups are a low oversight environment. This can mean lots of things, beneficial to certain kinds of people: easily push code to prod, touch production databases directly, work weird hours, fix almost any problem you want yourself, know how everything fits together, have more control over your work machine, etc.

Not all startups are grueling to work for. I've been at startups where I barely worked 4 hours a day at times. Results matter more.

Finally, if you just really hate the big tech interview process, you can get into many startups with minimal prep. Not saying it's a financially optimal use of one's time, but it is a thing some people value.

Some people don't like the environment of big companies. There are finite positions at big companies, not everyone can be there. Not everyone is a founder.

In my experience certain people enjoy working at startups. There are benefits to them outside of max comp that make it desirable.

I've concluded that options are a scam after owning them in many companies. It's never amounted to anything

We still get paid obscene salaries fucking around with the bonus of a shot to make even more obscene money.

For all the complaining about options there's little acknowledgement of how little startup work contributes to society relative to the money we rake in from people willing to fund it.

Startup positions vs regular positions often pay much lower. Obscene salaries and startups (which are mostly bootstrapped) don't go hand in hand.

Startup founder who raises gets to play with obscene money.

If you come across obscene money startup jobs share them. Tons of unemployed developers lurking who would take % of obscene.

Startup positions pay significantly better than everything but FAANG and are easier to get than FAANG.

Where would be a good place to look for these type of startups?

"who's hiring" threads here, various discord servers/twitter/bluesky follows, people you know, etc. Same as any other job. The filter is for places that are doing real development work (not cashing in on trends) and have seed money/series A/B/C/etc.

Obscene salary is almost an oxymoron.

Maybe CEOs get that. Most people who get obscene money get it from some kind of investment.

What you should understand is that they are a longshot. Like, worse than 10 to 1. I’ve gotten lucky and made a truckload of money on them, and know many people who have done the same. I’ve also had them be an utter waste of money. It’s very much a gamble and it’s unlikely to pay off. This doesn’t make it a scam.

A lottery ticket is legal but expected value is negative. Same with casino games. Sure it's legal and sometimes people win but in my book it's a scam, even if not technically one.

What I particularly resent is the pretence from companies that a lower salary can be compensated by options. Such BS

No need to resent. Just don't take the job. There are jobs that pay the low salary and no magic beans either!

Options at non publicly traded companies are worth zero. Or should be valued the same as a lottery ticket.

Tell that to the IRS

What’s there to tell? Option grants that are not exercised have no tax consequence.

There's a 10y max ttl on ISOs to exercise or lose it. Also if you leave the company it's 90d. You typically can convert ISOs to NSOs but you lose some of the tax advantages of ISO (not a tax/investment advice, etc etc)

They play their own game like a boss.

Sometimes they are not. I think for post startup companies it is somewhat possible to put a value on ESOP then risk adjust for you losing the job, leaving etc. I have been paid out but think bonus cash for a holiday money not life changing. I kept it in post IPO and got more but then anyone could have done that post IPO.

I know too many people who’ve had their stock zeroed out through dilution, preference vs common, partial buyouts where only some founders and investors get to sell, spurious “bad leaver” status for people who work for so-called competitors, forced resignations within particular timeframes that cause stock forfeiture, and on and on and on.

It would be an interesting addition to this guid to see these scenarios collected and enumerated with some tips around how to get caught out.

I would have loved to see such a list when I joined a startup. I'm not sure it's possible to make a comprehensive list, given all the various startup structures and agreements, but still a "top 10" list with some guidance on how to protect yourself would be valuable.

Or... an SLM where you feed the model your contract and it provides a list with recommendations tailored to your situation.

I wonder how much longer this logic can hold. I have equity in the startup I'm at. It's a very complex platform and in a niche / emerging market.

Yet could AI feasibly generate a similar (or better) app in a few years? It used to be unthinkable. Now, I'm not so sure.

The development cost of software could feasibly drop to negligible levels. It no longer seems like sci-fi, more and more it seems like the inevitable direction of travel.

What happens to my equity? Welp. Might not be great news.

There’s more to a successful business than masking an app.

A lot of acquisitions are made by companies that could re-build the acquired product themselves. They’re buying the business, brand, and customer base, not the app.

This is magical thinking. If you could clone Facebook tomorrow your platform wouldn’t be worth anything without established business processes, network effects, and goodwill.

line of business saas is absolutely vulernable. the biggest companies on the planet are not under thread. SAAS companies worth 100M-300M are absolutely vulnerable

This has nothing to do with your original claim.

Who says the cost of producing software is going to zero?

It's likely heading towards that direction.

Just seeing how Veo3 has taken huge chunks of value out of the film/production space in the last week. It's going to be very hard to justify many salaries going forward.

Always treat startup equity as 0 until you've sold it.

Correct. The motivation for equity comp should be more of "I want to change the world" than the "I want big money". The odds are very against it.

Here's some older stats (2017) https://berkonomics.com/?p=2899

But searching, you'll find loads more studies on startup/angel/seed.

It's like, optimistically, 1/20

Good advice! Thankfully I do want to change the world (for the better I hasten to add) and so far so good.

At a startup where I've exercised 75% of my options because the company seems to be going to a direction where maybe it's public in a little while (and I've got some other investments which prevent me from being over-invested here). I also want to dump all of the shares as soon as they go public and I'm able (employee sale window-wise) as I anticipate that there'll be a pop followed by a drop. This is all anecdotal given what I've observed over the years. As a result of exercising everything early (back into the S&P) on I'll be able to get long-term capital gains which is a motivator.

So that all said I agree with the author's take of "maybe" exercising before an IPO is worth it. This is my first time in a role where I've actually got pre-IPO Options. My last role I joined right before the company went public. The agreement there was that I'll get x$ worth of shares where the quantity is determined by the price 3 months or so after the IPO. They went from >$100 per share to like $30 a share which coincided with when I was assigned my shares lol. Oh well.

> I anticipate that there'll be a pop followed by a drop

You'll miss both. A 6-month lockup is typical. Sorry, do not pass go, do not collect on the "pop"

This guide leaves out something extremely important that just fucked over a friend of mine: double-trigger RSUs. My friend thought he was getting a certain amount of stock annually, but in fact he only got it if he was still employed there when the company went public. So after six years they fired him right before going public a month later, and he got nothing. And in order to get any severance, he had to sign an agreement giving up any right to pursue any legal claims against them. I didn't even believe this was possible at first. Almost no startup equity guides mention this. Read your contracts very carefully, people!

The guide mentions double-trigger RSUs

> If you have restricted stock units (RSUs), everything is pretty straightforward. You do not have to purchase RSUs. You just get them at no cost as they vest. Most private companies do something called double-trigger vesting. That just means you are also not taxed as they vest. Instead, you get taxed for your RSUs at some second trigger date, which is usually set to be the date of the future big liquidity event (at ordinary income). One big drawback with double-trigger RSUs is that you are not really able to sell them in tender offers or other pre-going-public liquidity events.

Doesn't exactly mention the important part, that you don't necessarily get anything, does it?

One thing no one told me:

When you cofound a company, its not the equity percent, but who is in control that matters. If you have 40%, and they get 60%, but legally or otherwise (you are the face of the company), then you have control and the 40% is worth more than the 60.

If you leave early after cofounding a company, there is no saying what happens to you shares, and likely they will be diluted to almost nothing

Its all about control.

If you are an employee, either go for a company thats a few years from IPO, a generational startup, or consider the equity worth 0.

This is true. Once you lose control, the VCs will start to appoint their buddies in Atherton in as CEOs, VPs, SVPs, Chiefs of Staff, etc. Eventually you get pushed out. You wont even know what half the people do.

Or you get impossible performance plans placed on you (that their buddies wont get) which will mean you either achieve the impossible or you lose your founder stock.

If you are giving up voting control, ensure to get a secondary sale to sell some of your stock (5-10mil) so you're set for life. Then you can let the VCs burn the company down...if you really want.

what’s a generational startup?

They probably meant a "once in a generation" startup like a unicorn

Things are moving fast. Not sure how solid they will be next year. Bigger players want that marketspace.

Depending on the structure of the legal entity, even when the company you work for gets acquired, it may be an asset purchase for the IP and team instead of a stock purchase. I went through this last year and my options became worthless. It’s unfortunate because it came down to decisions made years prior that affected the outcome at exit time.

> If you join an early stage company and you have a decent amount of excess capital, early exercise everything and file an 83(b) election. The reasons for doing this: starting the QSBS clock, starting the long term capital gains clock, not needing to worry about your options expiring.

I don't think this is ever worth the risk. If you're even thinking of doing this for QSBS purposes... the amount of tax you'd incur is way too much. Even if you have "excess" capital, you may as well put the $50k+ into a shitcoin and you'd see a much quicker return (or lack thereof). For most people where $50-100k+ in tax is a trivial amount to worry about, why are you joining as an employee? Clearly you've made a lot of money in the past... Just be a founder instead. You're taking on just as much risk.

> If you join an early stage company and you don’t have much capital, don’t do anything just yet. Try to negotiate for an extended post termination exercise window.

For 99%+ of people joining startups as regular employees, this is what you should be doing. If you leave the company before it becomes liquid, exercising the shares can be super risky. We've been waiting on several very well known companies to go public for a long time now. Who knows when they'll go public. At that point, you've spent possibly hundreds of thousands to exercise your shares, hundreds of thousands more in taxes... and they might be worthless and you can maybe deduct $3,000/yr for who knows how long.

> If you can get liquidity at some point, and you think liquidity would improve your life, you probably should.

It is unlikely though.

IMO, until tax law (and especially market conditions) changes - I do not believe in joining any private company unless you are convinced they will IPO within the year. This is assuming you care about compensation significantly.

FYI the whole point of early exercise + 83b election is that you "pay" all tax due, but the tax due is $0, so you don't pay anything. There _is_ non-trivial risk of sinking liquid cash into illiquid startup stock, but this risk has nothing to do with tax.

None of this applies for start-ups outside the US.