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Most big tech firms give engineers RSUs for this reason

slt2021 3y ago
also SBC (share based comp) looks favorably on cash flow statement, because SBC does not decrease EBITDA, thus artificially inflating EBITDA numbers and price target of the company. How this works: new SaaS startup shows up and shows $10M EBITDA to investors. This does not reflect $5M in SBC. According to industry averages, bankers apply average (lets say 10x) EBITDA multiple and derive valuation of $100M and invest funds based on that calculation. Had company paid cash salary instead of RSUs, firms' EBITDA would have been $5M and valuation of $50M - a half of original pitched value Obviously this is just a naiive textbook example, and actual valuations are more complex and involve several ways of deriving value and multiples, but in general RSU is viewed favorably mainly because it improves Cash Flow from Operations and EBITDA numbers - in addition to creating incentives to employees
AndrewKemendo 3y ago
Indeed, which are sub class of stock with no power. So it’s the same story and is effectively a lottery ticket.
- edmundsauto 3y ago
  RSUs that you can sell are effectively cash, not a lotto ticket.
  - AndrewKemendo 3y ago
    They depend on the stock which is totally unpredictable For example, literally the day before I started at my last company, their stock went from $120 to $40 So yes it’s a lotto ticket
    - edmundsauto 3y ago
      I just… sell the stock when it vests? I guess I can see your pov is consistent as long as you consider every stock as a lotto ticket, but I don’t think that’s the typical opinion.
      - slt2021 3y ago
        Problem with this approach is RSU grant price is fixed at when you join the company. You could sign job offer with $1M in RSUs at $100/sh for 10k shares, but you would have vested only $500k worth of shares if price decreases to $50/sh a year after, when you reach cliff vest So selling at vest does not decrease your risk between RSU grant date and vest date

slt2021 3y ago

also SBC (share based comp) looks favorably on cash flow statement, because SBC does not decrease EBITDA, thus artificially inflating EBITDA numbers and price target of the company. How this works: new SaaS startup shows up and shows $10M EBITDA to investors. This does not reflect $5M in SBC. According to industry averages, bankers apply average (lets say 10x) EBITDA multiple and derive valuation of $100M and invest funds based on that calculation. Had company paid cash salary instead of RSUs, firms' EBITDA would have been $5M and valuation of $50M - a half of original pitched value Obviously this is just a naiive textbook example, and actual valuations are more complex and involve several ways of deriving value and multiples, but in general RSU is viewed favorably mainly because it improves Cash Flow from Operations and EBITDA numbers - in addition to creating incentives to employees

AndrewKemendo 3y ago

Indeed, which are sub class of stock with no power. So it’s the same story and is effectively a lottery ticket.

edmundsauto 3y ago
RSUs that you can sell are effectively cash, not a lotto ticket.
- AndrewKemendo 3y ago
  They depend on the stock which is totally unpredictable For example, literally the day before I started at my last company, their stock went from $120 to $40 So yes it’s a lotto ticket
  - edmundsauto 3y ago
    I just… sell the stock when it vests? I guess I can see your pov is consistent as long as you consider every stock as a lotto ticket, but I don’t think that’s the typical opinion.
    - slt2021 3y ago
      Problem with this approach is RSU grant price is fixed at when you join the company. You could sign job offer with $1M in RSUs at $100/sh for 10k shares, but you would have vested only $500k worth of shares if price decreases to $50/sh a year after, when you reach cliff vest So selling at vest does not decrease your risk between RSU grant date and vest date