4 ms·

I'm very curious about the middle part of this spectrum, since I'm currently in it: I'm an early employee with a significant chunk of options (high single-digit

I'm very curious about the middle part of this spectrum, since I'm currently in it: I'm an early employee with a significant chunk of options (high single-digit %), and the company is profitable and valued at (to my understanding) somewhere well over 10x the total amount of funding we took (I've heard talk of 40-50x). Management is explicitly not looking for an exit: they just want to keep building this company for the long term. My salary started on the low side for my career, but was reasonable, and it has slowly ratcheted up over time to the point where I think it's certainly fair but I could be making more elsewhere. On the whole, it feels like I have a large chunk of (potential) ownership in something very successful. My question is: how does this actually benefit me in the big picture? I'm approaching the 10 year date when my options agreement is going to EXPIRE, and it's still unclear to me whether I should exercise them, because as far as I can tell, they're just very expensive (when you consider the tax implications) paper. What's the endgame for this success story putting cash in my pocket? Profit-sharing? Other than the usual big-bang exits you read about, I have no clue.

hga 12y ago
This is a general big problem, especially with the moribund post-SarBox IPO environment. Before those days, my father made more than a little money arranging cash-outs for founders of such companies, and there's absolutely no assurance you'll ever see a cash out. But this strikes me as a problem your company ought to care about, especially if your options were part of a compensation package with below market salary, so maybe bring it up with the relevant people? It does them little good to get people like you upset, take a reputational hit, etc.
ditonal 12y ago
Are you invited to board meetings? If not, considering yourself a "potential owner" when you're not invited to the meetings where owners decide things means you are very confused about things. There's a reason why when a company goes public, the quarterly minutes at board meetings become public as well, because you aren't really an owner if you're excluded from even learning about the biggest of decisions. What you should do depends heavily on whether you have common or preferred shares. If you have the options to buy common shares, which you probably do, they're worthless so don't even bother exercising them, the people who are invited to the board meetings have all sorts of routes they can take so that your options will become meaningless, so to spend the money to exercise and pay the capital gains on them is madness. My advice is to recognize that you have a sunk cost (look up sunk cost fallacy) and jump ship. Keep applying to companies like Google, Facebook, Amazon, Microsoft, and other larger companies until one makes you an offer, and those companies will give you real compensation packages and stock plans that you will be able to easily turn into American dollars in a year.
- ScottBurson 12y ago
  Why do you think the common shares are worthless, if the company is worth 10x (to use the conservative number) the amount invested in it? I think my inclination would be to exercise the options, because if I didn't, and they turned out to be worth something, I would just want to shoot myself. But this isn't necessarily a rational argument :-)
- iykwimthrowaway 12y ago
  > considering yourself a "potential owner" when you're not invited to the meetings where owners decide things means you are very confused about things Well gosh, I don't think there's any need to get nasty about it. I may be naive but give me a break. When I refer to ownership I'm obviously simply referring to being a shareholder. No, I am not invited to board meetings, but as far as I know, neither is anybody else who's not exec staff. Is this unusual? The options are on common shares. Can you elaborate on schemes in which common shares are made to become worthless? I have been explicitly told that there are no liquidation preference multipliers on the preferred shares, and the valuation is well above where that would matter. So what sorts of shenanigans would make my shares worth less? Please be specific if you don't mind. It may be a dumb question, but just telling me I'm dumb isn't really getting the point across. Regarding going to {GOOG,FB,AMZN,MSFT}, I've actually already been through a couple of those and experienced the "real compensation packages and stock plans" and got a couple pretty respectable windfalls out of them, but I've decided the tradeoffs aren't worth it. Job satisfaction absolutely can't be beat where I am, and that's worth a lot to me. That doesn't mean I don't wonder what my n% is actually worth and how specifically that works.
  - mahyarm 12y ago
    If it's a profitable company that you've been at almost 10 years, that you want to stay at, can't you ask them for a raise, and ask them for help with the stock option problem? They probably would want to work with you if you've been there that long.
    - iykwimthrowaway 12y ago
JoachimSchipper 12y ago
Consider (diplomatically!) talking to your boss. If the company is successful-but-not-spectacularly-successful for a long time, one way to handle such issues is by structuring the flow of money from the company to the founders as dividends - that way, you'll get paid some fraction of what they get paid, indefinitely. Note that there are other ways to structure that particular money flow, though, and there's very little you can do to influence the choice. For a select few companies, secondary markets exist that trade in illiquid stock. I understand that many equity agreements forbid selling on those markets and/or quickly selling on those markets. However, this only works if the buyers have a reason to believe that the stock will ever be worth anything at all. You mention valuations, which suggest that some fairly savvy people have decided to exchange money for shares in this company. Do you know how the investors expected to get paid back? It's possible for founders to screw investors, of course, but this may be another thing worth looking into.
nemo44x 12y ago
You own more than 5% of the company? With that stake you should be on the board if you exercised the options. There's only 20 5% owners in any company.
prostoalex 12y ago
Late-stage rounds that offer employee buyouts are somewhat typical lately. Also, if you exercise and leave, some places like SecondMarket, Equidate, MicroVentures and a few others provide a chance to offload some of that equity. In regards to salary, your company should be approaching a maturity point where salaries are defined in bands, by HR (by someone titled "Compensation Analyst" or similarly), not decided on a case-by-case basis.

hga 12y ago

This is a general big problem, especially with the moribund post-SarBox IPO environment. Before those days, my father made more than a little money arranging cash-outs for founders of such companies, and there's absolutely no assurance you'll ever see a cash out. But this strikes me as a problem your company ought to care about, especially if your options were part of a compensation package with below market salary, so maybe bring it up with the relevant people? It does them little good to get people like you upset, take a reputational hit, etc.

ditonal 12y ago

Are you invited to board meetings? If not, considering yourself a "potential owner" when you're not invited to the meetings where owners decide things means you are very confused about things. There's a reason why when a company goes public, the quarterly minutes at board meetings become public as well, because you aren't really an owner if you're excluded from even learning about the biggest of decisions. What you should do depends heavily on whether you have common or preferred shares. If you have the options to buy common shares, which you probably do, they're worthless so don't even bother exercising them, the people who are invited to the board meetings have all sorts of routes they can take so that your options will become meaningless, so to spend the money to exercise and pay the capital gains on them is madness. My advice is to recognize that you have a sunk cost (look up sunk cost fallacy) and jump ship. Keep applying to companies like Google, Facebook, Amazon, Microsoft, and other larger companies until one makes you an offer, and those companies will give you real compensation packages and stock plans that you will be able to easily turn into American dollars in a year.

ScottBurson 12y ago
Why do you think the common shares are worthless, if the company is worth 10x (to use the conservative number) the amount invested in it? I think my inclination would be to exercise the options, because if I didn't, and they turned out to be worth something, I would just want to shoot myself. But this isn't necessarily a rational argument :-)
iykwimthrowaway 12y ago
> considering yourself a "potential owner" when you're not invited to the meetings where owners decide things means you are very confused about things Well gosh, I don't think there's any need to get nasty about it. I may be naive but give me a break. When I refer to ownership I'm obviously simply referring to being a shareholder. No, I am not invited to board meetings, but as far as I know, neither is anybody else who's not exec staff. Is this unusual? The options are on common shares. Can you elaborate on schemes in which common shares are made to become worthless? I have been explicitly told that there are no liquidation preference multipliers on the preferred shares, and the valuation is well above where that would matter. So what sorts of shenanigans would make my shares worth less? Please be specific if you don't mind. It may be a dumb question, but just telling me I'm dumb isn't really getting the point across. Regarding going to {GOOG,FB,AMZN,MSFT}, I've actually already been through a couple of those and experienced the "real compensation packages and stock plans" and got a couple pretty respectable windfalls out of them, but I've decided the tradeoffs aren't worth it. Job satisfaction absolutely can't be beat where I am, and that's worth a lot to me. That doesn't mean I don't wonder what my n% is actually worth and how specifically that works.
- mahyarm 12y ago
  If it's a profitable company that you've been at almost 10 years, that you want to stay at, can't you ask them for a raise, and ask them for help with the stock option problem? They probably would want to work with you if you've been there that long.
  - iykwimthrowaway 12y ago

JoachimSchipper 12y ago

Consider (diplomatically!) talking to your boss. If the company is successful-but-not-spectacularly-successful for a long time, one way to handle such issues is by structuring the flow of money from the company to the founders as dividends - that way, you'll get paid some fraction of what they get paid, indefinitely. Note that there are other ways to structure that particular money flow, though, and there's very little you can do to influence the choice. For a select few companies, secondary markets exist that trade in illiquid stock. I understand that many equity agreements forbid selling on those markets and/or quickly selling on those markets. However, this only works if the buyers have a reason to believe that the stock will ever be worth anything at all. You mention valuations, which suggest that some fairly savvy people have decided to exchange money for shares in this company. Do you know how the investors expected to get paid back? It's possible for founders to screw investors, of course, but this may be another thing worth looking into.

nemo44x 12y ago

You own more than 5% of the company? With that stake you should be on the board if you exercised the options. There's only 20 5% owners in any company.

prostoalex 12y ago

Late-stage rounds that offer employee buyouts are somewhat typical lately. Also, if you exercise and leave, some places like SecondMarket, Equidate, MicroVentures and a few others provide a chance to offload some of that equity. In regards to salary, your company should be approaching a maturity point where salaries are defined in bands, by HR (by someone titled "Compensation Analyst" or similarly), not decided on a case-by-case basis.