Just want to see how much people earn actual cash from their employee stock options. If you joined a startup as an employee and had some stock options, how much did you earn during exit or IPO?
First employee hired at a startup. Paid for my options before leaving the company. Six months later the company was acquihired by Google. Three months after that I was given paperwork informing me that those shares are now worth exactly $0.00/each. Founders made out well enough from the deal to pick up high-end luxury sports cars though, which is the important part of an exit, right?
There are a number of reasons this could have happened:
1. You left before any of your stock vested. Assuming a standard four year vesting schedule and a one year cliff, this makes complete sense. (Although you are saying that you paid for your options, so this likely isn't the case here).
2. The company got shut down, its assets liquidated, and the founders and a select group of employees went to work for Google. This is perfectly sensible from a legal/operational standpoint, but is really unethical if the founders didn't take care of existing stock holders.
3. The founders had liquidation preferences that employees didn't have. This seems really unethical to me, but it's also something you could have seen when joining the company by doing the legal diligence.
Bottom line here is do the diligence, understand the mechanics so there is no confusion as to what they are later, and, most importantly, make sure company founders are decent people who'll pick the high road if/when presented with a choice. I don't think I could live with myself if I had to look in my fancy, gold-plated mirror every morning knowing that I screwed people that trusted me to lead them out of what's rightfully theirs. Make sure you get a good vibe from the people you work for - nothing can substitute chemistry, character judgement, and basic human decency.
I worked for a company that got three offers for acquisition, all of which were talent grabs:
- One really high offer from a social network. Talks fell through.
- One reasonable offer from a relatively unknown company (which they took, good culture fit).
- One completely terrible offer from a major tech company, with incredibly high salaries afterwards.
The first one would have been the best for investors, and good for the employees, except the culture fit wasn't quite there. The second was a great culture fit, but wasn't that great for the investors (especially considering it was a cash-and-stock deal and the stock tanked). The third would have been a fantastic deal for the employees and a slap in the face to investors (which is why they didn't take it).
It's funny how easy it is to take the asshole route when it comes down to it.
No, it's not uncommon for startups to let you buy the stock before it even vests. The company will buy it back if you leave before you vest (although you usually don't even bother since they are worth pennies).
If the OP left after staying less than a year, they most likely didn't vest anything.
> but is really unethical if the founders didn't take care of existing stock holders.
Happens all the time. Usually it means that the acquiring company issued a bonus to those employees it was bringing across. If you're not one of them, have a nice day.
A comment below tickled my interest and I did some quick googling. From the information available on the web, it looks like your comment makes what happened look much worse than the reality.
So I just want to point out to others that this is one side of the story and it lacks a lot of details to draw any conclusion and ask for the names of the "guilty".
edit: since I'm getting some downvotes, let me expand a bit: it looks like said-company wasn't going anywhere, that fourk didn't work there for very long, that the founders ended up being hired by Google, and it's not clear that the company itself was really bought. So, and again I don't have the whole story either, it's not as clear-cut as "execs and investors made millions and completely screwed a key employee out of his due".
I did not in any way expect this to be a serious windfall for me. I also didn't mean to imply that this was a windfall for investors (who were merely reimbursed), or anyone but founders (albeit a small one for them).
Also, while IANAL, that paperwork implied that the company was purchased by Google (at least technically), contrary to what Techcrunch said. Part of my reasoning for not wanting to name the company and founders was this exact reason: it's hard to get a full and complete picture of a complex situation from just one person through a couple sentences.
Part of my reasoning for not wanting to name the company and founders was this exact reason
And I salute you for that. Don't get me wrong, I didn't mean to confront you or to expose the situation more than you wanted. (what I read is very easy to find anyway) It was more intended to the commenters who wanted names even though we had only your short account to go by.
Clearly, that kind of situations has happened to many startup employees (and will happen again and again…). I worked myself for a startup that folded, most people took their severance package and two months later the company was apparently sold. I don't think any of the employees really know the details of the sale, but I'd very surprised if it turned out that I had missed out on a big payout by not buying my options… :)
Unless the investors make money, no one makes money. This is almost a universal constant, even if in this case the founders somehow managed some perks (something I have never seen happen). It sounds like the perks are because they are valued as future employees, not because the business had any value.
There are plenty of cases of employees getting seriously shafted (investors made lots of money, but employees didn't). This is not one of those cases.
>A comment below tickled my interest and I did some quick googling.
You should be downvoted to hell for this stupid comment. You did "some quick googling" and now feel qualified to talk over people who were actually there? This kind of behavior is the plague of the internet. Someone who was actually present takes a back seat to a nerd reading the internet about it.
You might want to calm down on the unnecessary attacks.
As I said in my original comment "I just want to point out to others that this is one side of the story", because some people wanted to have the names of the company and people involved to make sure never to do business with them.
On one hand, you have the (short) account of one person who was there; on the other, you have some information found on the web. Neither is reliable, they just give some hints at what might have happened. My comment was just pointing that out, since some people wanted to go do some public lynching.
So you see, in my opinion, your comment should be "downvoted to hell". I was careful to emphasize that what I found wasn't "the truth, the whole truth and nothing but the truth" either. Here's a sample: "it looks like", "this is one side of the story", "it looks like", "it's not clear", "and again I don't have the whole story either".
So no, I'm not the plague of the Internet. The unnecessary outrage and name-calling is.
I'd prefer to be the better person here rather than defame them publicly. If anyone would like more information or to discuss this privately, however, my email is in my profile.
I don't like that this position is assumed by default by so many wronged parties on HN. If you're really eager to take the noble path, explain the story as objectively as you can and let other people decide. Letting other people get burned when they easily could've learned from your experience is not a noble thing.
I don't think it's really about being noble. When money is involved you don't know who is going to take offense with what you say. People with money or opportunity may not like the concept of you airing their or other people's "dirty laundry". It's also hard to verify information & a whistleblower can just as easily be painted as a hater/whiner or someone who has ulterior motives.
So shady people or companies continue to be shady because people don't want to risk loss of potential income or reputation.
I'd prefer to be the better person here rather than defame them publicly
Idly allowing bad and potentially evil behavior to go unrecognized and unchallenged is by no means being a good person. Not to Godwin the thread, but your attitude is why evil flourishes, and on much grander scales than stock allocation.
No, James is doing the right thing taking a more noble path and not publicy defaming the company. There is a time and place for that and these sort of discussions will not be conducive for the HN community. Talking about his experience will be what most of us be interested in.
Having said that, all you need is 2 minutes, google and you can easily deduce yourself what company he is referring to.
Encrypting with ROT13 does not cause you to be not defaming the company, either legally or ethically. (Encrypting with SHA-1 might, but I wouldn't bet your out-of-court settlement on it. IANALATINLA.)
In this scenario it's equivalent to all of the founders quitting, shutting the company down, and going to work for Google, right? Ie. Google didn't buy / shouldn't own any of the company's assets?
No. It is equivalent to buying the preferred shares at $X/share, which obtains voting control of the board, cutting the founders a check (not for shares), and zeroing out the common.
This is always possible with a company with a significant interest controlled by the preferred (which is another way of saying: a company funded by VCs.)
Why would it be sleazy? What if the investors got their money back and nothing more? Even if they got more based on preference, I don't see the problem.
That TechCrunch article doesn't really present the event as a great exit, but more that the founders were hired to move on from a startup that wasn't really going anywhere. (the post specifically says that Google didn't technically acquire the company)
You don't see anything sleezy about an employee who put in both sweat equity and money getting nothing for his stock, while other shareholders are reimbursed for theirs?
Seems both sleezy and a cautionary tale for those thinking of working at a startup from where I'm sitting...
The general definition of preferred shares is that they are treated preferentially to common shares. In the most typical case, they get their money back before the remaining funds, if any, are disbursed.
So no. There's nothing sleazy about a preferred shareholder being treated preferentially, necessarily.
Usually things like preferred stock and senior bonds are used to protect shareholders from bankruptcy, rather than acquisition.
When you issue stock to someone, you accept a fiduciary responsibility for increasing the value of those shares to the best of your ability. That fiduciary responsibility includes siding with their interests if and when a conflict of interest arises.
If the founders really did receive a large pay day while taking the value of their non-preferred stock to zero, then it sounds like that fiduciary responsibility was ignored.
It sounds like Google hired the founders (probably with a nice signing bonus), and threw in enough money to appease the investors. The investors' terms likely included liquidation preference, so I'm not surprised you didn't get anything.
Talent acquisitions only pay for the TALENT being acquired. You were not acquired, so you got nothing. There is no reason to be upset here. The founders did not do you wrong. They aren't as rich as you think, just flashy.
I voted three times...but this is missing a negative entry - you know, the scenario where you pay an obscene amount of taxes on the ridiculously inflated price of your shares when you exercise (and can't sell yet while awaiting a liquidity event), but the shares are later downgraded to 1/10th taxable estimate...so you get to hold on to that loss for years, hoping at some point to be able to be in the position to write off the tax loss! Yay, equity! ;)
Agreed, there should be a 'I'm writing of $3,000 a year" option. I had a lot of room to cover gains by that for a while.
But its an area where tax law has changed a bit so its useful to check with your accountant to see if you can write off gains on current stock against previously realized losses. That way you get to keep more of the money from selling the current stock. Exercises are still regular income (grrrrr!) but gains on like investments (stock for stock) are generally offsetable. Check with your accountant.
Wait. Why would you do this? Can't you hold your options as, well, options until you want to exercise and sell them? I don't get why you would convert options to stock unless you wanted to sell them right away. I'm sure I'm missing something. Thanks.
One situation where you would do this is if you are leaving the company.
eg. spent 4 years there, fully vested, decide to leave for another opportunity. In most cases there is a very short (30 days is common, sometimes up to 90 days depending upon the options contract) window for you to exercise your options or you will lose them.
There are a couple reason you might exercise you options.
First is that options come in two flavors ISO and NSO (or Non-Qualified). If you are issues ISO options then you could exercise and hold to qualify for long-term capital gains.
I am having to get ramped up on this right now as my company is filing. I'm not 100% positive, but, I believe if you exercise and sell in a single transaction, you're going to get hit with ~40% short term capital gains tax. Holding the exercised stock for a year will reduce the tax hit at sell time to ~22% long term gains.
Yeah. The right time to exercise when a company is filing is like...a few years before, when the shares were pretty much imaginary and you weren't standing to be taxed for imaginary wealth (why I once agonized over buying 25 cent shares for 700 bucks in a company 4 years away from an IPO, I have no idea--it's either lost money or free cash. Assume it's lost money and you're either right or happily surprised a few years down the road; both aren't such bad outcomes).
You've likely heard this, but one thing you might want to look at is a hybrid transaction (I think they call this a "cashless transaction"); exercise and sell enough to cover taxes and to purchase anything you've got available to exercise (to hold for another year).
You may net less (or much less) a year from now waiting for long term federal tax rates vs selling now - if the stock price falls rather than remaining flat/rising.
I've come to the realization that you're right, jen_h and mjs00. I'll likely be doing the cashless transaction (if offered). Basically, I didn't play this one as well as I could have and am trying to find a way to recoup now. I think it's a bit late and I should take whatever's on the table when the lockout ends (assuming there's something left)
A bit of advise, you need to compare between capital gains vs stock loss. Most problems come when the stock is losing 40% of its value, and still keep it in order to avoid capital gains, ended up losing even more.
During TechBubbleV1, many people got completely burned by AMT after exercise.
Several were bankrupted because the stock deflated. Oh, and IRS bills are not dischargable in bankruptcy, so those poor bastards had their pay attached.
Or even worse exercise your options when the company goes public but do not sell the stock. Watch the stock plummet to less than a dollar. Now you have a big tax liability and no way to pay it off!
I believe that the exact amount was $112 (net). Unbeknownst to most, our executives screwed everyone over and issued preferred stock to a major investment bank. I, and many others, had thousands of options, but the share price for common shares was too low for most grants to be worth anything. The executives all received bonuses for the sale from the investment bank.
Similar situation, though I must say that the CTO felt guilty and gave me an ipod. Then felt even more guilty and arranged for the company to give me $5000 and let me keep the ipod. This was, I must add, when ipods were expensive novelties.
I had a similar experience, a VC bought "preferred stock" (I can't remember the exact jargon), when the company was sold, the payout went entirely to the VC, and no standard stock holders received anything.
And this is how most people are screwed. Most folks receive options and never even see the financing docs or stock plan, so they don't have a shred of knowledge about the capital structure.
(Not picking on you, except by way of example. Your situation is all-too-common.)
yeah I definitely walked into it with my eyes closed. My wife was telling me it was a bad idea, and I still didn't listen, but hey, who listens to their wife right? haha
No way, they're much worse than lottery tickets. They're lottery tickets that even if you do win, some jerk can come along and make your winning ticket worth nothing after the fact.
Wow...I have a whole new appreciation for how unbelievably lucky I got. Never even worked in Silicon Valley and had multiple exits that were, judging from this poll data, quite anomalous. Even when I was the employee.
When I started out I had no clue about exits or options or any of it. It was just another number on my offer letter. I took the job because I wanted to learn and do some fun graphics programming. It really is a Christmas miracle that I was able to do that and not even live in San Fran.
Based on my experience, I would say a good number of the votes you see represent pure, dumb, luck. Without question my votes do. Maybe some people were able to steer themselves to those exits, but for many, I'm betting they just got lucky as well.
This data is really only showing you the likelihood of getting lucky. It is better than anywhere else in the economy. But it is not something that you should plan on. I think that is the "take-away" as the business guys would say.
- Employee # <125. Exercised options on a vested block of pre-IPO stock before leaving. After IPO and waiting period, sold a chunk for low-mid 5 figures, wanting to spread the sales and capital gains over multiple years. Later that year, sold the rest for 1/4 my exercise price.
- Employee # <20. Exercised some ISOs. Company acquired, all value went to preferred share holders, I received an education in classes of stock and AMT credit carryovers. Got some incentive bonuses to stay with the acquiring company.
Takeaways:
- Work your job for salary. Don't expect stock options to pay off.
Can there be a "Company folded, stock options got bought out from under me without my consent for pennies to give to the people who were buying the remains of said Company" option?
If so, price it at $200 dollars, and i'll vote for it.
On one of my final days I was handed a check for my shares, because I wasn't going with the new owners, and all stock was to be given to them. Was never asked if I wanted to sell, and it was valued extremely low for "accounting purposes"...
Employee options are common shares. VC gets preferred shares (typically). When the company is acquired for less than the investment or goes under, preferred shares get paid out first. So even if common shares have vested, there's no guarantee they're worth some percentage of the current valuation of the company.
Pretty sure it wasn't, but I didn't really have the resources nor the energy to fight it.
On the one hand, I was told before that the CEO would be buying out all the outstanding stock of people leaving the company
On the other, I was never presented with any kind of form or bill of sale to sign, which is what I was waiting for so I could contest it and attempt to keep my shares.
At the end of the day, the amount of shares I owned was so incredibly low, that I figured it didn't really matter, and that I was incredibly eager to be done with the whole place after all of the shit I had been through, that it wasn't even worth fighting for.
So on my next to last day, I was simply handed an envelope with a personal check inside, made out to me, for the amount of One Pittance.
You're suggesting that having classes of shares is unconscionable?
If the idea of preferred shares shocks your conscience, you should spend a lot more time studying how startup financing works (at a nuts and bolts level) before taking the plunge and working at one.
There have been several comments on here lately that make me realize how few people actually understand how equity works in startups. I mean, if people are shocked to learn about preferred stock, what would they think about participating preferred?!?
I guess this is really something you only learn when you are the one signing the financing docs.
It's not so much the fact that they are preferred stock but that you could argue that the stock is re-purchased at what could be considered to be less than market value.
Imagine if you will a publicly traded company that repurchases preferred shares, right before the company agrees to be acquired, for substantially less than the post acquisition valuation. You bet there'd be law suits....
Nonetheless your point stands, if you are considering acquiring preferred stock (whether purchased with cash, other equity, or hard work) you should do so with your eyes wide open.
That's because employees generally can't negotiate the terms of stock grant (exceptions to the employee stock option contract are often board-level decisions), but every venture funding deal is heavily negotiated with lawyers on both sides.
Generally, a company wants to get the best deal with the most lax terms possible, and will try to accomplish that. The preferences given to investors are part of the market pricing of an investment deal. You can no more declare that investors shouldn't have liquidation preferences than you can declare that they should price the deal 50% higher.
>> You can no more declare that investors shouldn't have liquidation preferences ...
Not suggesting that. In fact, I have no objection to any clauses or terms that are negotiated in the original funding, although employees don't always have access to the terms in these agreements. However, these negotiated terms merely form an upper bound to what employees actually get.
There are a variety of situations in which the investors end up with more than the original agreement would suggest, and employees end up with less. Some of them are discussed here: http://news.ycombinator.com/item?id=2958766
Founders sometimes end up with an outcome similar to the investors, but more often an outcome similar to the employees. Employees expect that their interests are aligned with the founders, and that founders will protect them, but this is not always the case.
Well, how much do you think shares in a bankrupt company should be worth? If there's not enough money to go around, someone is going to get left with the short stick.
Company boards can do this from time to time in takeover situations.
Consider: Berkshire-Hathaway bought the entirety of Burlington Northern Santa Fe for a fixed price, negotiated with the BNSF board. They bought it outright and did a merger. They didn't go to each individual shareholder and ask permission. Many shareholders probably weren't even paying attention enough to check in their portfolio.
The alternative is that mergers are impossible and you're stuck with having a 95%-owned subsidiary with its own corporate structure and all the overhead that entails.
(Of course this is prone to abuse. There are laws to protect minority shareholders' rights.)
Did your contract have drag-along rights[1]? I'm certainly no expert, but I think that's quite common. It would be very difficult to sell a company if you had to track down every single shareholder no matter how small their stake. So it's basically a majority rule.
I'm guessing if the company was put under administration, employees holding stock (which is bound to fundamentals anyhow) would just be another creditor realizing market rate.
Not sure what "under administration" means exactly, but the company was folding, and the CEO was selling the remains (the software, a few of the people, the name if they wanted it) to an investor who owned another company, to do with what he wanted.
So it was priced at the "market" value, which he estimated to be quite low (and he was probably right, we weren't all that successful at the time).
At the time I didn't realize how rare this was, but the company was sold for cash, all options were accelerated to vest at close and people were payed with a check.
There was a 50/50 chance we could have grown the company to be very cashflow positive (ie - we sold too soon) and there was a 50/50 chance we would have folded (ie - we sold at just the right time). We were bought for our novel technology and the engineering team was for the most part kept around and given good incentives to stay on for a bit.
That job and the acquisition kind of launched my career so I don't spend too much time worrying about whether the CEO or the board pulled the trigger too early.
Indeed - I don't think this happens very often. I was a small beneficiary of this kind of deal, and even at the time it struck me as an excellent deal. Mind you, I attributed it to working with really good VCs and founders.
That's an incorrect overgeneralization. Not all startups are alike, as I'm sure you know.
If the employees get screwed over, then it doesn't sound like they are valued. I see many startups where the employees are super valued assets, get a decent salary AND they do what they love.
I work at an early stage startup, and I absolutely love what I do, who I work for/with, and I make a lot of money. I have stock options, but it's just icing on the cake.
Evidence that "most" good founders were employees at hot startups, and that most important companies that generate the most wealth occur in 'networks of success':
Interesting. Atlanta security startups have significant pedigrees. It's the same in chip companies, where founders are older and many trace their roots back to Fairchild. Among consumer internet companies, most good founders have not been part of a successful company before.
Obviously, that's true of some startups, but very wrong in others.
Working at Weebly, you have similar hours to BigCo (although you'll be 10x more productive), paid market rate (or slightly above), and receive your fair share of the outcome.
You also get to work with a fun group of people who are obsessed with being productive, and not much else. Maybe we're the exception, but we don't care if you're a 9-5 type of person, if you're very productive during those hours.
Working at a startup doesn't have to be shit, just because some startups are.
Agreed - if someone enjoys their startup life, more power to them in that there is nothing that pays better than enjoying your situation. For someone who is looking at it as a financial play but sitting in a startup that is grinding them down to nothing, they are most likely making an extremely bad investment.
That's fine, I'm just surprised you'd make such a sweeping generalization. Not all BigCos are the same--why would all startups be the same?
I'm not a startup cheerleader -- "come change the world!" is the most overused pitch line ever -- but there are tons of examples (37signals, some YC teams, some of the larger NY startups) countering this generalization.
You really think this would be true across a spectrum of companies with different funding situations, different revenue streams, and different user bases?
I don't get this sentiment--it completely ignores the differences between mature and fledgling startups.
It's clearly not all unicorns and cupcakes, but there's a difference between "work for us at 2/3rds market plus 1%" and "we're VC-backed, work for us at market and get health plus other nice perks." Startups are not uniform.
Max is right. As an employee, Startups do beat the shit out of you and if the startup shuts down after a year, you gotta begin all over again from where you started a year back.
You take almost as much risk and work just as many hours as when you work for yourself. Except you own very little in equity (as a developer, usually less than 10%) and you have no control over what happens with the company (usually when VC takes over, they will be trying to make an ROI asap at the expense of any long-term plans).
I would be highly suspicious of the greater than $11M category. You'd have to have one hell of an exit to get $11M as an employee and according to the poll about 1 / 16 people on hacker news have been through this or more. From my experience and those of my peers I'd put it at somewhere betwen 1/100 (being extremely optimistic) to 1/1000 (probably still being optimistic) - and yes there are the google, facebook etc. stories but for each there are the 1000 other untold stories that didn't pay anything sizeable.
I suspect most of the people answering in the millions were founders and not employees. Employees usually have less than 1% equity, and there just aren't that many multi-billion dollar exits.
How about, company was acquired by public company, employees were convinced to transition options into a promissory note that would eventually convert to more stock with more value, company folds, employees get sued for value of promissory notes? They tried to sue me for $113,000. We settled for $500 in lawyers fees. Never trust anyone in your company when it comes to this stuff, always get outside legal advise. I've been a millionaire on paper 3 times now?
That'll need to be a different poll, partly because I've worked for a number of startups and only had one exit - in general, we'll need to vote in some other way to get a feel for that.
I got stock options in exchange for sweat as a consultant in what is now a NASDAQ listed company. Great deal, which netted about a 10x profit over the money Id have been paid. Of course, not without it's risks, but as a freelancer I feel my risk was limited.
For the startup founders out there - Is it getting harder to find talent? Are you having to pay more? Are employees more well informed in matters related to equity?
I think people should select the value they were able to sell their options for (post IPO) as opposed to the value of their options on IPO day... As lockout periods almost always keep employees from exiting for quite a long period after an IPO.
After we got acquired by Microsoft the option were converted over to MS options and the strike price was something like $1.14. Yeah, the stock plunged; but I was pretty confident they'd never be underwater :)
When the company was wound down, the VCs got back a significant amount (I think it was somewhere between 1x and 2x original investment, closer to 1x). The employees who had stock or options got zero.
There actually should be a negative category for all those that got hit with taxes after excersizing and then couldnt cash out. This unfortunately happens more frequently than you might think.
I have had options in three startups and have never seen a penny. I am now convinced that options are a con trick.
Founders would make far better hiring choices if they had to give real stock. Employees, too, would make far better hiring choices if each new employee diluted their stock (especially if all employee stock came from one significant pool,say, 25%): do you dilute to complete or work even harder to keep your share?
This question would motivate staff as much as it would motivate founders not only to create a successful company but to hire the kind of people who would see it through. It would also show a level of trust that, generally, would be repaid.
If people did leave, keeping the stock, you may have made a hiring mistake (or some bad luck) but you will still have a champion who will help bring goodwill, customers and new staff.
Think of all the companies with successful exits in the last 15 years, or companies that are not public but whose shares can be sold in private markets like SharesPost. Depending on the size of the company, each exit event probably generated between 1 and several hundred (in the case of Google) multi-millionaires. I'm sure a non-trivial fraction of those people read HN.
It might be interesting to split this by exactly what sort of exit -- a talent acquisition is just as much an exit as an IPO or a high-priced buyout, but probably won't give nearly the same payout.
My options per se were not worth anything, but the company that acquired my startup gave employees a bonus on closing and held out additional bonuses if we would stay for two years.
I am surprised by the distribution. Does the upper end (>$11M) represent founders or really just non-founding employees (I guess the Google-generation?)? I see 66 votes but not a single comment from anybody in that bracket.
It's unfortunate that ESOP has such a bad reputation. I have never been a non-founding employee, but my last venture paid out about $3M net to about 20 non-founding employees and 30 interns (about $4.5M gross before strike price). Roughly 10%/15% net/gross of the exit value. Ranging from high 66 digit all the way to 3 digits (for late-stage 4 months interns).
In my latest venture we simply give common shares to employees (reverse vesting but otherwise the same as the rest of the cap table).
That's not percentage of the company - that's percentage of the equity held by employees. In some cases it might actually turn out a bit better, like 90/5/5 or something like that.
Regardless, the outcome seen by founders is orders of magnitude better than even early employees.
This can be exacerbated by a bunch of games that can be played at an exit to make the disparity larger. For example, you can cancel all unvested options. Founders have likely been around longer than the employees, so they have more stock vested, plus they typically get some acceleration upon change of control.
For example, imagine that a founder has 25%, and employee number 1 (who was hired 6 months after the company started) has 2%. That they sell to Google after the company has been around for 2 years, and that all unvested shares are cancelled. Employee 1 gets .75%, and the founder, who has 1 year acceleration on change of control, has 18.75%. On top of that, the founder probably gets long-term capital gains treatment because he exercised his shares immediately, where the employee didn't exercise any of his shares and treats the gain as income (if he had a 1-year cliff, he probably couldn't exercise for a year, at which point it didn't matter, because he had only held the shares for 6 months when the company was sold). So the employee ends up with 0.5% after taxes, and the founder ends up with 15.63%.
Which means that he ends up doing about 30x as well as the first employee.
The only company that I was working for that did offer stock options required that we rescind them (two years short of when most of us were to be considered vested) in order to participate in the new company matched 401K program.
They never wound up going public and got bought out by a larger company.
More seriously... probably more along the lines of company fails, maybe left before vested, etc. Curious to see a list of ways though... or peoples experiences.
If options are "underwater" at the time of acquisition, it can be part of the deal that acquiring company does not need to honor those, and they are basically deleted. That happened to me, when options at a public company were acquired by another public company. All the vested but underwater options were simply deleted. When share price rose at the acquiring company my options would have been worth $600,000+. Oh well... ;(
Lots of companies have claw-back clauses where they buy the options back from you if you leave before they've vested. Or, in my case, the company was sold and the common stock (I bought the shares not options) was worthless.
Yup, I had one recently. The company had buyback rights at the strike price of the options that were equivalent to typical vesting terms. So, a 1 yr cliff, 4 year monthly vest. I.E. Any time in year 1 they had the right to buy them all back for exactly what I would have paid to exercise.
Actually there must have been, as new poll options go to the bottom and there's no way to re-order them, so it wasn't added afterwards.
Apologies for the slightly snarky comment, thought you were for some reason complaining that your option was wider than you would have wanted it to be - not that I can think of any reason why anyone would whine about that.
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