I’ll keep this brief, because I’ve already said it all before, but stock options are a complete fools game. Yes, sometimes young companies do well and there’s value in purchasing those options long before they do, but the odds are so stacked against you as an employee you – almost – might as well buy a lottery ticket. Continue reading
It’s been a while since I covered the bullshittery of startup stock options on this blog, but today life had led me to needing to put out a distress signal to anyone who doesn’t quite understand how they work and why they are really a load of fancy horse manure, slightly more valuable than a handful of lottery tickets.
What’s worse is those lottery tickets come with a price. I’ve explained this on my blog before, but feel like it’s necessary to cover this topic one more time, just to make sure that the point is clear.
When you join a startup, part of your total pay package is in stock options. For the sake of simplicity, let’s say you are a new employee, relatively senior, and you are going to be given $100,000 in total compensation. That compensation will not be all cash. Say you get $70,000 in cash, $30,000 in options. The value of those options is really where the bullshit factor begins. Options are priced at what the investors think the company is worth. The earlier the company, the lower the “valuation” (i.e. price the investors think the company is worth), but also there’s a lot of guesswork involved as well. What is the company going to be worth when it sells? How can anyone know that before the product is tested and it’s clear that people actually want to buy that product for the long term? Continue reading
They call us job hoppers. The average tenure of a millennial employee is just 1.5 years to 3 years, according to various studies. If only there were opportunities to actually move up within our own organizations, we won’t be so tempted to hop. But there often is a great divide between opportunity in one’s current position versus the opportunity outside of it. Leaving becomes the only way to move up.
I’m very committed to my company, so committed that I’ve probably stayed longer than I should have given the opportunities that have presented themselves. I am just hungry for a new challenge, a new topic, a new game to win. I also have, in my deep reflective thought over the past few days, realized that at this point in my career I need to surround myself by positivity and growth, not stagnation or worse.
I’ve had the fortune of watching a number of executives and managers go through poor treatment by their own managers, layoffs, firings, or underpayment, and resiliently go on to obtain even better opportunities. It seems that no matter how much they seem to have their heart and soul poured into a job, they’re never bound to one business. They just aren’t emotionally tied to it.
Most people won’t be emotionally tied to their work. Sure, one could get excited about completing a project, solving a problem, or getting a promotion, but at the end of the day their life isn’t their job. Even if they seem to work and network most of their waking hours.
I started wondering recently how important it is to have somewhat of a sociopathic mentality to succeed in business. I took this test on whether or not I’m a sociopath and came out to be just 22% sociopath. Apparently the average woman is 37% sociopath and the average man is 50% sociopath. Continue reading
My life is organically bipolar. Every 3-4 years there is a natural transition that by fate forces significant change. As much as I hate change as it’s happening, in the long run this makes my ADD self happier. I get bored living the same life for too long. I do my best work, and am my best self, in situations that are a month or so in from early novelty. So I should be looking forward to 2014, or at least 2015. It is clearly going to be one of these transition times of my life.
So why am I so afraid? First of all, it remains challenging for me to watch a business I helped build go through its own rollercoaster as a startup. I want more than anything to be 100% positive all the time, keep my head down, and help pick up slack where needed as our small team continues to shrink, but I’m lost in questions of how much professional value I get from going down with the ship, should it sink. Meanwhile, according to discussions with my boyfriend, 2014 is the year we supposedly get engaged. That’s something I’m looking forward to, though at this point, having dated nearly 8 years, I feel like we’re already married minus living together – and that too may be a change that happens this year.
It’s been said a prudent investor should limit the value of one stock to a maximum of 10% of their total portfolio. Usually it’s advised that one is even more diversified, especially if that stock is a small cap. I haven’t found advice about private companies because at that point wealth managers are generally advising angel investors with over $1 Million in networth to their name already. It’s really hard to find good advice for startup employees trying to figure out what to do with ISOs (incentive stock options.)
ISOs are a type of employee stock option that can be granted only to employees and confer a “US tax benefit.” They are also called Qualified Stock Options by the IRS. Tax benefits provided by the IRS are typically designed to encourage regular folk like myself to take minor risks in order to obtain higher value down the line. For example, the IRS allows the average joe to put pre-tax money (up to $17,500 a year) into his 401k, which, theoretically, is taxed at a lower rate during retirement.
For ISOs, the benefit can be huge if and only if the employee takes the risk to exercise early via an 83(b) election and the company does extremely well. The problem is that the risk that the employee is required to take is much, much larger than that of someone investing in a 401k. When you invest in a 401k for $17,500 per year you usually have an array of mutual funds that you can select so you have a diversified investment. If one company goes under, your investment will take a hit, but you won’t be down to $0.
Now, with ISOs, it’s a different story. If you join a company as an early employee you’re often sold the dream of the company hitting it out of the park, and those stock options being worth much more than they’re worth today. That’s how startups entice talented folks to leave big corporations to work for less money and much longer hours. Sure, there’s the flexibility, the excitement of building something new, et al, but if stock options weren’t a key part of that recruitment package they wouldn’t exist in the first place.
Some people do strike it rich on options. But the matter of fact is, 9 out of 10 startups fail. It isn’t clear how many of those 9 startups go to $0 and how many of those 1 in 10 actually return anything significant to common shareholders (i.e., the employees.) I know for a fact that a certain $1 billion acquisition returned around $1 per share to common shareholders, while an acquisition of just a few million over what was raised returned $3 a share to common shareholders. The numbers never make clear sense.
With ISOs, you’re provided the benefit of early exercising. I’ve written a bit about this before, but basically, early exercising means you “get” (benefit) to BUY your shares right away. Why would you want to do this? Well, say you have the option to buy 10 shares for 1 penny each today, even though you don’t actually own any of them until one year down the line because you have 4-year vesting with a one year cliff, standard terms for founders and early employees. This means that whether you buy your options or not, you don’t actually have the right to any of them until one year of service. If you quit before that time, so long options.
But it gets more complicated. After the one year of service, every month you vest a percentage of those options, until year four. The company may or may not be sold or go public during this time. Companies, even successful ones, usually take much longer to go anywhere. Many of them have ups and downs and ups and downs on the way. The ups are great. The downs sometimes include investors coming in to give more money to keep the company afloat while washing away any potential gains of common shareholders. That’s one reason why successful companies may still not even provide expected returns to employees who have worked long and hard for their reward.
So why exercise early? Exercising is actually a taxable exercise. Companies gain value, albeit paper value, as they grow. So if you received 10 options for 1 cents a share in 2013, you can buy them in 2013 for 10 cents a share and pay no tax on these options. Say in 2015 your company is supposedly worth $1 per share. If you want to exercise them at that point, you have to pay tax on 99 cent gain per share. That’s not much. But if you own hundreds of thousands of shares, and the difference between the exercise price and the current value is much greater, you’re looking at a sizable tax bill for assets that are entirely illiquid and may be for the foreseeable future. Long story short, if you want to get any of the potential value out of your stock options, you probably should exercise early if your company lets you. Exercise early and pray.
Now, you’re thinking, why not just wait until a long time in the future when the company sells to exercise my options vs taking the risk today? You can certainly do that. The only problem – and it’s a biggie – is that makes you stuck if you want to leave the company or if you are forced out. You have 3 months (count ’em, 90 days) to exercise your options, or you give them up. At that point, even though the company may be doing well, you are looking at a taxable event if you want any of those options you negotiated so hard for and earned during your tenure at the company. You’re stuck with a psychological battle here — do you buy the options, pay tax on them, because they were part of your compensation package, accepting that they very well will be worth nothing after you’ve paid a heap of tax on them – or do you let them go and accept that one day they might be worth a lot and you won’t see a penny of it?
Yes, that’s the problem with ISOs. Worse yet, when you join a company early on, you don’t have to exercise your options, but when you’re a small team — unless it’s clear you just cannot afford to exercise those options today — people you work with like to see your skin in the game. If you’ve exercised your options, you’re an investor in the company. Yes, your fancy benefit for working for a startup is that you get to pay to invest in a company that has a 90% chance of failing.
The later you join a startup, the chances of failing might go down ever-so slightly, but the cost to exercise the options go up. No matter what, it’s a crapshoot. Like in Las Vegas where the Casino always wins, in startups, the investors always win, even if they lose. Founders have a slightly higher chance of walking away with a piece of the pie, even in a failed outcome, because they have so many shares the investors often want to buy them back from the founder so they can control the company. Founder gets a few million for selling their shares back, leaves on his merry way. Early employees are pretty much fucked.
That’s just the way it is. Few people understand this, or the odds. I joined an early-stage startup and paid $20,000 to exercise my options. Yes, this was a huge risk. Our CEO would rattle off numbers of our shares one day being worth something between $35 and $65 a share in company meetings. He got us all excited because that was his job and at the time we all had to be a bit delusional to grow the company from nothing to something. But I fell for it. I wanted to. I wanted to buy the startup lottery ticket and, while I knew the $65 per share was a long shot, I dreamed of walking away with enough for a down payment on a house. Couldn’t my 100,000 shares turn into $200,000? The fantasy was always $1M, but I kept myself grounded in reality, worked hard, hoped that maybe all my hard work would result in $2 per share. Just $2 per share.
Today, everything has changed. We have a new leadership. There’s no CEO standing up and talking about employee share price anymore. I’m pretty sure that’s one conversation the executive team wants to avoid. And I’m just an early employee who put 10% of her networth into one very early-stage company. If someone came along and asked me to invest $20,000 into a Series A startup today, and if I was legally allowed to, I don’t think I would because the risk is too high.
Angel investors (and VCs for that matter) would never invest in just one risky company and call it a day. For more seasoned executives, buying a chunk of a small company to exercise their stock options may be a much smaller percentage of their portfolio, so that’s a different story and a different risk allocation – what’s 10% of my portfolio could easily be 2% of an executive’s portfolio who has a lot more money and assets saved up.
That said, I encourage everyone thinking of exercising their options to be realistic about the risk involved. It’s not like buying an expensive lottery ticket exactly, or putting it all on roulette red, but there are risks involved, and yes, you can and very well may lose all or some of your investment. Venture Capitalists do not care about employees or their cute little stock. They care about not losing money and making money. If you’re working for a company that is going to raise a lot of money and wants to grow fast (once you take any VC money this is kind of a given) your stock is most likely going to be worth very little to worthless. Unless you happen to hit the jackpot.
When you work for a startup, despite it being work, it sure feels like a cult. You are all working together to create something new. You’ll all a bit delusional, working behind a fearless leader who can convince you of just about anything. Sure, there are disagreements among the tribe, but in the end, it’s clear who you work for, and everything kind of falls into place.
That is, until the leader moves on. It’s common in startups for this to happen by choice or by force. As the company grows and changes, it turns from a cult to something that resembles a slightly more normal corporation. The challenges are still there, you just don’t have that, uh, crazy glue to hold it all together. And, as per the case in many startups where this transition happens, one by one, the early members leave, go off to new adventures, and the few that stay are left in a little state of bewilderment and shock.
This is a good thing, in many ways, as you want your company to grow and change as long as it’s meeting business need. That’s the goal of any startup. But suddenly your working 48 hours straight to prep for a business pitch when you were a team of five doesn’t matter, and it doesn’t matter that when you went to a business event you hustled and felt bad every second you weren’t getting leads, at all hours of the day, or when you stayed up all night to do a sales pitch to inbound leads from Russia, China, India and Europe when all you had to pitch was a very bare bones deck, because no one from that group is left. People have joined because the company already is somewhat successful. Yes, you were a small part of helping build that, but who cares. Right now, your job has changed significantly. You helped build the car, now be part of a new engine, and don’t blink twice because you’re either on board or you’re off.
What complicates matters more is the jealousy that comes with watching others move on to new projects. Many team up to start new things. Some seem to have great potential. And while I really, really want to focus on being completely 100% dedicated to my role right now a part of my mind wanters into jealousy territory. Jealousy, envy, and the sheer sadness of feeling unwanted, like all the work I did to prove I could help build a company wasn’t even good enough for the people whose cult I was once part of. I’m the member that was kicked out, never asked back in. Which is fine, there are plenty of reasons for that, many of which I’m sure have little to do with me anyway, and there’s the reality that it probably wouldn’t be the ideal choice to go to even if asked, but it hurts not to be asked. I think that’s a natural human reaction to the situation. I just don’t want to dwell on it too much.
I wouldn’t dwell on it so much if I felt I was the right fit for my current role, and able to help with the challenges we’re facing today. I can help a little, but feel so overwhelmed on the grand scale of things, and am lost in questioning everything these days. Even though my previous leader was by no means perfect, he is gone. And as it really was such a cult that gave me superhuman powers to get stuff done in ways I never had before, all due to this group mentality, I have to figure out a way to get that back and motivate myself. I do a lot of work still, don’t get me wrong, but I only feel alive when I’m pushing myself like this. It’s probably healthier not to have a leader like this who tears you down a bit to motivate you, who has unrealistic expectations that somehow you still have to meet. And yet, I miss that. I just need to make that crazy leader voice something in my head so I can excel in a healthier, maybe even one day stable job environment and career. Hmm.
Here I am, weeks after my 30th birthday, working a job that pays over $100k, and I’m almost ready to throw in the towel. I know I have it in me to good work, at least in the short term, and at least when I have the resources needed to succeed – but tonight, I’ve just hit a wall.
What I’ve known all along is that I don’t belong in business. In business there’s never enough money or time to get what you want done. In startups, take that and multiply it by a billion. In any case, the best managers are able to get stuff done because they constantly negotiate with vendors, perfectly manage projects and communicate clearly what they want and how they want it done to not waste time, and inspire peers and subordinates to do the work they don’t want to or don’t have time to do.
Well, I’m terrible at all of that. I can’t seem to get what I need out of my external or internal resources, and while it’s nice to pretend it’s just because they’re incompetent at some point I have to accept responsibility for at least a large chunk of that incompetence. So I wonder if maybe I just don’t have the skills needed to succeed. Heck, I’m doing a lot of this stuff for the first time, learning by trial and error, and more error. It’s just there’s no room for error. I mess up and I don’t have budget to fix it for another year or maybe never. Or, I try to fix it with not enough budget and end up with half-finished projects and more mess.
Is this something they teach in MBA programs? Or should I just give up as management of any sort is not in my DNA(DHD). I’m just so frustrated right now. Frustrated enough to throw in the towel. I want to just tell my boss I can’t do it. I’m a sham. Hire someone else who knows what they’re doing. Someone who maybe isn’t as creative or innovative but who doesn’t commit to more than what’s possible. Someone who knows what really needs to get done and picks the right battles to fight, not the wrong ones.
I just hate feeling like such a failure ready to quit, especially as a woman in a senior role in technology where so few exist. I don’t actually know where I can be a productive employee anyway – these skills tend to crossover between industries, it’s just amplified in a startup because you’re competing against businesses with a lot more budget and expected to grow extremely fast. It’s fun very early on, when growth is about going from 0-100 not 100-1000000. Then it’s about personal relationships. Small changes go along way. Success, albeit temporal, is possible with a lot of hard work and guerrilla tactics.
But everything has gotten too big. I’m falling hard. Yes, a few things get done well but who can really see that with so much mess. And instead of focusing on the things that I really need to get done I’m spending time going back and forth with an agency about them using too much time on a project that I thought we had agreed would not go over a certain number of hours. I don’t know what I’m going to do if they don’t agree to finish the work for the budget. I mean, I have to get it done, I have no choice. I will have to simplify the project, accept a design I don’t like, deal with things not being anywhere close to perfect, wondering why I bothered fighting to do this project in the first place.
I seriously need out of technology, business, and I’d say the workforce except I’m not a trust fund baby and I need to at least break even and put away some savings. I can’t think of any job I’d actually be good at. I just fake it for long enough until I can’t anymore. At this point I usually get laid off… which is potentially going to happen next month. I turn from queen optimism and productive to depressive, cynical, and – the worst – unproductive. Or not super productive as in the state I need to be in to be happy.
Well, it is what it is. I just wonder what it would be like to work for a company with appropriate resources to get my job done. Do appropriate resources exist anywhere? Clearly it requires making a case for the budget and reporting on how the work ties into the bottom line somehow. You can’t just have play money. Not unless you have your own to play with. So, where do I go from here? I really have no clue. I just wish I could sleep.
This is the downward spiral of depression. I can only think about all the things I do wrong. I worry that I can’t be successful at anything in life. At least with work it’s not the end of the world if I end up unemployed for a while. It hurts, for sure, both my psyche and bank account, but it’s survivable. What if I eventually become a mother? You can’t just quit parenthood or take a break from it when you’re having a bipolar depression, or just flat out sucking at the job. Knowing that life is just going to get more complicated, and ultimately more filled with fuck ups, I just drown in feeling overwhelmed about it all. So what if I have $250k today in savings? So what if from the outside I have a good job, at least by title? That can all be gone in an instant. I cannot maintain. I can only maintain my great anxiety and sense of perpetual failure.
When you join a startup as a full-time employee, part of the package includes stock options. It is actually kind of funny how these are presented, as most employees choose to work for a startup for a lower salary than what they’d make at any large business, and in exchange for this lower salary they get some number of options. That sounds fancy, but really what it means is that when you join the company, you’re provided the right to buy X number of shares at their current strike price.
Now, if you join a company very early on, this strike price could be extremely low. For instance, if you get options valued at 5 cents per share as one of the first 10 employees of a company, and one day the company sells for $5 a share or IPOs at this rate and holds it value for a 6-month no-sell period, you have a sizable profit per share, even after taxes. So if you had 1000 shares you’d make $5000 minus the $50 you’d have to pay to buy the stock options. Minus your tax rate, or if you exercise early (will explain below), a lower tax rate. Not bad, you did pretty well for yourself. Especially if you negotiated many more than 1000 options, say, 100,000, or 200,000. Suddenly a $5 sale price could be worth millions. Hence, the golden handcuffs.
But these handcuffs are fuzzy. Because besides the company having to be successful against very tough odds, there are so many other variables that go into the value of the options that few startup employees understand. Executives use this to their advantage in hiring talent on the cheap, and employees get to dream of being part of building something that could contribute to their financial freedom, or at least financial flexibility. Usually, this is just a dream. And you don’t know what those options are worth until an event many years into the future, possibly after you left the company.
Stock options are designed to keep employees around when they can go off and get a better salary some place else. They are not really designed to the benefit of the employee, though in the rare occasion when a company does well they can make the employees wealthy. There are a lot of companies that fail, very few that are huge successes like a Google or Facebook, and many more that quietly get acquired for cents on the dollar, with employees lucky if they see any increase in value on their shares. Sometimes these acquisitions are considered a success for the business, and the executives and investors profit from them, but common employees with their common stock are screwed over.
I witnessed this first hand at my last startup where, in an acquisition, I was provided the option to either sell back my handful of shares for $3 per share, or trade them in for shares of the acquiring company which were then valued at $16 per share. However, due to the acquisition terms, only accredited investors were legally able to accept the second option. Basically, you needed $1M in networth in order to trade your options in for the $16 per share opportunity. The deal that was struck was clearly designed to benefit the executives (all who were already millionaires) and not the common employee.
I didn’t complain here, however, as I had few shares and wasn’t planning on buying them – they were a gift to me upon my layoff. I walked away with a small bonus that got me through until my next job, but what I gained was the learning that options are never ever worth what they should be, and executives will do whatever it takes to bullshit you into believing their potential so you work your life away to help make them rich. Yes, the executives usually get rich well before the company sells, between their larger salary and cashing out a little in each round. But the common employee, who thinks he has this great opportunity to one day see some form of wealth, is largely deluded.
The Problem with Stock Options
- You have to buy them. You are given the right to buy stock options at a specific strike price. If you are a very early employee, this strike price may actually be pennies on the dollar and cheap enough to buy up front.
- If you don’t buy them up front (exercise early) then you have a big problem. The price of the stock will likely go up and when you do decide to buy the shares, you have to pay taxes on any interest between your strike price and the cost of the shares.
- You can wait until the company gets acquired or goes IPO to sell the shares, but then you have to pay alternative minimum tax on the difference. So you might pay 15% on the gains if you exercise early and 45% if you don’t. That could be a huge amount, if your company happens to be one of the few to hit it out of the park.
- But, if you exercise early, you don’t actually have all of your options if the company were to sell tomorrow. Most companies offer a vesting schedule. That’s a fancy term for, you don’t actually get all of your stock until you’ve worked for us for 4 years. In fact, the typical vesting schedule requires you to work for a year before accessing any of the stock, and you’ll get 25% of your shares up front and then vest the rest monthly over the next three years.
- If the company sells before those four years, you won’t have all the shares you were promised, even if you exercised / bought them early, unless the executive team is able to negotiate this into the contract. This would be rare for the executive team to care about their employees this much.
- For very early employees, this is less of a risk because it takes a while for startups to get acquired or IPO – but four years is still a long time in startup years. Instagram was acquired by Facebook for $1B when in business for under a year. So it happens. But is rare. It’s more of an issue with later stage startup employees who come in when the strike price is higher (it typically goes up with every round of funding, which is a good thing for the business, but bad for the later-stage employee) and then the cost to exercise shares is too high while they are still stuck in their deluded golden handcuffs.
- Later stage startup employees figure out that their options aren’t worth that much. They don’t get as many as the earlier employees because the earlier employees are given more as part of taking a risk on the young company. This makes sense to motivate early employees, but there comes a time in every startup where they are still limited on cash but aren’t able to give away as much low-price stock options, and hiring becomes a huge challenge. What’s more, later stage employees are less loyal because they know their chances of achieving any sort of wealth from the company are lower than going off and joining another startup as an earlier employee.
- All the time I hear people say at various startups “I’m waiting until my 1 year to leave.” This doesn’t make a lot of sense and shows just how little startup employees understand options. Stock options must be purchased within a few months of leaving the company, or they disappear. So if you decide to leave after a year, you will have a right to purchase 25% of the stock you were promised, for the strike price you were promised, and you have to pay taxes on the difference.
- However, if you stay at the company until an event, you don’t have to buy the options, you can wait until the event. So once the price of the options goes above the strike price you have to decide — is it worth paying for the options (which could be worthless in the future) and tax on their supposed current value that you aren’t allowed to sell them for? This is where options get really shady in my opinion.
- What’s worse is sometimes the value of the stock goes down. For example, an employee may join a company and be offered stock options with a strike price of $2 per share. She may decide to wait a year to be able to purchase 25% of the options and then leave the company. But after a year, it’s possible the stock price went down to $1.50. She now has options that cost $2 a share to buy but she’d only actually be getting stock worth $1.50 a share. This means she’s underwater and has a really tough decision to make. After staying out her year, does she exercise the options with the hope that one day they will at least be worth $2 per share or more in the future? And if she believe that they will be worth a lot more in the future, why is she leaving the company? Now she gets to vest monthly, so it’s easy to think “I’ll stay just another month” to obtain more shares. But this doesn’t change the fact that the shares are worth less than she would have to pay for them today, so she actually can’t leave the company. She’s seriously handcuffed.
- If you got in early and have a lot of shares to vest, you may actually be able to see some profit from them if the company is doing well, but this isn’t a sure thing. What you give up for this chance is flexibility in your career. If you love your job at the startup and have opportunities for growth then life is perfect. However, you are pretty much stuck in your job for four years to have access to all of your options. As I mentioned, four years in startup time is a very long time. A company you once loved working for will change. This is a natural part of business and change can be good. When you were part of a 1-20 person company the experience maybe was challenging but it likely felt amazing being part of a small team. If your company is doing well, then you may find that suddenly you look around and you’re working for something that looks exactly like the corporate culture you were trying to get away from. And you have to stay there for the 4 years to access your options.
- In addition to this, if you got in early and have a lot of options, you’re going to inevitably run into a big problem, especially if you’re not a VP. New management will be brought in above you and while they may have negotiated a package with a sizable amount of options as well, chances are their strike price will be higher than yours. So, if the company is doing well, your manager will ultimately be jealous that you have a lot of stock at a low strike price. If the company is doing poorly, the manager can hold the fact that you have a lot of stock over your head instead of giving you a raise, saying that you have more stock than other people in the company do and you should be grateful for that. No matter what, even if the stock options might be worthless one day, the options you received early as a risk for joining a pre-funding company or Series A company are seen as part of your total pay package… which means you probably will never make the salary you deserve, and your stock options may still be worth nothing in the end.
- Besides the culture challenge, the larger issue is if you’re giving up opportunities for professional growth in exchange for the hope that the stock options may one day be worth something. Again, if you like your job and can negotiate enough in terms of raises to be making near what you’re worth, then by all means, stay. But startups are unlikely to give you raises to meet what you’re worth in the market. Especially after two or three years, you’ve gained a lot of experience and that experience is more valued in another company. So you’re faced with the conundrum: stay where you are, or use this experience when the company is doing well to land another position.
- You can always go land another position and start over, getting stock in another company, but then this whole thing repeats itself. Maybe one day you’ll get lucky. Maybe you won’t. But you continue to be deluded into giving up the benefits that larger companies offer, like 401k match, healthcare (most startups don’t get health packages until they’ve grown to a certain number of employees, and they will not be the best health packages), opportunities for growth, etc.
- After you’ve been at a startup for a few years, you start playing the numbers game. For example, when you are 2 years vested, say, of 100,000 shares, and say you exercised early, you own 50,000 shares. If you stay two more years, you will own 50,000 more shares. For the sake of simplicity, let’s say you paid $.10 per share, so you paid $10,000 to purchase the shares. If you leave today, you actually get $5k back because those shares are not vested. You officially own the 50k shares. Let’s say the company does ok, but it isn’t a runaway success. The company sells for $3 a share. This isn’t bad at all and is a pretty good case scenario. You’ve made a $2 per share profit. So your 50,000 shares are now worth $100,000. But at your two years vesting mark, you look at the next two years don’t know if the company will sell for $3 per share, or $5 per share, or $20 per share, or $0 per share. If you think the company is doing well and that there’s a chance it will sell for $3 per share, then you must determine is $100k for the next two years worth it in exchange for the opportunity to move into a more senior position at another startup or to move into a larger company where the $100k difference will quickly be made up with increased salary and opportunities for growth.
- Still, in the back of your mind, you see that there is still a chance, albeit a tiny, tiny, tiny chance, that the stock will be one day worth more. Even though you also know there’s just as much of a chance, probably a better chance, that it will be worth $0, which at this point you actually lose all the money you paid to exercise early to buy the stock. Because even though stock options are part of your pay package, they are still an investment. This is not a big deal for the executives who likely are already millionaires, where putting down $50k on a startup is not a huge deal. But for the common employee, she may pay $5k or $10k or $20k to obtain these options, if she negotiated for a lot of options and the strike price is higher that price goes up.
- Employees may receive additional stock grants but just like later-stage employees they get the grant at the price the stock is valued at when they receive the stock. And these grants are usually subject to the same vesting schedule as the earlier stock, so you have to stay one year to earn the right to buy 25% of the total offer.
- What’s worse is what stock options do to motivation within a startup company. Later-stage employees, after the first 25, are not offered as much in terms of stock options unless they are a very key strategic hire. If the employees are talented, they quickly realize they could be paid more or get more stock options in another organization. If they aren’t talented or motivated, they may not think about this or care. But the best employees are smart, and they know that their offer of 5000 shares and below-industry pay is not worth trading in for the opportunity to advance their careers elsewhere. So unless your startup culture is amazing and your product is selling like hot cakes, people start to leave. And once the good people start to leave, it’s a trickle effect. Retention becomes a huge issue — and you can’t do anything to stop the bleeding because you’re hoarding your cash in case the business needs it, and options are now too expensive to benefit the employee.
There’s more to the problems with stock options, but these are just a few of the issues which few employees know until it is too late. It’s important, then, to always be true to yourself, and don’t fixate on the dream of wealth as a startup employee. Make sure to join a company that you believe in because of its mission, it’s executive team, and the role you will get to take on.
But I have less advice for someone who is an early employee and somewhere in the middle of vesting. What makes me saddest of all is the death of the company culture. I could work for lower salary than I’m worth with a sizable amount of stock options when I felt like I was part of growing something from nothing with a small team. As hard as it was, I loved it. I loved coming to work and knowing that the people I worked with were all as passionate as I was to build a business. When the company gets larger, even past 50 employees, that culture dies. People join the business at this point because they hear it’s a hot startup or the salary offers went up. They are less devoted to the business. It becomes just a business, no longer a dysfunctional family, and often times a dysfunctional business – natural for a company with growing pains, but uncomfortable.
As of August 1, I am 31 months of 48 months vested. I see other employees who joined around the time I did starting to pack their bags. This shows me that others — who probably know more than I do — don’t have the same faith they once did in the company. What the executive team has to tell its minions and the truth are often two very separate realities. What was a transparent, small culture, is now one filled with corporate politics, back stabbing, and other traditional business practices. It makes me uncomfortable and unhappy. I miss being in a smaller company. It’s worth the smaller salary to be part of that culture. But now, I face my own conundrum: do I stay and if I do stay why am I staying?
Reasons to Stay or Not Stay…
- Stock Options: At this point, I try to not be too deluded into thinking the shares will be worth a lot. At a conservative pricing I would estimate my remaining shares could be worth anywhere from $0 – $335k. Now, $335k may be reason to stay for another 1.5 years, as it would be impossible to obtain another offer where in 1.5 years I would make that much. But the $0k and everything in between is very much a possibility. So one must ask herself, what are the odds of that, and are the odds better to trade back the remaining shares and move to another startup where this risk can be better diversified? Meanwhile, there is always the very, very, very small chance that the remaining stock options could be worth $335k+. No one knows what they’ll be worth.
- Opportunities for Growth: Which are pretty much non-existent. Even if they were existent, I’ve discovered that my current field is not the one I’d like to stay in for my career. I’ve been able to gain some experience in other areas in this role, but I still worry that I’m trading years of experience when I could be working in more junior positions in product management or pmm or digital strategy for time building myself up to be a VP of communications, which I don’t want to be. The real opportunities for growth at a startup are in engaging with projects that you don’t have experience with that no one else wants to do. But my boss doesn’t like it when I get involved in things outside of my basic tasks — which I understand, that is my first priority — but the opportunity to learn new skills and make myself more flexible for future roles is one of the best reasons to stay. It takes a lot of energy and careful wording to be allowed to work on projects that are not directly benefiting my department’s goals.
- People You Work With: This is the hard one. There are still many people I work with who I like a lot. While the small family culture has died, it’s still fun to be part of the early kids club, and to share this with other employees. But the early kids club is slowing leaving and the new kids club has taken over. I like the new kids too, but it’s just, different. And I like working with the crazies that are drawn to early-stage startups. I don’t mesh well with corporate executive types. I don’t play that game well. I could put all of my energy into playing that game, but honestly, I’d rather just be good at my job and get shit done. It takes too much energy to handle the bullshit that is the typical business.
- Corporate Culture: It may be asking for too much, but my company once had quarterly events where we’d do fun things and really bond together. Coming to work everyday, while we all worked very hard and were exhausted by all the work, felt a bit like coming to a camp where we were teaming on working on an exciting project. I was very insecure at the time in what I could offer the business, but even that made me work harder, and for the most part, I loved it. We were all in the same boat together on an exciting adventure. It wasn’t perfect either, but it was a true startup, and it was a place where we could all be ourselves without worrying if something we say or do looks unprofessional and will haunt us later on when it comes time to determine promotions and raises. Meanwhile, what makes me the most unhappy is how once a company grows each department feels like it works within a silo. Everyone is working towards the same goal but it doesn’t always feel this way.
- Industry/Company: Do you like the industry you’re in, and the opportunities for the company? Do you believe in the product? Do you think you are part of something that is changing the face of something? Well, it’s pretty exciting to be part of a business that is working with many other businesses. I’m learning a lot overall, but limited in opportunities to interact with our customers. It’s still an exciting industry, although at this point in my life I’d like to work for a company in the wellness or education space, that is designed to help people vs just to make money. Though making money is good too.
- Salary: In my current role, I’m confident in another business, even another startup at our stage, I could be making $20k – $30k more per year. So I’m not staying for salary.
- Loyalty: Loyalty is overrated. It’s overrated because you can be let go any day, and no one would bat an eye. You may think you’re doing just fine and suddenly your company’s board of directors decides that it doesn’t need your role, or it wants to replace you with someone else, and you’re gone. If your company doesn’t show signs of loyalty, you shouldn’t be expected to either.
- Flexibility & Benefits: Does the job enable a flexible work schedule that fits your life? Are the benefits pretty good or unique (do you get to take a yoga class in the middle of the day that you wouldn’t be able to do at another job?) I don’t see any major benefits at my current company that would make me want to not leave.
- Feeling Successful: Ultimately, the largest question is, “are you set up for success?” In a startup this is a challenge because hiring is always on the lean side. You are expected to work harder and longer hours than if you were at a regular company, this comes with being part of a startup. But there also is a point where you step back and have to analyze if you’re set up for success. Much of this is outside of your own control. Maybe your management doesn’t understand how to help support your success, or they do, but their hands are tied because of their own corporate politics or sheer realities of the business’s bank account. After years of feeling like you can never quite achieve success, it takes a toll on you. I get bored when my job is easy, but I’m not sure how much longer I can handle it being so hard, just without the right resources to feel successful.
- The 5 Year Question: does staying in this job now get you where you want to be in 5 years vs other options? In 5 years, I’ll be approaching 35. Where on earth do I want to be in my career or life at this point? The reality is, I’m not sure. If I stay for 1.5 more years in my current role, work my ass off, help the company grow, and ideally be rewarded for this in some form in a company acquisition or IPO where the stock options are worth more than I paid for them, does this help me get to where I want to be in 5 years or not? My biggest concern of all is that the quality of my work suffers when I’m burnt out. I don’t get burnt out from working all the time, I get burnt out from feeling the need to spend energy engaging in corporate politics vs just getting work done. But worst case scenario my work suffers because I’m caught up in this, and suddenly the positive sentiment held about my work is gone. While my job encompasses a lot of tasks that I’m sure no one sees or understands (ghostwriting an unlimited number of contributed articles to secure press coverage because most publications don’t actually pay enough reporters anymore to create their own content, website creation and management, lead generation via web marketing, web advertising, brand strategy, award applications, speaking applications, coordination with customers and partners around their communications strategies and collaborating to this effect, customer communications, et al) I know that “all I need to do” is secure dozens of press hits with the help of my PR firm with an occasional piece in a tier 1 publication, and everyone will think I have my act together. But that in itself is very challenging. It requires a great deal of coordination between our customers, strategy, and ultimately luck in that reporters are still interested in covering the industry. I’m sure some brilliant PR strategist could figure out how to land the front page of the NYT, but I’m not a brilliant PR strategist. I want to build great products.
So… this all leaves me with… no answer. I think the answer comes in every time I watch a colleague of mine leave the business. But ultimately I believe that my work on a day-to-day basis has a direct impact on the success of the business. Every article my team lands makes us more attractive in the eyes of future stockholders or acquirers. At the same time, would leaving to make room for someone more seasoned at this stage company and PR strategy enable even better success in this area, helping lift share price while also enabling me to pursue my dreams of being somehow involved in product strategy and design? Who knows. I doubt there is anyone out there willing to work for the price I do and do all the jobs I do and care as much as I do. But there probably is. There’s always someone smarter and better and willing to work for the same or less. The question is, will my company be able to find that person. And, should I care?
Working in a startup means everyday is an exciting challenge. You’re chronically understaffed by nature, so there’s never a lack of projects to work on. When the company grows so do expectations, so the workflow never balances out in a way you might expect had you spent time in a more corporate environment. The challenge is finding a way to balance any perfectionist tendencies with finalizing items quickly and moving on.
I love working at startups most days. The people who work at startups share the same drive to create something new, and although there’s always the tiniest of chances that your company will hit it big and you’ll manage to turn a small amount of stock options into enough for a down payment, the people at the company are there not for the money, but for the experience. It’s fascinating to watch a company grow from nothing to something and then something to something big. Not all startups get past something but I’m very fortunate to be in a situation where my company is in hyper growth mode and shows no signs of stopping.
But there are days when I look at all the work on my oversized plate and feel overwhelmed. Having ADHD generally makes me enthusiastic about mountains of varied tasks at hand, but sometimes it just gets to be too much and my entire momentum shuts down. So I’m seeking out ways to cope with such stimuli, to manage the stress and be productive when there’s a list of 100 things to do and realistically time to do 8 at best. There will always be people who expect more from you and you can’t be perfect, is what I constantly have to remind myself. But even then, it is demotivating when it seems people don’t understand just how long everything you do takes, and you can’t possibly get everything done that is expected of you. It sometimes feels like you’re running up an incline and you can’t see the top of the mountain but on the other side is this giant cliff and you have no time to pay attention to where that cliff is because you just have to keep running and running and running.
Moral of the story, I’m trying to really get in tune with my stress levels. It was ok, sort of, to be massively stressed out all through my 20s, but I feel like it’s not the best idea in my 30s when my health will start deteriorating fast. I don’t even have any major responsibilities outside of work yet, and I can’t imagine living this lifestyle with kids (though a lot of people do and I admire them for it.)
As I look to the future, I study the people I work with at different points in their lives, and I wonder – who do I want to be in 10 years? Would I want to be a VP of the department I’m currently in (albeit at another company) or is there something else that would make me happier and more productive? I know I love to create. Sometimes when my projects have no “end results” and are more ongoing I start to lose that momentum. I love the concept of releases and working on a set of items together with others for a common goal to make something tangible. In marketing you have that in some respects, but in others a lot of the work is ongoing. There really is no “finished” in marketing. You’re constantly pushing for more coverage, more product marketing documents to support sales requests, more branded elements, more paid and free promotional opportunities that need content and logistical organization. It is this weight of not having a clear goal to work towards that will hurt in the long run, I think. When I’m working on a project that has an end goal and that I can get my head wrapped around I enjoy it greatly and feel most productive. But all of the other ongoing pieces are what distract me because with ADHD I seem to have terrible trouble regulating how much effort to put on every task, and instead of some being a “1” and others being a “10” I work EVERYTHING at a “10.” Which sometimes leads to great work but more often then not leaves me tangled up in my own web.
So there’s dealing with this today, and for the foreseeable future, and being the best marketer I can be (I have a list of ideas on how to improve here!) And then, for the future, really analyzing what is it that I’m good at, and what can make me happy – and highly productive – over the long term. I really want to be a creator, an inventor, and in charge, but I’ve learned that I can’t do everything on my own, and my people skills leave much to be desired. So I’ll never be the next Jobs or Zuckerberg or Shark Tank success story. But I feel like I’m somehow getting closer to what it is I’m meant to do in life. Something about creating products that help people. I’m not sure how yet. But I know my INFP side wants to know that the work I do on a daily basis has some impact on the world for good. And I’ll keep brainstorming until the right answer pops up. Until then, I’m going to figure out how to be a total rockstar, and a person people enjoy working with, and not a total ball of stress. I just wish there was some magic way to do this, but it seems my work environment lends itself to stress naturally (as many do) and I have a hard time understanding what’s a normal amount of stress and what amount has me ready to get in my car, drive to Texas and change my identity so no one could ever find me again.