[mattschmulen]

If I had a dollar for every time an XO, Sales VP, or board investor (I’m looking at you Todd Rulon-Miller) said we were expecting an IPO filing in two years (bless thier optimistic little hearts) and sold for executive bonuses and a common stock price for the parts then I would have 3$. Best exit I ever had was an XO who’s singular prediction statement was “I think we have a chance at building and contributing to this technology and I think that might be valuable to this software enterprise segment, do you want to go find out?”. Buyer beware, contributor beware; it’s just how the game goes. Look for the humble introspective and you increase your odds, there is no guarantee, you only control your investment. That’s a tough break for those that were over exposed you have to cap your liability to your comfort level. bummer for those that caught the bill.

[seattle_spring]

How does an engineer protect themselves against this sort of outcome? Just never work for startups?

I currently find myself in a similar situation, where the books look dire but the executives keep saying that we're so close to profitability. I'm 85% certain that my stocks will be worth nothing, but I stick around because I still see an ounce of promise. Am I just a sucker?

[jedberg]

Don't take a pay cut unless you love the work.

In other words, assume the stock will always be worth zero, and then make your decision to work there based on that assumption. Will you be happy doing what they want you to do for the salary they are offering if you know the stock will be worth nothing?

The answer isn't always no. Sometimes you'll get to work with amazing people, or on a really hard problem, or get a lot of responsibility you couldn't get at a big company. All of these intangibles might be worth the pay cut.

[nshelly]

I think for early stage companies you should see the startup as a 1) learning opportunity first and chance to work with a great team driven by a passion outside of pure money, and 2) an out-of-the-money call option / favorable lottery ticket. Also, the new tax bill got rid of AMT for incomes under $500,000 for individuals ($1m for couples). It's difficult to go over that amount with ISO's as the FMV of your shares is valued at around 10-30% of preferred. You could exercise your options once every year for example to stay under that limit.

If you've already exercised and paid AMT, try to invest your other savings and if you need to take a loss you can offset it against those capital gains.

While it might not be something you're passionate about, I would also add that reading about startup law, discussing with your peers, and knowing your rights, and even asking (getting in writing) the terms of the investment rounds, is invaluable and certainly something you should do if you want to understand your full package.

[OliverJones]

Step one: understand your deal. When your hiring manager -- the founder -- breathlessly tells you "FIFTY THOUSAND SHARES" you should respond with these questions:

--What fraction of the company's outstanding shares is that? --How many of those shares are some kind of preferred shares? --What was your premoney valuation in your last financing round, both total and per-share? --How much money did you raise, in return for how many shares?

Or you can ask to see the capitalization table, which if not fraudulent, will answer these questions.

Then you will have some idea of the potential value of the shares you have.

These are reasonable questions for you--for any investor--to ask. They are asking you to invest the one thing they can't pay back: your time.

What if the hiring founder doesn't want to answer these questions for a mere underling such as yourself? In that case, assume a potential share value of zero and make your decisions accordingly.

[toast0]

Try to get the real scoop. If the corporation isn't very transparent to employees, it might help to exercise at least one share, to have stockholders rights.

It's one thing to be nearly profitable like Amazon was for many years, where current income was going into investment for the future; if a need for profitability arose, investment could be toned down and margins would appear. It's another thing when the current costs are slightly more than the current revenue, but decreasing spending immediately will also decrease revenue immediately. The later situation could be ok, if there's some realistic medium/longer term cost savings or revenue growth plan that is likely to be finished before the money runs out.

Startups that have revenue but not profits are judged a lot harsher in the market right now than they used to be; certainly they're judged harsher than startups with no revenue. If your stock makes your total compensation good/acceptable only if there's a big exit and the required exit is much bigger than is realistic, you're not well compensated -- unless you're getting something else out of it.

[DenisM]

It’s a package deal: cash, lottery tickets, skills, connections.

A good reason to stay would be a lot of cash. Or modest cash but a lot skill-learning and/or connection building to open more doors for you next year. Subpar cash plus lottery tickets is not a good reason to stay.

There are some unique skills you can only pick up at startups, namely: 1) running a startup skill, learned from founders 2) running entire product rather than one small piece (larger companies will not let you run the whole product until you “prove” yourself) 3) understanding fundamentals of business, which will slow you to pick better startups to work for, or to make one.

[conanbatt]

If the C team knew they were going to IPO, the incentive is to mention it as least as possible to employees that leave dont exercise. I dont blame the C team for responding to basic incentives. Its insane to believe someone will choose to fork over their own money in favor of others that are not even at the negotiating table.

Thats why it should not be in the hands of anyone but the stock owner what he can or cant do with the shares. That way, when they send you a spreadsheet showing you will be a millionare, you go to see how much the shares are actually being sold in the market and worst case scenario, you buy some without being an employee!