Ask HN: Is startup equity just snake oil?
It&#x27;s less snake oil as it is an inheritance from a long, lost relation. Stock isn&#x27;t something you can bank on, unless the company is knocking on the door of an IPO and then you are probably looking at RSUs anyway.<p><i>I&#x27;m gonna do some math that probably doesn&#x27;t apply to a new grad, but certainly could apply to an experienced SE&#x2F;SWE&#x2F;etc.</i><p>Look at it this way, if you are making $175k, with a 15% bonus and $55k of vesting stock at Google (&quot;Alphabet&quot;). Let&#x27;s just assume the stock doesn&#x27;t fluctuate over the course of the year. We&#x27;ll call your total comp $255k real money (forgoing 401k and other benefits for simplicity).<p>Now, you join a well-funded seed startup. They pay you $150 (even in these crazy times this is a high startup figure). Congratulations! You just became an investor. I&#x27;ll save you the spiel about paying for a better environment, accelerated learning, purpose, etc...You have invested 105k a year, in exchange for .1-.25 percent of the company, if it&#x27;s still a pretty small startup. Oh yeah, and year one&#x27;s money gets paid mostly towards your stock cliff; you paid to accrue the first years stock until the end of the year (if you make it to the end of the year). If you leave in month 11 you get nothing. However, at month 12 you get the stock from year one, then each month you earn 1&#x2F;48 of your total equity stake.<p><i>A few more simplifying assumptions. Let&#x27;s say your annual adjustments at BigCo and your annual adjustments at startup are equal, which they won&#x27;t be. Also, there&#x27;s no opportunity cost.</i><p>Next year you pay that $105k again. Then, the company raises a few rounds of capital, over the next 5 years. All in all you&#x27;ve been at the company for 7 years and paid $735k for (let&#x27;s call it) .1% of a company that was worth $5 million post at the time. But, you&#x27;ve been diluted 30%, 20%, 15% and 7% in subsequent rounds, and then maybe re-upped a little along the way. You have 3 times your initial grant worth of stock, because you were really good at your job, so now you own .000189 % of the company.<p>If the company has a $500 million dollar exit, with no preferences, you get $94,500. But, with all the rounds you raised, $500 million is probably gonna trigger a liquidation preferences. Let&#x27;s say it took $150 million VC money to get your exit. Well, you get $66,150. Damnit...<p>Well, that doesn&#x27;t seem worth it. How big does the company have to get to make it worth it? Well, I haven&#x27;t heard of any $10,000,000,000 acquisitions. So, let&#x27;s say you IPO and after your lockup period, you leave the company and sell all your stock. You&#x27;ll have a tax advantageous $1.89 million. Off all the startups you hear about, and many you don&#x27;t, how many $10,000,000,000 exits have you heard about? And what is that risk factor worth?<p>Now, why do people do startups? Well, let&#x27;s say your startup is Facebook. After your lockup period, you had a market cap of ~$100,000,000,000. Your .1% is now worth $18.9 million. Or if you had an original .25%, $47.25.<p>I hope you get the point.