Most stock options will turn out worthless, or at least, worth less than the opportunity cost of joining the startup, even following a successful acquisition. If you're a very early employee and the company goes on to be very successful, you can get rich, but the prospect of that is very slim. That is not to say that options aren't worth negotiating, definitely maximise your grant, but do not associate a good grant with a good outcome.
After dilution, preferences, taxes, you're going to need there to be an exit worth many hundreds of millions to provide you with retirement money as an early employee. Options mostly serve to benefit the company -- they're golden handcuffs.
If you think the company has a very real path to an exit of 500m or more, you're joining early and you're willing to stay with them until their exit -- which, for an early stage startup, that could be 5 - 10 years -- you could probably retire...
As you can tell, I've been through multiple acquisitions (incl. a 9 figure acquisition) and made pennies.
Acquisitions are probably much more unpredictable than actual successful IPOs. I guess the investors will always need to have their preferred shares repaid first, and the exit price might even be lower than the last valuation. I have a friend who joined Snowflake at a pretty late stage and can still get enough money to retire, if he fully vests his options. Though of course, this is very much luck-based and he had no idea what he was getting himself when he joined just a couple of years before the IPO.
Can you give a real example with numbers (fake numbers okay)? I can't begin to understand how owning a % of a company gets reduced to pennies in the end.
It's possible if a company has raised a large amount of funding and/or the investors have aggressive terms. Liquidation preferences[1] mean preferred shareholders get paid out before common stock holders receive any sale proceeds.
The article shared by Johnny555 is a good breakdown of the mechanics. Speaking to my own experience, my ballpark estimate is that I received an order of magnitude less money than I would have had I received my initial grant as a percentage of the final sale price. Pennies is hyperbole, but the amount I received from the 9 figure acquisition was thousands of dollars (instead of hundreds of thousands of dollars based on my original grant).
I’ve been through two companies with exits. One left me with nothing (it was an acquihire), and the other basically increased my salary by about 1.5x (pre-tax, but because long term capital gains tax is lower than income it was probably more optimistic post-tax.)
A lot of startups these days support early exercise or extend the post termination exercise period from 90 days to much longer period like 10 years. So there is no need to stay with the company for 5-10 years after your options vested. The 4 year vesting schedule is standard.
After dilution, preferences, taxes, you're going to need there to be an exit worth many hundreds of millions to provide you with retirement money as an early employee. Options mostly serve to benefit the company -- they're golden handcuffs.
If you think the company has a very real path to an exit of 500m or more, you're joining early and you're willing to stay with them until their exit -- which, for an early stage startup, that could be 5 - 10 years -- you could probably retire...
As you can tell, I've been through multiple acquisitions (incl. a 9 figure acquisition) and made pennies.