Knowing this is paramount. Our son refers to his sizable equity stake as Monopoly money.
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They don’t have to fail either to have the shares be worthless. Bird was a high flyer, the fastest to $1B, and valued at $3.8B at the time they chose a SPAC. The rank and file got pennies on the dollar for their shares. The company eventually went into chapter 11. So it’s still a functioning entity, but all the promised wealth never materialized. They were still paid handsomely and got experience that you can’t replicate in a larger company.
It’s skills, knowledge and network that matter in those jobs. They get parlayed into positions at established companies that offer restricted stock grants that are immediately fungible at strike. The offer discounted employee shares that are immediately profitable, just not as much as the granted shares.
There’s the pool, gyms, cafeterias, business class travel, etc.
Get the skill and connections from job one, to parlay into job two and your career is set.
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I am going to be a dissenter of that by going to a startup would accelerate a new graduate’s experience. I have worked at large organizations and also at startups. New graduates often gain experiences by working with smart people and also from good organizational structures. If you are at a startup with very experienced, creative and smart people then yes, you may learn very quickly because you are required to do everything quickly. But if you end up at a place where people are just trying to hack everything together in trying to make that sale then you may not be learning anything worthwhile.
I usually encourage young people to go to a top company to learn everything they could for few years (get to a management level) and then take what they have learned to go to a startup, if that’s what they want to do.
Analogy - if you give someone a musical instrument and ask him/her to learn how to play it because he/she has a performance in a month. The person may through some brute force or by watching YouTube to quickly learn how to play a tune. But his/her technique may not be correct and worst still may pick up some bad habits. Whereas if this person had learned from a master then he/she may acquire some good techniques and could even be more creative in the future.
I have seen too many young people who have worked at some startups for few years, when asked what they did, they said, “little of bit of this, little bit of that, but not a lot of anything.”
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It is certainly situational. The team my son is currently on doesn’t hire new grads. There is no avenue in right out of school.
The company that hired him when he graduated was comprised mostly of early retirees that joined based on the novelty of the project. They hadn’t hired a new grad until they brought him on board. He was so interested, but worried about getting passed over due to lack of experience that he pitched the idea of an internship at the completion of his masters. They bit and six weeks in he was converted to a full time employee.
It’s easy for a small company to be crappy, and easy to get assigned meaningless busy work at a big company. It does take a little serendipity to hit it out of the park on the first go ‘round.
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My daughter’s first job after college was with a young company (not a startup). She described how they did stuff as “cowboy”. She knew (econ major with 1 year of co-ops under her belt) that much of what they did was not the right way to do things.
I see both sides of this. Some start ups, small companies, and young companies don’t have best practice procedures in place and a new grad would not be learning the “right way” to do stuff. On the other hand, you can certainly get lost in a big company or get pigeon holed into a tedious position.
Not everyplace is a great workplace or a great fit for you. You hope to find jobs where you can learn, enjoy, and grow over the course of your career.
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Students need to perform due diligence for any employment opportunity.
Our advise to our son was that the time to take chances is right out of college - before getting weighed down with other responsibilities.
He had interned at mega cap tech and knew that opportunities to make big contributions were best with startups - and this has proven to be true.
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My younger daughter had a very similar experience in a very different field (biotech). Her first job was with a very young company. She got to do a number of different tasks and learn a number of different lab techniques. She liked this part quite a bit. However, she also felt that they were doing some things in a way that was not ideal.
This seems to have worked out well in two ways. One is that she got to learn a number of different lab techniques. The other that might (?) have helped was that in interviewing for PhD programs she was able to intelligently discuss better versus not so good ways to approach biotech research.
Perhaps every experience is a bit different, due diligence is important, and a bit of luck is involved in all of this.
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I believe at Amazon it’s roughly 10%/20%/30%/40% over the four years. Nominally the cash comp goes down over time, in other words a $100K total package might say $90K cash/$10K shares in year 1, then $80K/$20K, $70K/$30K, $60K/$40K. But you’d expect to get pay rises over time that would mean cash comp is unlikely to fall in practice.
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As the great Steve Miller says, “Go on, take the money and run.”
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“Time keeps on slipping, slipping, slipping into the future”.
Steve Miller
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“The Future’s So Bright, I Gotta Wear Shades.”
“Money , Money, Money” (choose Abba or Liza Minelli from Cabaret)
Sixty thou a year will buy a lot of beer!
“If I had a million dollars…”
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Never accept “company equity” from a start-up. Start-ups are all about hype and hyperbole. Chances are, you’re not going to see much of the “equity.” There’s a high failure rate with these companies, so tread carefully.
I’d clarify and add in lieu of salary.
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In that case…RED FLAG! The only reason a start-up company would offer “equity” pay is because they need your salary money. It’s probably because they’re strapped for cash.
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I don’t know of any start-up that does not include equity in their compensation plans. That’s part of the allure of startups - a big equity payout when the company IPOs. Most startups (but not all) are, by definition, cash strapped.
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How is equity offered as part of a job offer in a start-up valued over time?
For example, if you get say $50K equity as part of an offer, and it can be cashed in at 20% each year, how is the value of the equity determined each year? It’s not just 10K each year I assume, and it’s not the open market price, since it’s not on any of the markets, but is there some normal way to value?
In all cases for me, equity expressed in $$ amounts in the offer translated into the number of shares based on the valuation on the day the grant was approved by the board. Then that number of shares vests over a period of time specified in the grant. The employee is given a certain period of time to exercise vested shares; typically, over 10 years while employed and within 2-4 months after termination of employment. The stock may or may not be in the money at that point.
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