Stock Options: How much time a company takes to go public?
im emphasizing on some bitter news that people ignore just by taking few lucky companies as a reference. my point is: more than 95% starup companies cant make it to IPO stage. The remaining 5% companies are disruptive technology companies which receives a great applaud from the tech communities. Venture capital firms try to encash the applaud by getting a bigger valuations to their portfolio and go for public to liqidate their gains over their investments. what I think here is: 1) stock options are real big gamble, even if they workout, it majorly helps the executive / senior management team, not the leaf level employees. at times you will be in a situation where you hold vested stock options but cant liquidate though the company goes public, Uber / Lyft folks faving this problem it seems 2) HR ppl lure you with stock options by saying “we gonna go public soon”, but its highly unlikely that any company can reach to an IPO level unless they had 6 to 8 rounds of series fundings, it takes atleast 6 to 8 years of time. dont believe in “SOON”. do a right research 3) we should never trade base salary with stock options, always consider stock options as bonus, it may work / maynot work. Whats your thoughts on this? agree ?
I've been a part of three startups, including at the executive level. None IPOd, though two were acquired and one is still chugging along after 15+ years. Total value of my options was $0.
IPO is a fallacy of making you reach. The chances are 1%
I cant remember the exact facts, but there are two good startup stats: 1 - Something like 90% of startups fail in the first 4 years. 2 - The average exit time for a startup is 7 years. Note this is an exitable event which is rarely an IPO and normally and acquisition. Bottom line you are spot on to question startup stock options and treat them as high risk when given a job offer. I have had ‘millions’ worth of stock options across a couple startups that materialized into $0. I would treat them as a percent of success with a 7 year window. So if you are founding a company you need ALOT of options for it to compare to something like a $350k FANG offer. Not only might you be getting $200k in paper money you are missing out on real RSUs you could be getting. Now multiple that times 7 years and you are missing $1.4m. So you startup options better have a chance at paying $14m since you have a 10% chance of even making it to a payday.
Very well said
One more consideration is the option strike price as well. Back in the day, startups would always give highly ‘in the money’ options. IE- strike price of pennies. Now that valuations and VC money are out of hand, a lot of strike prices correlate to the latest valuation round. This is total shit. For you to make any money you not only have to exit at some crazy valuation, BUT you have to exit for more and the ‘more’ is all you are paid on. Make sure your strike price correlates to a 10x multiple of current year revenue at the worst case. Any less lot of opportunity for you to get fucked. Asked Zynga employees about that one, they IPO’ed and a ton of people were left with underwater options that they had to pay tax on....
Startups are a *huge* gamble for senior foljs if you are not one of the very early people. For newcomers, learning opportunity could offset it but making big with startups is a pipedream
Those are all valid points and concerns. I agree.