Wait, I have to buy my equity?
Just got a Coinbase offer. Not really sure how stock options work. If I'm being paid $200K/4 years stocks, I have to pay to have those stocks? So I only make the $200K if the company value doubles and then I sell? If that's the case, why do senior engineers (where they make $500K+ in stock options) take on the role? Don't they have to then pay ridiculous amounts to exercise their stock options? in b4 TC: new grad swe, $130K/$120K/$10K
AFAIK there are 2 types of shares One is they grant you just like RSU Other one is the "options", which means you are given an option to buy it at an earlier price. They tell the cost of option is like $5, then if company becomes public or bought out for $50 per share, then you have the option to buy it
The benefit is you lock in at a particular price. So as the stock goes up, you stand to profit well. But it is a gamble. Stock doesn't go up or you leave without exercising your options? Worthless.
You are not being paid stock options. You are given the chance to buy options at the strike price. The hope is after IPO the stock you bought would be worth a lot more.
No, he's being paid options. Options give you the ability to buy stock at a given price. A comp package that gave you options options would be cool tho.
@WadeWatts đ¤Śââď¸
You will have a strike price for your options. Usually set at some prevailing amount at time of signing. If the stock price falls below the strike price, your options are basically worthless. If it goes up and your options are vested, you can exercise for a profit (difference between current market value and strike price). You can see why Restricted Stock Units (offered by Google, FB, etc) that have immediate value on day one are usually much better than options. If your strike price is set low, however, you could have a lot of upside in the event of a liquidity event. Therefore the strike price and likelihood company will have a big or small equity event (if ever) are the most important factors. Thereâs also tax differences. When I had competing offers from Spotify (post IPO) and Google, I went with the latter because it was the safer choice at the time. Spotify has tanked and my options wouldâve been worthless as the strike price was set to when I wouldâve joined, which was near its high.
You were given options post-Spotify IPO?
Yes, tons of options. As far as I know Spotify still dishes out options instead of RSUs. This was late last year when I received the offer.
So when non-FAANG Blinderâs talk about $400K TC but $250K of it is in stock, itâs possible that they wonât see a dime of that? Thatâs crazy to me, I feel like most people around me (new grads) donât know that.
No. Most companies now a days give actual stock instead of options.
You usually can't sell equity in a private company. You have to wait for it to go public. Imagine how the WeWork employees feel.
Yes, that's why it's called an option :)
Keep in mind that IPO (or acquisition) could be years away, and could be lesser than their current valuation. So with all the time plus risks, weigh that in. Most of the time, these days working at a FAANG will make you much more risk-adjusted TC than a pre-IPO company. Startups are good for learning but maybe Coinbase is past the âbuild everything from ground upâ phase. If you can join a really really early stage startup and be mentored by senior engineers, the learning would be worth it. If not, just go to FAANG proper. Or you know, Microsoft or Uber/Lyft/Slack/whatever.
Be clear about what the strike price of the options, i.e. the price at which you would buy your options if you choose to do it. And its expiry date. Max(0, Current price - strike price) is the "intrinsic value" of your option. Usually option's value is more than just the intrinsic value because it includes time value, volatility components, etc. You're given 200k worth of options. At expiry date, your options' value are only left with the intrinsic value. i.e., if price goes below strike, it's worthless. To break even at expiry, the stock price has to go up by certain amount from grant date. Otherwise you'll get less than the original 200k. If the stock price stays the same, didn't go up enough, or goes down, you'll definitely end up getting less than 200k. So it already feels like you're getting the short end of the stick, right? The chance of getting value less than 200k is larger than the otherwise. If in your offer the strike price is higher than current stock price. Then it'll be much harder to break even. Higher probability it'll be worthless. Also note that the equity value for non publicly traded stocks are questionable. The true value most likely be lower.
I never had this, like wtf is the point? I can just go buy stock from a stock broker.. If i'm working for you, you should give me your stock. Stay at FB I guess.
Yeah seriously, this is some bullshit. I'll just go to an early-stage startup where they give actual equity instead.
No early stage startups give equity, only post IPO companies
There are two common types of equity grants. One is an RSU, where you just get the stock. The other is an option grant, where you just get a stock option. If it's the latter, you have the option to buy a stock. So are options strictly worse than a RSU then? Yes. However, options are often priced such that you can get a lot of money if the stock goes up a lot.
Options are not strictly worse than RSUs. If Coinbase decided to grant RSUs instead, you would have to pay taxes on those; the same way we pay taxes if granted RSUs by a public company. Imagine paying thousands of dollars worth of taxes for worthless stocks that have no liquidity.
Thatâs true, but considering Iâm joining late in the company cycle, I have to hope the company valuation doubles (from $8 Billion) before IPOâing if I want to make the $120K in my offer letter, no?