How is pre IPO compensation advantageous?

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Oct 28, 2021 146 Comments

I have an offer from a company that is expected to go public in a year. What are the advantages of joining a pre-IPO company with good upside over FAANG?

If I get a 500k offer (200k base + 300k stock) / year, it means the stock grant over 4 years is 1.2 million. Now if the company doubles its stock price on the day of the IPO, does it mean that my stock grant becomes 2.4 million? Essentially, *accepting* an offer a day before IPO gets me an extra 1.2 million than *accepting* it a day later. Is that understanding correct?

#equity #startup

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TOP 146 Comments
  • Roblox
    oof-boof

    Go to company page Roblox

    oof-boof
    well it depends. Most likely you get RSUs, which yes, thatโ€™s the case. If you have upside, you stay. If stock crashes you leave to limit your downside. Thatโ€™s it. Joining pre-ipo means you get optionality.

    If you get options instead of rsu, you have the ability to be liquid and exercise whenever. This is advantageous for tax reasons. If you get 5 year options and giant upside like Roblox, you can basically pay very little taxes via exercising only a little or transferring those options to a holding company you control AND you get optionality to decrease downside.
    Oct 28, 2021 25
    • New
      breaksh1t

      New

      breaksh1t
      Most companies wonโ€™t let you file 83b, unless theyโ€™re an early stage startup and/or you have a ton of leverage.
      Oct 29, 2021
    • Visa
      particles-

      Go to company page Visa

      particles-
      You can defer taxes too
      Dec 25, 2021
  • Ok.. so.. I went through this a few months ago. I can help.

    Are they still giving options? It's very likely they already switched to RSUs.
    Oct 29, 2021 9
    • I joined only a few months before the IPO... So I have only 6x of initial grant value now.

      Had I joined a couple of months earlier (before the last fundraising), I would have had 24x.

      A few months earlier than that, when there was a stock split, I would have had twice that.

      So NW is good, but could have been a lot more :)
      Oct 29, 2021
    • What were the tax implications for ISO? I know for RSUs they are granted when you vest and then when you sell
      Oct 31, 2021
  • Following. I've also wondered about your scenario there
    Oct 28, 2021 0
  • New
    HAOT05

    New

    HAOT05
    Following. I also never understood how people expect companies to grow big just after IPO. Couldn't it IPO lower than at your contract date?
    Oct 29, 2021 6
  • Anduril
    INck13

    Go to company page Anduril

    INck13
    So Iโ€™m one of those people whoโ€™s earning pre IPO comp (ISOs)

    What I donโ€™t get (and have been afraid to ask) is doesnโ€™t our TC plummet at the end of the grant? Wonโ€™t everyone just leave for the next place? I must be missing something because it feels designed to make sure nobody stays more than 4 years
    Oct 29, 2021 3
    • Marqeta
      yBQq34

      Go to company page Marqeta

      yBQq34
      This is where refreshers come into play. Ideally they layer on top of each other to always give you upside.
      Oct 29, 2021
    • Apple
      angma

      Go to company page Apple

      angma
      Ya you canโ€™t expect to make 1.5M tc after the initial options are done.. you might get promoted and get refreshers but the TC will normalize
      Oct 29, 2021