I think this is a really good article, but I think that one of the things it misses is that a huge reason the math works out so badly for startup employees is because founders and VCs take the lion's share of the gains.
I mean, in my experience at startups, founders typically own around 40% of the equity. The option pool for all other employees is around 10-20%.
Now, I certainly believe startup founders deserve far more equity than anyone else, but this highlights that the risk/reward trade-off really only makes sense for founders. I mean, what founders risk in terms of opportunity costs and lower wages is usually only slightly more than very early stage employees, but their reward is ~10-30x. The reward, in rare cases, may also make sense for C level hires at proven startups that are already growing like gangbusters, because they'll get a ton of equity. For rank-and-file, though, the issue is that even if the startup hits it usually becomes more like a nice bonus than life defining wealth.
That’s what Wiener suggests in Uncanny Valley, when she describes the windfall when Microsoft bought the GitHub shares she had the option to buy during her time there.
It wasn’t life-defining, plus she noticed that many other employees didn’t have enough savings to actually exercise.
The way it should happen with a liquidity event is that you simultaneously exercise your options and sell them, pay off the taxes and bank what's left over.
Savings should only come into it if you're leaving before the liquidity event.
> Savings should only come into it if you're leaving before the liquidity event.
Which is another way some startups screw people. If the company is not willing to budge on the "standard" 90-day exercise window, there shouldn't be any negotiation. Just walk away.
There are two types of options, NSO and ISO. You want ISO as an employee because it's better for taxes, but that has a 90-day exercise window set by the IRS. You can push for yourself paying higher taxes in exchange for more flexibility, but it's a tradeoff.
He compiled a list of startups with sane exercise windows: