25 August 2008
Freestyle 101: Gift Of Gab
I haven't posted a video in a while, this one's a goodie. Gab kills it. Also it's remarkable because it's something seemingly worthwhile on G4. Who knew?
14 August 2008
Guide to valuing your stock options
I wrote this for the forums, but I figured I'd post it here too since it's probably the single longest thing I've written in months...
Since it's far more likely you'll work for one or more startups before starting your own I'll explain in plain terms what it means when you agree to a lower salary and stupid hours in exchange for theoretical future money.
Options have a vesting schedule typically of 2-5 years. The most common one is a 4-year schedule where you get 25% vested after 12 months and then vest monthly from then on. There's also frequently clauses that accelerate your vesting in the event of a buyout or other "liquidity event". This means that you'll probably quit or be let go before being fully vested so adjust accordingly.
The number of shares is irrelevant until you know the total number of outstanding shares. If a recruiter tells you they'll "have to look into it" that typically means that there's a lot.
Taxes are a bitch, especially when you get into AMT territory.
Keep in mind that your stock is worth nothing until you can actually sell it. There's rare exceptions like Facebook founders but you're not going to work at the next Facebook.
So let's say the next hot microvlogging site wants to give you a job. They offer you 5000 shares! sounds rad, right? Work hard, get in nerf wars at the office, make "fuck you money!"
So let's do some math:
You get 5000 shares for $0.10 each but there's 10 million outstanding. That means you "own" 0.05% of the company. But hey, maybe Google will buy you guys for a billion dollars! That means you'll still get half a million dollars aka "fudge you money".
Google wasn't interested. But Microsoft is very bound and determined to throw their money in a hole so they start sniffing around. Everyone goes into crunch time to spit-shine everything and sign some deals. The douchey sales guy has nothing but awesome graphs to show at the all-hands, all the arrows are going up. This is "the push". Something's going to go down this year though but you've got an acceleration clause so if you make it to 12 months you get 50%. That's $250k, aka "Most of a studio condo in Palo Alto money".
Microsoft has decided that scent-based interfaces are the next big thing and decide to pass. The CEO is increasingly manic and has a habit of cruising around the office at 9pm to see who's a "team player". Fortunately Yahoo's new board is looking to inject some excitement into the brand. That new release coming soon will be what pushes them over the edge. You're sleeping under to office pool table. The sales aren't quite meeting projections but they are OK, you just need a little more runway to make it happen. The company gets $5 million in series B which means a 40% dilution. That's still $150k, aka "Porsche 911 [but maybe not a GT3] money".
Success! Yahoo took the bait but they negotiated down to $500 million. The VCs, already $20 million deep decide to go for it. The CEO, VP of sales and the CEO's assistant have a coke orgy with each other in the office bathroom. Suspiciously cheap bottles of champagne are popped, people who you didn't know worked there are at some parties. You've still got $75k coming which is "A BMW and that trip around the world you always wanted to take money".
You get $75k in Yahoo stock. Party time! Oh wait, Carl Icahn posts a drunken rant on his blog and the stock drops 20% before your exercise date. We're down to $60k or "A Lexus and a timeshare in Cabo money".
OK, time to sell! Whoops! Short-term capital gains tax is a bitch. After taxes and accountants you're left with almost $40k or "fully loaded Honda Accord and a Pioneer Kuro money".
And all you had to give up was a year of your social life, the 25 pounds you gained from raiding the office snack cabinet and 4 months of weekends. And you've got some "tin handcuffs" of a retention bonus that keeps you working at Yahoo until you get laid off when MS finally picks up the pieces at a fire sale 2 years later.
Since it's far more likely you'll work for one or more startups before starting your own I'll explain in plain terms what it means when you agree to a lower salary and stupid hours in exchange for theoretical future money.
Options have a vesting schedule typically of 2-5 years. The most common one is a 4-year schedule where you get 25% vested after 12 months and then vest monthly from then on. There's also frequently clauses that accelerate your vesting in the event of a buyout or other "liquidity event". This means that you'll probably quit or be let go before being fully vested so adjust accordingly.
The number of shares is irrelevant until you know the total number of outstanding shares. If a recruiter tells you they'll "have to look into it" that typically means that there's a lot.
Taxes are a bitch, especially when you get into AMT territory.
Keep in mind that your stock is worth nothing until you can actually sell it. There's rare exceptions like Facebook founders but you're not going to work at the next Facebook.
So let's say the next hot microvlogging site wants to give you a job. They offer you 5000 shares! sounds rad, right? Work hard, get in nerf wars at the office, make "fuck you money!"
So let's do some math:
You get 5000 shares for $0.10 each but there's 10 million outstanding. That means you "own" 0.05% of the company. But hey, maybe Google will buy you guys for a billion dollars! That means you'll still get half a million dollars aka "fudge you money".
Google wasn't interested. But Microsoft is very bound and determined to throw their money in a hole so they start sniffing around. Everyone goes into crunch time to spit-shine everything and sign some deals. The douchey sales guy has nothing but awesome graphs to show at the all-hands, all the arrows are going up. This is "the push". Something's going to go down this year though but you've got an acceleration clause so if you make it to 12 months you get 50%. That's $250k, aka "Most of a studio condo in Palo Alto money".
Microsoft has decided that scent-based interfaces are the next big thing and decide to pass. The CEO is increasingly manic and has a habit of cruising around the office at 9pm to see who's a "team player". Fortunately Yahoo's new board is looking to inject some excitement into the brand. That new release coming soon will be what pushes them over the edge. You're sleeping under to office pool table. The sales aren't quite meeting projections but they are OK, you just need a little more runway to make it happen. The company gets $5 million in series B which means a 40% dilution. That's still $150k, aka "Porsche 911 [but maybe not a GT3] money".
Success! Yahoo took the bait but they negotiated down to $500 million. The VCs, already $20 million deep decide to go for it. The CEO, VP of sales and the CEO's assistant have a coke orgy with each other in the office bathroom. Suspiciously cheap bottles of champagne are popped, people who you didn't know worked there are at some parties. You've still got $75k coming which is "A BMW and that trip around the world you always wanted to take money".
You get $75k in Yahoo stock. Party time! Oh wait, Carl Icahn posts a drunken rant on his blog and the stock drops 20% before your exercise date. We're down to $60k or "A Lexus and a timeshare in Cabo money".
OK, time to sell! Whoops! Short-term capital gains tax is a bitch. After taxes and accountants you're left with almost $40k or "fully loaded Honda Accord and a Pioneer Kuro money".
And all you had to give up was a year of your social life, the 25 pounds you gained from raiding the office snack cabinet and 4 months of weekends. And you've got some "tin handcuffs" of a retention bonus that keeps you working at Yahoo until you get laid off when MS finally picks up the pieces at a fire sale 2 years later.
