Any of you ever make money from equity/options in a startup *after* you left
Navigating Equity and Options After Leaving a Startup: Real Experiences and Insights
The allure of equity compensation in startups often paints a rosy picture of potential wealth. However, the reality can be quite different, especially when it comes to realizing that wealth after leaving the company. In this blog post, we’ll delve into the experiences of former employees and their journeys with equity and options after departing from startups. We’ll explore the nuances, the ups and downs, and the lessons learned from their stories.
The Dream: Equity as a Path to Wealth
Many professionals are drawn to startups with the promise of equity. It’s enticing: a small stake in a company that could one day be worth millions, particularly if the startup goes public or is acquired. However, as many commenters shared, the path to realizing this potential often comes with hurdles.
Realization of Worth
One recurring theme in the comments is the unpredictability of startup valuations and the subsequent worth of equity. For instance, one commenter recounted how they missed out on a significant payout after deciding not to exercise their options, believing the company was unlikely to succeed. This sentiment is echoed by many who feel that the risks associated with exercising options—especially for illiquid shares—often outweigh potential rewards.
“I let them go. That company was a clusterfuck… eventually they got their soft landing and I was proven right.”
This individual’s experience highlights the difficulty in predicting a startup’s trajectory. The emotional weight of pouring years into a company only to see options turn to dust can be disheartening.
The Acquisition Aftermath
Acquisitions are a common liquidity event that can provide a payday for former employees. Yet, the reality is often less glamorous than expected.
Mixed Outcomes
Some commenters shared experiences of receiving minimal payouts post-acquisition. One individual remarked on how their initial hopes were dashed when the acquisition led to a payout that barely covered a month’s salary. Another shared a more substantial experience where an acquisition provided them with a nice sum, but after taxes, their take-home was significantly reduced.
“I got about a month’s salary, about 8-9 years after I left. I thought it was a phishing email at first.”
This highlights the importance of patience. Sometimes, the wait for a liquidity event can span years, and the communication process can be chaotic or even confusing. Another commenter noted that they received a windfall from phantom shares, which they had almost forgotten about.
The Waiting Game
The uncertainty surrounding the timing and amount of payouts can be nerve-wracking. Many employees find themselves grappling with the decision to exercise options while still employed or wait it out after leaving.
Exercising Options: The Gamble
One commenter shared that they decided to exercise their options while working for a startup, resulting in a substantial payout when the company went public. However, they also acknowledged the risks involved, especially with the potential for company scandals that could drastically reduce share value.
“I ultimately still made about 10x my exercise price after I sold the remaining 80%… but if the company actually increased in value after the IPO instead of plummeting, I’d probably be retired right now.”
Here, we see the duality of equity compensation—the potential for great rewards coupled with significant risk.
Communication and Transparency
Effective communication from companies regarding equity and options is crucial. Many commenters emphasized the importance of clear communication during acquisitions or when liquidity events occur.
“If the company gets acquired, your shares will be outstanding at the time… someone will probably just send you a paper check.”
This highlights the expectation that companies should proactively inform former employees, not just current stakeholders, about significant changes affecting their equity.
The Role of Equity Platforms
Several commenters mentioned the use of equity management platforms like Carta or Capdesk, which facilitate transparency and communication about stock options. These platforms can provide employees with up-to-date information regarding their options and any potential equity events.
Lessons Learned
The experiences shared by former startup employees reveal several key lessons:
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Do Your Due Diligence: Before joining a startup, carefully evaluate the company’s leadership, financial health, and potential for a liquidity event.
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Understand Your Options: Familiarize yourself with the terms of your equity agreement. Knowing the expiration period for options and the implications of exercising them can save you from costly mistakes.
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Stay Informed: Keep in touch with former colleagues and stay updated on company news. Networking can provide critical information about potential liquidity events.
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Be Prepared for the Unexpected: The startup world is volatile. Be ready for outcomes that may not align with your expectations, including the possibility of receiving very little or even nothing.
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Consider Professional Advice: Consulting with a financial advisor or attorney can provide clarity on complex equity agreements and the potential tax implications of exercising options.
Conclusion
The journey of navigating equity and options after