This is a linkpost for https://borisagain.substack.com/p/startup-stock-options-guide
Thank you, this is a very nice explanation! I have read enough stories on internet to develop a belief that "if you work for a startup that offers you a part of the profit in case of a huge success, somehow even in the unlikely case of the huge success, your part of profit will turn out to be approximately zero (possibly negative, because somehow you get a nonzero tax on that zero profit) because of some technicality that is difficult to understand but it seems to happen to many, maybe most employees". Which I still think is mostly true, but it does not help me understand the shape of the minefield, so I have no chance to navigate it successfully even if I tried to be careful. Your article explains it nicely.
Thank you!
Previously I thought stock options were improbable to pay off. After doing all the research for this guide I updated towards stock options being even more risky. My intention in writing this guide wasn't to prove stock options are worthless, but I see a lot of readers making this conclusion, and I understand why. As you said, it's a minefield of technicalities.
My softer personal takeaways:
Here is my much shorter guide, which I wrote a year or so ago. I guess I would call it the shortest incomplete guide. It's geared towards an audience that wants to do much less thinking about them.
This is a short, but comprehensive, guide to stock options, with specific example outcomes for employees and a sprinkle of Bayesian modeling of your chance to cash out with at least $1M.
Unlike other guides, this is not a stream of financial terminology. Instead, it is specific and answers the real questions with concrete examples. "What happens if I have vested and unvested stock options and the company is acquired?" and the like.
Most of all I tried to provide tools for tackling the main question: "Is it worth it?"
Topics covered: basics, how startup exits work, possible outcomes for stock options holders, taxes, dilution, how long you will wait, and how lucky do you have to be to make money. And, of course, how to lose all of your money. There are so many ways.
This guide exists because I followed the advice of a guy I met at the Lisbon rationality meetup. The advice was to take all your interests seriously and write out ideas to completion. The topic was mildly interesting to me and I went a little bit too deep in the rabbit hole.
Hope you find this useful!