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martyb [soylentnews.org] writes:

Bloomberg has a story about some of the pitfalls of IPO options for startup employees — Big IPO, Tiny Payout for Many Startup Workers [bloomberg.com]:

Whatever happens with an IPO, executives tend to hang on to enough equity to guarantee huge payouts when they sell their shares. Most early investors get a chance to sell options on secondary markets before a company’s IPO. Later investors increasingly demand preferential treatment, including agreements that if an IPO underperforms the terms of their investment, they’ll be made whole with an equivalent amount of additional shares. Late-stage investors in both Box and Square had such so-called ratchet agreements in place, further devaluing locked-up employee equity. When those kinds of deals are in place, employees often find their payouts disappointing because they’re so diluted, says Clara Sieg, a partner at Revolution Ventures. [...]

Ordinary employees are typically without meaningful financial protections or even a clear sense of what their equity stakes mean, says Chris Zaharias, who’s worked at startups for about 20 years and as a volunteer teaches people about their equity rights. Options grants often don’t come with information on strike prices (discounts on shares), preferential treatment, or even the total number of shares outstanding. “People on average overestimate what they are going to make by about 10X,” he says.

One employee at Jawbone, a maker of fitness-tracking wristbands, says he’s no longer sure of the value of his options given the company’s recent round of layoffs and debt financing. It looks less likely Jawbone will be able to go public at or close to its $3.3 billion private valuation, he says, and it may opt to stay out of public markets entirely, rendering the options worthless.

Have any Soylentils had any experience with this? Was it worth it? How was the payout compared to forecasts? Are things less advantageous now that they used to be? If given the option (hah!), would you accept options in lieu of pay?

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