With things like dilution mattering and stock options being popular vehicles for early stage start up it would be really interesting and elucidating to have practical examples to compare against.
It's easy to understand a FAANG style offer in this context.
You join Google in 2017, you get RSUs pegged at 800$ a share valuation, about 150k$ a year vesting, by 2021 those shares are worth 2800$ so you've earned about 2.1 million (not exactly as taxes come into play).
You join AirBNB in 2017, valued at 30 billion, you get a similar offer, fast forward to today and AirBNB is now worth 100 billion, you might have made 2 million (again, not exactly, considering taxes and potential dilution). And AirBNB is one of Y Combinator's most successful start ups/exits.
From some quick google searching - there are thousands of Y Combinator companies and only ~29 are worth one billion or more. Of those billion, they are all at this time late stage and trying to guess which up and coming Y Combinator company will be next to crack 1 billion is a very risky endeavour.
How does the tax implication of stock options really impact your net gain, and does that practically move the needle for a comparison against a standard FAANG offer?
Would be interesting to look at some cold hard numbers. Absolutely joining a 20M valuation YC company and sticking around until it grows to 1B would be incredibly lucrative - but how lucrative in a practical sense, given real offers? Dilution? Tax implications? Would love to see this analysis.
I joined a seed company w/ a $10m valuation in early 2014, starting offer was 1%. after series a, b, c, and some smaller retention grants, I had about 0.4%. Left before fully vesting, so ended up with 0.3%. Company was acquired for $4b and I made $12m. After taxes, netted about $7.5m
Joined another seed company with $10m valuation in 2016, starting offer was 3%. after a few dilutive funding rounds and some generous retention grants, ended up with 1.2%. Company also acquired for $4b and I made $50m. Will probably have about $35m from this one after tax.
Obviously I was _incredibly_ lucky in picking those two companies, but maybe those numbers shed some light on dilution, taxes, etc. I wouldn't have made anywhere near that much if I'd joined those companies after series a, let alone b or c. I encourage anyone I know who wants to make 7 figures to work for faang for a few years. If they want to make 8 figures, start a company or join as the very first hire (as I did) if you're not willing to take the risk of being a founder.
This is a good 'best-case' example that anyone could hope for, and like you say - you probably need to be one of first few engineering hires to have a shot at this type of outcome.
I bet this goes the other way, especially at the exec level. That is, the best indicator of startup success is past startup success. Certainly funding is easier, building the team is easier, and the emotional decision making is easier.
Yeah I wish YC or someone could provide some anonymized data on this across companies. And it's true that out of all startups, only probably 1% make it big. But the markets are growing fast and just this year there has been ~200 IPO which I think mostly are $1B+.
From a tax perspective, RSU are probably worst. They are taxed on your W-2, effectively a bonus. If you make a lot, you pay max bracket federally and in your state. In California I think it can be ~54%.
Joining seed/pre-seed company that hasn't done a priced round likely is the best. Employees get to buy shares, not options, at the nominal price, often $0.0001 per share. There is no taxes as there is no gain. After a year those turn in to long term shares, and you can hold them forever without paying any taxes. When the company is public, you can borrow money against it so you don't have to sell. If you sell, you pay long term capital gains, and if QSBS still exists and you hold the shares for 5 years, you have $10M tax free federal credit.
With options, it depends on the timing and the cost to exercise. Joining early, and exercising options early, is usually also good since now you own the shares and only had to pay the fair market value which is 20% of the investor valuation. Again now you can hold the shares forever, get QSBS or pay long term capital gains when you eventually sell.
If you join late, likely you should still exercise if you can/want to. If you don't exercise early, then you might have to pay taxes on the gains of the fair market value from the time you were granted the options and the time you exercised. Or you could just hold the options if the company allows. Then after the company is public you can just exercise and sell, and pay the short term capital gains similar to RSU.
I think YC has not put out information like this because the data would show joining a startup as a regular employee is not remotely worth it vs publicly traded companies.
It's easy to understand a FAANG style offer in this context.
You join Google in 2017, you get RSUs pegged at 800$ a share valuation, about 150k$ a year vesting, by 2021 those shares are worth 2800$ so you've earned about 2.1 million (not exactly as taxes come into play).
You join AirBNB in 2017, valued at 30 billion, you get a similar offer, fast forward to today and AirBNB is now worth 100 billion, you might have made 2 million (again, not exactly, considering taxes and potential dilution). And AirBNB is one of Y Combinator's most successful start ups/exits.
From some quick google searching - there are thousands of Y Combinator companies and only ~29 are worth one billion or more. Of those billion, they are all at this time late stage and trying to guess which up and coming Y Combinator company will be next to crack 1 billion is a very risky endeavour.
How does the tax implication of stock options really impact your net gain, and does that practically move the needle for a comparison against a standard FAANG offer?
Would be interesting to look at some cold hard numbers. Absolutely joining a 20M valuation YC company and sticking around until it grows to 1B would be incredibly lucrative - but how lucrative in a practical sense, given real offers? Dilution? Tax implications? Would love to see this analysis.