Waiting until the company is worth billions of dollars before buying its stock is one of several options available, and each has its own risk/reward profile.
Yes, the option technically exists. But without perfect foresight it’s not a good option. It’s not even an okay one. It’s an exceedingly bad one in most cases.
Acting like this employee was silly for not dumping a huge sum of money into company shares before it was in a position to succeed is flatly ridiculous.
Stock options are—as they currently stand—a lottery ticket that startups dangle in front of people’s faces that allow candidates to believe they will get fairly compensated for their labor, but with so much wiggle room that the company rarely has to ever make good on it. And I also say this from personal experience as employee. I was an employee ~#600 of a unicorn that went public. I ended up in something of the sweet spot of equity: most of the people who joined before me left before me and got less than I did in the end. Most people who joined after me got less equity at a worse strike price than I did.
I did pretty good. And this was a rare raging success story. Most people did worse than me.
Once again we’re talking about employee #2, exercising early would not have been that expensive! They had access to a strike price and low tax liability that the vast majority of later employees would ever see. You are correct in that most shares in startups are worthless, but that’s orthogonal to exercise price and tax consequences.
The calculus changes if/when the company becomes a unicorn, but by then the risk profile is much more favorable than when it was a scrappy startup, and returns are lower.
> I also say this from personal experience as employee. I was an employee ~#600 of a unicorn that went public. I ended up in something of the sweet spot of equity: most of the people who joined before me left before me and got less than I did in the end. Most people who joined after me got less equity at a worse strike price than I did.
Well one has to stay long enough to vest in order to keep the equity, being early isn’t enough.
I don’t know your specifics so maybe you did make it out better than earlier employees, but some tricks companies use once they hit unicorn status (and have hundreds of employees) is stock splits. They want to pad their share grants for newer employees to make it seem more attractive and make the strike price lower. Of course earlier employees that exercised and left get their shares multiplied too.
Exercising early almost certainly would have cost hundreds of thousands of dollars. For employee #2 of a startup, you’re almost certainly already working for mostly equity and not salary.
You are high as a kite if you think it’s reasonable to dump large sums of money into a five-person company while getting paid peanuts in return.
