Equity Terms: Negotiate that Shit

How much did you pay for your equity? Do you know? You should.

I have a friend who works at Twitter.

He’s been doing an amazing job: Growing his responsibilities, getting direct reports, standing in for his boss at important meetings, big-time stuff like that. Each quarter, his team demolishes their predictions for $$$ growth.

But 40% of his compensation is Twitter stock. He sells some every month to pay rent and stuff.

Year over year, Twitter lost 69% of its valuation. That’s a 27% salary cut for things my friend has no control over. He’s making less money despite actively out-performing expectations. Poor guy.

Equity, by Hello this is Jeff

GoPro lost 74% year over year as well. Yelp lost 63%. Last week, LinkedIn lost 50% in one day. So did Tableau.

This week, the CEO of Zenefits stepped down. The CFO of Yelp was fired. And the CTO of PayPal washed his hands of that particular mess.

All things outside the control of engineers.

At least in the case of Yelp and PayPal, we can tell the impact these events had on their valuation, and, by extension, on people’s compensation. But Zenefits is still a private company. That means its stock is only traded behind closed doors by people who are in the know.

On public markets, this is known as insider trading, and it’s illegal. On private markets, that’s all there is. Founders and key employees have direct insight, and investors often take on advisory roles and board seats.

As an employee, you are privy to none of that. You can guess, you can speculate, but the CEO is under no obligation to tell you. The best ones will tell you, but we can’t all have the best ones, can we?

To be honest, even knowing those things doesn’t help that much. You have no control and little influence. You can do your best work, or you can leave, but key decisions are out of your direct control. Even working so hard your eyes bleed amounts to naught, if you were asked to work on the wrong things.

For you, the potential upside is based on pure luck. Like a lottery.

Equity lottery by Hello this is Jeff

Your equity isn’t even yours

Individual contracts vary, but here’s how equity usually works:

1. The founders can dilute your share at any time. Therefore, it’s not yours.
2. You cannot sell your share in future funding rounds. Therefore, it’s not yours.
3. You can only sell your share during or after a liquidity event like an IPO or acquisition. Therefore, it’s not yours.
4. You can only sell your share with the founders’ approval. Therefore, it’s not yours.
5. If you leave the company, you lose your share. Therefore, it’s not yours.
6. During a 4-year vesting period, you only own a percentage of your share. Therefore, it’s not yours.
7. If you vest and own your full share but leave the company before a liquidity event, you lose your share. Therefore, it’s not yours.
8. If you have options instead of equity and you want to sell them, you have to first buy them with cold, hard cash. Therefore, they’re not yours.
9. The average company takes 11 years to IPO, so you have to stay with the company for 11 years to sell your share. Therefore, it’s not yours.
10. For a great IPO, founders can dilute your share and give it to investment banks to pay off “special” investors. Therefore it’s not yours.

Here’s how much you paid for all that equity that isn’t yours:

• 4+ years of opportunity cost
• $30k+ per year salary cut → $120k
• your health

Since [a doctor for startup folks] says he commonly sees 30-year-old engineers with 50-year-old bodies, complete with potbellies, curved spines, dulled skin tones, joint issues, reduced vitality, and elevated risks of diabetes and heart disease.

Oh, and the median job tenure these days is 3 years. You’re not likely to stick around to see your equity vest. And you’re very unlikely to stick around until a liquidity event.

Is it worth it anyway? Maybe. The more control you have, the more it’s worth.

Get a lawyer. Negotiate that shit.

Read the rest of Hello this is Jeff. It’s amazing.

What do you think? Is equity worth it if you’re not a founder? Write me an email (swizec@swizec.com) or tweet me (@swizec). I promise to reply.

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Thanks to Will Fanguy, Jure Cuhalev, Enid Magari, and Anze Pecar for reading drafts of this article.