Winning the start-up game: Four reasons why you shouldn't stay for the shares
Move on when it’s time; don’t stay for what may never come to pass.
This is part two of a series arming you with the tools needed to thrive in the start-up world.
Shares, options, call them what you will. A form of equity compensation given to employees by an employer. When you join a start-up, these “shares” are the carrots dangled in front of you. Not all start-ups will have a share scheme, but many do. On the surface, they appear to be a nice offer: you’ve taken a risk in joining a startup—the company’s existence is volatile—and as an incentive, the company offers you a future return should the company be successful. Unfortunately, shares can become a reason never to leave the company—do not fall into this trap.
Having worked at three start-ups in my time, two of which offered shares to its employees, I do not rate options as an incentive scheme. Perhaps I’m salty that my shares amounted to zero in those two companies, so with that in mind, I will try to present as strong an argument as I can against staying at a company for the share scheme.
Reason number one: Your shares are valueless until your company experiences an event. You may as well be dealing in monopoly money. You can have an estate agent come and value your home, but until you find a buyer willing to buy your house at that price, the realised value of your abode is zero. This isn’t to say you can’t own options with the knowledge that they are worthless today but could be worth something tomorrow. But do not assume that whatever your shares have been touted to be worth is guaranteed money in the bank. Unless the company is bought by another company or that company goes public, it’s just a number in a spreadsheet. That number could exist in that spreadsheet for years until it becomes real.
This leads us to reason number two for why you shouldn’t stay for shares: there may never be an event! There is absolutely no guarantee nor requirement that a company will realise the value of its options. If you’re lucky, your company will realise them within a decade of being founded. It may well be longer, or it may never happen. The data analytics company Palantir was around for seventeen years before it finally IPO’d in 2020. How many employees of Palantir joined in 2005 and left in 2013? What about employees who left in 2019 only to find out that had they stayed one more year, they could have been on the receiving end of public shares?
The penultimate reason to avoid staying at a firm solely for the shares is insidious: companies seeking acquisition can reduce headcount to make themselves look leaner to potential buyers. This happened to a friend of mine in December last year. A major technology company with connections to the defence industry laid off nearly one hundred employees in its defence sector, including my friend, who had been working at the company for no longer than two months. It transpired that this was done in an attempt to achieve profitability and make the company more attractive to potential future buyers. Don’t be so sure your employer will keep you around for an acquisition.
Options are a nice gesture when joining a company. If you’re lucky to work for a company where your options vest over time, even better. But treat them only as a gesture and never as a reason to stay. If it helps, do the math: What would your shares be worth if the company sold for a hundred million dollars? What about a billion dollars? You might be surprised by just how small your stake in the company is. After handing in my notice at a previous startup, the founder told me how disappointed he was that I was leaving the firm. “I wanted to make you a millionaire”, he tells me. This is lovely for someone to say, but my share of the company was less than ten basis points. If the company had sold for a billion dollars, my shares may have been in the millions. I recognised that my growth as an engineer was more important than the company’s long-term prospects, and I moved on with my life. And this is the final reason to never stay for the shares: your growth as an engineer is more important than holding out for a future that may never be.