Hacker Career Advice
Should You Buy Your Stock Options?
Stock options, coupled with a successful exit, have made some people quite wealthy. But there’s no guarantee and frankly, the odds are against you.
In my opinion, options aren’t worth much without liquidity and I prefer cash over equity. Still, there’s always a chance you hit it big.
That’s why, when I cashed my last checks from ADstruc in 2013 and Devpost in 2017, I struggled with the same question:
Should I buy my stock options?
I was an early employee at ADstruc and when I left, we had about 10 people. Devpost had been around longer, with 20–25 employees.
At both companies, I was granted options when I got hired and received makeup grants during successive fundraising rounds. I had less than 0.5% equity and was 50-75% vested on my initial grants.
Each company was on a different trajectory. ADstruc was about to take a strategic investment, and I wanted to do something else. Devpost was downsizing after a failed pivot, and I got laid off.
In both cases, I decided not to exercise my options. Here’s why:
I didn’t have enough money
My options were expensive and it would have cost me a few grand to buy them. I didn’t have that kind of money lying around, especially after getting laid off.
If the strike price is low enough and you’ve got cash on hand, maybe you can afford it.
Don’t forget though, you’ll have to pay taxes, because the value of your shares is likely greater than the price you paid to buy them.
I didn’t have enough time
Most startups only give you 90 days to buy your options once you leave. After that, they expire and revert back to the company.
Three months may not be enough time for you to come up with the cash or make an unemotional and objective decision about your finances.
I didn’t have that much stock
Even with 50-75% of my shares vested, I still owned less than 1% of the company. Assuming it eventually got bought or went public, my potential upside was limited.
What’s 75%, of half a percent, of 10 million dollars? $37,500, before taxes. Not too bad, but a far cry from the generational wealth or “retire at 30” money people associate with stock options.
FYI, you’ll need at least three times that for a down payment in New York City.
And that’s without taking into account company size, valuation, dilution, liquidation preference, deal structure, or the actual sale price. Even if your company sells for $100 million, you might not see a dime.
I didn’t think the company would survive
Yep. My apologies to John, Josh, and Brandon, but I didn’t think that ADstruc or Devpost would ever be profitable. And to their credit, I was wrong.
Both companies are still around and doing well, despite some big pivots, rebrands, and changes in personnel. You make decisions based on what you know, not by looking at a crystal ball.
If I had been working at a unicorn like Uber, WeWork, Twilio, or a company I thought would definitely exit within 5–7 years, I probably would have bought at least some of my shares.
Again, I don’t think I had enough time to make an objective decision about the company’s future prospects. The 90 day exercise window is a real bummer and I hope more companies will reconsider it.
I didn’t want to look back
I was burnt out on ad-tech at ADstruc and more than a little pissed about the Devpost layoff. As a result, I didn’t want to carry all that history around on my back and in my wallet.
I knew that if I bought my shares, I’d have to keep thinking about the company until it exited. And that could be in a year, 10 years, or never.
To me, the possibility of missing out on a big payday wasn’t worth the cost to my psyche.
I have a low risk tolerance
Some of my friends did buy their shares. One even negotiated for more stock and a few others managed a little liquidity too.
But after doing the math, checking my gut, and dealing with my emotions—it just wasn’t for me and I have no regrets.
I did good work, I built interesting products and communities, and I earned a decent salary doing it. My rewards were commensurate with my risk tolerance.
Make sure yours are too.