Are Startup Stock Options Like ‘Lottery Tickets?’ A CEO and Former Employee Discuss. And My POV.

The good stuff on the Internet really does occur in the comments!

1. I shared a post by Ben Werdmuller where he details that a company he used to work for had a recent repricing/restructuring of their stock to better reflect the current state of the company and provide incentives for the team going forward.
2. Ben’s general POV is that stock options are like lottery tickets and that in most cases it’s a losing proposition for the average employee to exercise them — in fact, he’s never bought his options at any company. He recommends just saving your salary instead.
3. As you can guess I disagreed (stock options are an important part of startup incentives and over the course of a career, can be quite valuable for employees), but with three reminders/caveats

• Don’t behave as if they’re worth anything until they actually are
• Don’t over-extend yourself to exercise them in scenarios which put your financial well-being at risk
• Remember founders and investors will often find ways to protect themselves that employees/common stock cannot

AI generated image

I thought all that would happen is a few ‘likes’ and a comment or two. But then a CEO jumped in to point something important out…. while it technically might have been the recent recap which officially lowered the value of previous stock, it really was only an effect, not a cause. [You can read between the lines in this whole discussion to connect the dots on what company they’re both talking about — out of respect for neither of them specifically naming it, I’ll abstain as well].

Tony’s (the CEO) response was an unlock for me in how I explain the ups and downs of private stock to the average person.

For much of a startup’s life new FUNDING VALUATIONS are LEADING indications of POTENTIAL. They are what someone is willing to pay for shares today based on what they believe the company CAN DO in the FUTURE. DOWN ROUNDS and RECAPS are LAGGING indications of PERFORMANCE. They are what someone is willing to pay for shares today based upon what the company HAS DONE in the PAST.