Startup stock options won’t make you rich

Startup stock options won't make you rich

Stock Market (Photo credit: Tax Credits)

I often see people who are new to the startup world overvalue the equity component (stock options) of their compensation, thinking that it will be their ticket to an early retirement.  The problem is that startup stock options almost always will not make you rich, particularly when the company has already raised even a modest amount of venture capital.

VC Mark Suster put a fine point on this in his “Learn or Earn” blog post when he said:

If you’re thinking about joining as the director of marketing, product management manager, senior architect, international business development lead, etc. at a startup that has already raised $5 million the chances of you making your retirement money on that company is EXTREMELY small.

However, even if those startup stock options won’t make you rich, they do make up a significant portion of your compensation at a startup, so you need to understand how they work and the basics of venture capital financing.

The guys from Venture Hacks wrote a couple of great posts (Part 1 and Part 2) about how to evaluate a startup job offer and especially the value of those startup stock options. It’s well worth the read if you’re interested in working at a startup or currently evaluating a startup job offer.

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