Tag Archives: employee stock ownership

How to Trade Salary for Equity

These days it’s more important than ever to maximize the financial value you extract from your job. In You Need Equity To Live In Silicon Valley we made the case that it’s very hard for a Silicon Valley based couple who earns $250,000 per year to afford to buy a home and put their kids through college without generating wealth from an equity stake in a private company. We have written numerous posts to help you identify the kind of employer that is most likely to help you achieve your goals (peruse the Careers section of our blog to see them). This post focuses on how you might think about trading off some salary for additional equity, something we are […]

The Impact of Dilution

Most people don’t realize that the percentage of the company they are initially awarded when they start a new job is not  what they will ultimately own. That’s because private companies tend to raise additional capital as they mature and the ownership associated with the additional capital dilutes your ownership. Your ultimate ownership depends greatly on the maturity of your employer at the time of your offer and the rate at which it grows. Before I show the impact of future financings on your ownership I need to explain how a successful company trades ownership for financing. Dilution from Financing These days a very successful company may need four or five rounds of financing before it has the opportunity to […]

The Two Types of Job Offers

In the past we have written numerous posts to help you evaluate specific job offers, but recently we realized we neglected a critical piece of information. There are two distinct job-offer approaches companies take; each can provide you some real insight into how they operate. Some companies believe in starting with a low offer to see if you will negotiate, while others offer fair market value and usually are not willing to negotiate. There isn’t a correct answer but you do need to recognize which type of company you’re dealing with and decide which type of company you want to work for. The Low-Ball Approach Unfortunately, a common characteristic of very successful entrepreneurs is they are often very cheap when […]

A Good ESPP Is a No-Brainer

Ask These 12 Questions About Your Options

An often overlooked and potentially valuable employee benefit is the Employee Stock Purchase Plan (ESPP). If your employer offers an ESPP we recommend you   1) participate at the level you can comfortably afford  and then  2) sell the shares as soon as you can. This strategy should allow you to lock in a generous return on your contributions while avoiding additional risk on your company stock, which may already represent an outsized percentage of your net worth. To appreciate why this strategy makes sense let’s cover some basic questions: What is an ESPP? How does an ESPP work? Should you participate? How are ESPP gains taxed? When should you sell the stock you purchase through an ESPP? What is an […]

What You Need To Know About Vesting Stock

Most people don’t realize it, but your vesting schedule has an enormous impact on the potential value of your equity package. That’s why the topic of vesting deserves a deeper dive than our discussion in The 14 Crucial Questions About Stock Options. Before we analyze what vesting schedule is appropriate and how it can affect you, we need to provide a little background on why vesting came to be associated with stock options and RSUs. What is Vesting? Vesting refers to the process by which an employee earns her shares over time. The most common form of vesting in Silicon Valley is monthly over four years with a one-year cliff. That means you earn the right to 1/48th of the […]

Introducing the Wealthfront Single-Stock Diversification Service

When LinkedIn went public in 2011, the company had about 1,500 employees. Traditional private wealth managers were ubiquitous on campus in their efforts to sign-up the 50 to 100 early employees and executives who met their firms’ multi-million dollar minimums. Unfortunately, that was of little help to the 1,400 other employees at the company looking for support. At Wealthfront, we believe everyone deserves sophisticated financial advice. Today, we’re launching the service I wish the entire LinkedIn team could have had access to back in 2011. Introducing the Wealthfront Single-Stock Diversification Service. This service will help solve a critical problem for many that work at public technology companies: How to best diversify concentrated holdings in your company’s stock. Such holdings are […]

The Post-IPO Dilemma: Hedging Your Stock

If your company recently went public and your stock price has gone up significantly then you’re probably wondering how you can hedge your position. Unfortunately there’s nothing you can do while you’re still in the 180-day lock-up period. Most lockup agreements have extremely detailed restrictions included, designed to prevent almost any form of market participation with a security.  It’s too long to reproduce anything but a sample here, but it typically begins like this: In consideration of the Underwriters’ agreement to purchase and make the Public Offering of the Securities, and for other good and valuable consideration receipt of which is hereby acknowledged, the undersigned hereby agrees that, without the prior written consent of each of [names of managing underwriters], […]

An Employee Perspective on Equity

Andy Rachleff, Wealthfront's President & CEO

A couple of days ago we wrote a post for company founders that describes our proposal for allocating equity to attract and retain outstanding employees.  We call it the Wealthfront Equity Plan. It’s equally important to take a look at the Wealthfront Equity Plan from the perspective of an employee. When a prospective employee is considering a job offer she should be concerned not only with the amount of options she receives when she joins a company but also how well she is going to be rewarded for outstanding performance. Back in April 2012 we wrote a blog post that listed the 12 questions you should ask about the options associated with your job offer (NOTE: We have since updated and […]

Winning VC Strategies To Help You Sell Tech IPO Stock

It’s well known that 20% of venture capitalists’ portfolio companies generate 80% of their returns. What most people don’t realize is the same 80/20 ratio holds true for public tech investing. The imbalance is even more profound for tech IPO investing. We found that for companies that went public between 2002 and 2008, 21% of the companies generated 96% of the gains. Just like in venture capital, a majority of the companies that went public during this period (56%) turned out to be losing investments. Venture capitalists and professional public company tech investors train for years and collaborate with other talented partners to identify the 20% of the companies that generated 80% of the upside. Imagine how difficult it must be for tech employees to decide if they should […]

Real Data-Based Guidance On Selling Stock Post-IPO

Today, we’re releasing an analysis that suggests employees in IPO companies making decisions about how and when to diversify their portfolios should take into account whether the companies missed their first two earnings estimates. Companies that missed one or both of their first two quarterly earning estimates had a 70% chance of continuing to trade down in the three months after their lockups had expired, an analysis of 104 technology IPOs showed. The IPOs were from the years 2005-2011, the only years for which data is available. The conclusion could be an important touchstone for employees trying to figure out how rapidly to sell and diversify their portfolios after an IPO. If there’s only a slim chance that a company’s […]