Think Like an Investor – #3

Part 3: While You Work for the Company

In this content series, we take a closer look at options and equity during each part of the career-planning process; before joining a company, during the time employees work at the company, and when they decide to leave. Follow the series to get the complete picture, and check out the previous parts here and here

Startup employees are as dynamic as the companies hiring them. Studies show that around 25% of startup workers change jobs at any given year, twice the average attrition rate of the overall technology market. According to LinkedIn, employees who are not actively looking for a new workplace receive seven unsolicited offers daily. The average employee tenure for startups is two years, with specific fields like engineering and sales showing even worse retention rates. Considering that these positions are also the hardest to fill, the result is highly problematic for employers. 

Should I stay or should I go? 

You might ask what the industry’s retention rate issues have to do with stock options and equity, and this question represents the problem better than anything. It demonstrates the sad truth that most employees consider countless factors when deciding whether or not to stay at their current job but fail to investigate this decision’s impact on their financial assets. Studies show that startup employees consider factors like the work environment, work-life balance, salary, interest level, growth opportunities, and more. They rarely ask if the company has a solid chance of reaching an exit, funding round, or IPO soon and how this may affect their stock options. 

Tips and tricks to help you decide 

To think like an investor, which is what this content series is all about, is to understand how your career decisions shape your financial future in the most profound way. Here are ten tips that can help you reach the right state of mind

  1. Keep track of your options: Track your vesting process as it progresses to know when you’re “in the money.” This will tell you if there’s any reason to wait at all. Keep in mind that just because you still have a while to wait doesn’t mean that a more significant opportunity should be missed. You just have to factor in all the numbers. You can use Robyn Capital’s tool to understand your options value.
  1. Follow external company news: When your company shares news with the world, follow it closely, see how people (both analysis and commenters) respond, and try to understand what it means for the company’s future. 
  1. Understand the stats that lead to success: We shared a few insights regarding the path to success for major exits and IPOs. Do the same for your company and find out if a founder’s decision to leave, for example, is more telling than you may initially realize. 
  1. Understand the true meaning of success: An IPO is great, but not if the company’s stock fails to rise. If a better offer is waiting for you elsewhere, perhaps sticking around isn’t worth it. Base your belief in the company and the financial decisions that stem from it on more than fancy titles.  
  1. Trust your sources: We’ve said it before, and we’ll say it again — you have more accurate and detailed information than the savviest professional investor. As a team member, you know if things are headed in the right direction, so don’t be afraid to follow your instinct. 
  1. Consider all the options: Many startup employees choose to exercise their options in the form of a secondary purchase as part of a funding round. Find out what’s on the menu and make your move. Secondary market opportunities often come up during funding rounds and enable you to cash in on some (or all) of your options pre-IPO or exit. 

Secondary deals are becoming more popular and significant, with 25 billion-dollar-plus transactions taking place in 2019 compared to only 13 the year before. Keep in mind, however, that you will be giving up the potential upside and might not qualify for certain tax benefits that a classic exercising deal would grant you

  1. Know what to ask for: These dilemmas are not only relevant when trying to decide if you should stay with the company. Before asking for a raise, study these areas and know if you should ask for more options as part of the deal. 
  1. Talk to decision-makers: Initiate conversations with the company’s leadership to gain insights and make wiser decisions. It doesn’t hurt for the founders to know you a little better, regardless of equity-focused goals. 
  1. Talk to your colleagues: Do employees at the company have faith in its leadership and business plans? Do other departments feel differently than yours? Networking is great for your career but also your portfolio. 
  1. Watch the revolving door: Who joined the company, and who just left? Are these employees who know how to recognize a potential success story and have done so in the past? Investors learn from other professionals’ decisions, and you should do the same. 

These tips will keep you on your toes and help you fight the stock market FOMO that employees dread. Use the information you have to make an informed next step, as any investor should. 

Navigating Secondary Markets: A Strategic Approach to Selling Private Company Shares
Unlocking Employee Benefits: A Guide to Understanding Stock Options and Tax Implications
Think Like an Investor Part 4: Leaving the Company
Robyn Capital is an early stage and growth fund, financing exercising options for startup employees and equity liquidation for founders and shareholders. Robyn takes all the risk from the employee/stockholder, while they keep the shares and future upside.