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Options are a lottery ticket

It's better to take your salary and bank it

3 min read

Update: I wrote a longer post that explains this argument less flippantly and in more detail.

This post is anecdotal and should not be considered to be investment advice.

A company I used to be associated with sent out an email yesterday that essentially explained that the effective share price was lower than some people had bought options at, and that preferred shares were now common stock. I’m not mad about it: in fact, I think the restructuring was a good thing, and the cap table is now optimized for employees of the current phase of the company, which is how it should be. (The company, which will remain nameless, used to be troubled but is now doing really well under a new CEO. I like both the old and new CEOs very much, and there seems to be alignment between them on what needs to happen, which helps.)

I did not exercise my options at that company, so I have lost exactly nothing. In fact, I’ve never exercised options at any company I’ve been a part of.

This is maybe a bit of a self-own: that implies I’ve never been a part of a company that I felt strongly enough about that I wanted to own part of it. That’s actually not true. I own a significant chunk of Latakoo, the company that powers video delivery for news networks around the world — but I bought those shares as a direct investment at a low price while I was a very early employee, rather than as options. I also own shares in a few other companies that I’ve either advised or been a part of. (I’m also always interested in advisory roles in other companies in exchange for equity.)

But in general, for regular employees, I think options are rarely worth it. They typically require an up-front investment that many employees simply can’t make, so it’s a bit of a fake benefit to begin with, and their future value is little more certain than a lottery ticket. It’s a nice sign for founders when you can buy in, but those employees tend to be already-wealthy. Unless you’re very early at a company, the options are very cheap, and the prospects look amazing, I think it’s usually better investment to optimize for cashflow and save a portion of your money in traditional funds. Perhaps that’s a boring idea, but there it is. The promise of getting rich quick through options is what every get rich quick scheme is: too good to be true. Take the salary and bank it.

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