Sunday, August 23, 2015

MicroConf Europe (Barcelona)

I'm attending MicroConf Europe in a few days. I'll be in Barcelona Friday August 28 at 8:35am until the morning of September 2nd.

If you'd like to meet up in Barcelona, let me know. I'd love to talk iOS apps or recruiting, share a cab, and explore the city!

Wednesday, March 25, 2015

Quitting with Employee Stock Options

Many startup companies still use Restricted Stock Options to make up for a below-market compensation, or as an incentive to stay with the company for a longer period of time. This leaves employees with a dilemma when they decide to leave the company.

Should you spend tens of thousands of dollars to exercise their options? Or should you just save your cash and leave the equity along with the job? The options probably expire a few months after leaving the company if you don't exercise them — that’s part of the restrictions on most options.

What if the stock never goes public, or never experiences a “liquidity event”? What if the stock doesn't perform as well as the S&P 500? $X0,000 is a lot of money to put on a single bet. Your money would be forever stuck in a useless stock.

What if you decide to abandon your options and the company has a massive IPO eight months after your departure? You'd probably be really jealous of your former coworkers who are all buying Teslas and getting fitted for Gold Apple Watches.

I’m facing this dilemma right now. I have options that will expire in a few months, and they will cost a big chunk of change to exercise.

What if I can participate in the potential high upside of the private stock while removing the risk of losing the money?

There are some options. The ESO Fund has an interesting offer: they will give you money to exercise your options. What do they want? According to Quora they want a liquidation preference and a percentage of the upside.

This would mean that if the stock turns to money, they will get some small multiple of the money they gave you to exercise the options. In addition, they get a percentage of the remaining proceeds. If they gave you $10 to exercise an option and then the company goes public and you sell the share for $40, you might owe them $20 for a 2X liquidation preference, and then an additional $5 for a 25% split of the remaining money (these are completely made-up numbers).

What if it’s the same $10 to exercise, but the stock sells for $20? Then you pay them $20 for the liquidation preference and get no money out of the deal. What if it’s $10 to exercise and the stock sells for only $5? Then you pay them the entire $5, and they eat the loss for the additional $5 they paid in to exercise. The exact way it works depends on the agreement you negotiate with the fund.

A 1X liquidation preference is completely fair. This simply means that the ESO Fund gets back whatever was left of their investment -- and you've lost no upside.

A higher liquidation preference means that in certain scenarios you won’t share in the appreciation over the strike price. From the Quora question, it sounds like you can trade liquidation preference for a less favorable split of the remaining capital. I suggest making a spreadsheet or writing a program to evaluate the possible scenarios.

Based on what I know so far, the ESO Fund seems like a great way to protect your wealth if you are willing to share your upside. There is a significant opportunity cost to turning your cash into illiquid private equity. Do you really want to sink your hard-earned cash into an equity you can’t readily sell or control? The ESO Fund offers a nice way to solve that dilemma.

Another interesting option that might help you turn stock options into cash is EquityZen. Unlike the ESO Fund, EquityZen is a place to sell — or pledge to sell — your equity. It appears that EquityZen may even help you work around “Rights of First Refusal”, and other clauses that private companies use to exercise control over their employee’s equity. You might be able to use this service to sell enough shares to exercise all of your shares.

One possible sticking point of EquityZen is that their minimum transaction size is $100,000. They allow you to bring in another stock holder into the transaction to reach that minimum, but that sounds potentially tricky.

Sunday, January 11, 2015

Sony A7 II (ILCE7M2) First Impressions

Last month I purchased a Sony a7 II camera* (ICLE-7M2K), and I love it. It has a lot of advantages over the Sony NEX 6, but also a few downsides. You can read my initial review and long term review of the Sony NEX 6 here. All photos on this page were taken with the a7 II and (usually) edited in Lightroom. Click on any of them to see a larger version.
Gringotts Dragon
In my previous writing about the NEX 6 and other mirrorless (or EVIL) cameras, I noted how they would probably replace dSLRs for most kinds of photography. Not only are they smaller, lighter, and easier to use, they produce images that are just as good as their dSLR counterparts. Today, unless you're shooting sports, weddings, or other fast-moving action, I think buying a dSLR is a big mistake.

The a7 II is a new camera, and costs a lot more than the NEX 6 models which I purchased in 2012 to replace my Canon 7D. Even the Sony Alpha A6000, a fast-focusing successor to the NEX 6 costs a lot less.

For that extra cost, I think there are a lot of advantages to the a7 II. First, the camera is a lot more competitive with high-end dSLRs in some key areas. It’s startup time and wake time from sleep seems much faster than the NEX 6. The a7 II still starts slower than a DSLR (which can be almost instantaneous), but I think it's now fast enough. If these improvements are in areas you care about, it may be worth the extra cost.

Battery Life

If you read my review of the NEX 6, you may remember that I was critical of the battery life, especially if you used the eyepiece instead of the rear LCD. Both the NEX 6 and a7 II have a similar rating in terms of the number of shots you can take, and they both use the same model of battery.
Mangrove Sunset
I suspect that you can get more battery life out of the a7 II simply because there is less of a penalty for turning the camera off or letting it sleep (AKA power saver mode). I configured the a7 II to go to power saver mode in ten seconds for exactly this reason. Time will tell if this has a real impact.

The battery life of a DSLR is hard to beat simply because you don't have to light up a screen to use the camera. The electronic viewfinder of these cameras might eat the batteries, but it also makes the camera a lot easier to use. I have a set of fully charged Wasabi batteries that I carry with me just in case I burn through the first battery. Unless I'm visiting a very photogenic spot, one battery usually is enough for a day’s worth of still photography.


Another area of significant difference between the NEX 6 and the a7 II is the way the cameras are built. The a7 II has a magnesium alloy body that feels quite solid. The a7 II weighs significantly more too. Many of the buttons and switches of the a7 II feel as if they were lathed out of solid hunks of metal. I like the luxurious feel.
Hurricane Pass
The bottom of the camera is significantly thicker than the NEX 6 as well, which makes the camera larger, but also provides a larger, more stable base for a tripod mount. The bottom is improved in other ways too: the articulating LCD screen is more recessed and protected from this angle. Unlike the NEX 6 design, a tripod mount is unlikely to interfere with the movement of the display.

The NEX 6 isn't advertised as weather proof, yet mine has been in rainstorms around the world and survived just fine. I’m sure to indulge in even more electronics-unfriendly behavior now that I have a a7 II, which is actually advertised as having weather seals.

Another design difference: a large DSLR-like bump contains the electronic viewfinder of the a7 II. The a7 II looks more like a traditional camera, but I liked how the NEX 6 just used a tiny corner of the body without taking up extra space. The a7 II viewfinder also extends further from back from the body of the camera. The extra length probably makes it more comfortable to use, but is another tradeoff because it makes the camera larger.


The menu system on the a7 II is a vast improvement over the NEX 6. The NEX 6 divided important settings between “Camera” and “Setup” menus that each had long lists of settings. I never knew which menus held which items; both of the screens contained “setup” things for the “camera”. This led to a fun game of “find the setting”, where I would scroll through a huge list of items in one screen, then have to back out and try the other one.

The a7 II has a breaks down categories of settings into pages, but almost all of the settings can be paged through linearly without having to tediously back in and out of screens. The whole system seems very responsive compared to the NEX 6, and similarly fast to a dSLR like the Canon 7D.
Phoenix Fire Lighters
Along those lines, you can customize many of the buttons on the camera to enable you to change different settings quickly. This feels a lot more like my Canon 7D, which is studded with buttons so you can change the important settings without removing the camera from your eye.

The a7 II also has an exposure dial right on the body. I’m not sure if I like that feature or not. On one hand, there is a dedicated dial, on the other hand, it is easy to bump or forget to look at the setting (which is shown in the viewfinder as well, but I sometimes forget to check it). On the bright side, you're much more likely to notice an exposure problem on the a7 II (or NEX 7) than a DSLR because the setting impacts how the scene looks in a viewfinder.

The Canon 7D also has wheels you can configure to change exposure, and it is quite easy to shoot many photos under or over-exposed without realizing it. Obviously the image in optical viewfinder looks the same no matter how poor your exposure is. All of these cameras have a scale in the viewfinder to show the exposure compensation. I tend to forget to look at it, that's all.

Like the intelligent modes in the NEX 6, the a7 II has an auto mode that does a great job of deciding what kind of scene you're shooting and configuring the exposure, ISO, and aperture intelligently. Unless you're going for a very specific effect, this is a great way to shoot travel photography, or any other photography where you may not have a lot of time decide if you'd prefer shallow or deep depth of field, or if a scene is backlit or not.

The a7 II also has a scene mode, which lets you manually choose what type of photos you're taking: sports, landscape, portrait, and so on. This is useful if you're going to take lots of photos of a certain kind, or if you're going to hand the camera to a stranger for a photo.

Full-Frame Sensor

Finally, one of the big selling points of the camera is that the sensor is full-frame. The advantages of full-frame may not be obvious. The NEX 6 camera’s sensor is what they call an APS-C sensor, or a crop sensor. With the same lens, an APS-C sensor takes a photo that looks zoomed in 1.5x compared to a full-frame sensor. That means to get the same photo with the same lens, you'll need to get closer to the subject  with the full-frame — making up for the lack of zoom effect. Getting closer to the subject means that you can blur out the background even more with the same aperture.


On the other hand, if you love landscape photography, or you're always at the long end of your zoom range, the full frame might not be as useful to you.


When I last wrote about the Sony NEX 6, there weren't many full-frame lenses available for E mount cameras (the E-mount is sometimes called EF-Mount when using full-frame lenses). Although there aren't as many full-frame lenses as the Canon or Nikon system, there are many more choices out than there were just last year. Most of the more important focal lengths are covered.: there are two great lenses for the 28-70mm range, a 16-35mm lens that is getting great reviews.

The lenses for EF-Mount don't tend to have as aggressively large apertures as are available for dSLRs. Canon, for instance sells 50mm prime lenses at maximum apertures of f1.8, f1.4, and f1.2. The fastest aperture lens that Sony sells is the Zeiss Sonnar T FE 55m f1.8 lens. I own it, and it makes very sharp images even at the maximum aperture, something that isn't always true.

If you don't mind manual focus (or very slow autofocus), there are adapters for common lenses. I’ve use an adapter for my Canon L Glass on the NEX 6 with lots of success. The focus peaking and zooming makes manual focus much easier than on a dSLR. Many folks are using Leica glass on their Sonys for that reason. If 1.8 isn't fast enough for you, or you need a longer lens than the Sony 70-200mm lens, an adapter will let you use your favorite lens from another brand.

There are advantages to the Sony full-frame lenses too. They are typically smaller and lighter than the dSLR equivalents, and in general they seem to be getting good reviews. I own the Zeiss/Sony Sonnar T FE 55m f1.8 lens. It's quite sharp even wide open, it can blur the background nicely, and really looks and feels like a quality piece of equipment. This is a great lens for taking photos of people (the next photo used this lens, be sure to visit the full size).
Brew & Brew
I purchased the a7 II in a kit with the Sony 28-70mm f3.5-5.6 Lens, also available separately. This lens is a great general-purpose zoom, and is reasonably priced, especially compared with the Zeiss/Sony 24-70 f4 lens. Either of these lenses are great for travel and landscape photography. Both have built-in image stabilization which compliments the a7 II's sensor-based stabilization. Both are also weather sealed, to help prevent dust and moisture from harming the electronics.

Image Stabilization

Another reason for the greater thickness of the a7 II is the sensor-based 5-axis optical image stabilization built into the body. This is one of the primary features that made the camera attractive for me. I shoot a lot indoors and at night. The ability to add stabilization to almost any lens makes handheld shooters like me happy. Sony claims that lenses with built-in 2-axis stabilization will get the remaining 3 axes stabilized with the same method.
Dragon's Fire
Image Stabilization is useful only when doing handheld photography. It helps with low-light photography, and certain kinds of sports or other action photography where you'll be moving the camera quickly to frame shots (I'm not sure this would otherwise make a good sports/action camera though; others might focus faster). The stabilization might be useful for handheld macro photography too since macro makes movement more apparent.

One thing image stabilization won’t do is reduce blur in a moving subject. For that you need fast shutter speeds.

Social Media Camera

The a7 II makes a fantastic social media camera. Like the NEX 6, the camera can create an ad-hoc Wifi network, and there is a free iPhone and Android “PlayMemories” app that will transfer JPEG versions of photos off the camera (even though I shoot raw on camera this still works). These cameras are my secret trick for making really sharp Instagram posts (the following photo was transferred from my a7 II, edited on my iPad, and posted to Instagram, Twitter, and flickr).
Holding back erosion, Honeymoon Island. #beach
Unlike the NEX 6, there is a dedicated button on the camera. View the photo you want to transfer to your phone or tablet, hit the Fn button, and you can transfer the image in seconds. The a7 II is much faster and more reliable at this than the NEX 6.

I can transfer, edit, and share photos from the a7 II in just a few minutes if everything goes smoothly. I share a lot more photos than I otherwise would because of this feature. I’ve only tested this on my iPhone, but I'm guessing the situation is the same on Android phones.


I'm really enjoying the upgrade to the a7 II. The larger sensor and stabilization make my life easier in the frequent situations where I’m taking photos at night or in dark restaurants. The additional programmable buttons makes it easier to configure the camera on the fly. The faster Wi-Fi sharing means that I share many more photos to social media.

If you're even more of a night photographer than I am, and you don’t mind lower resolution (and no in-body stabilization), you might also look into the Sony a7s, which has low noise at astronomically high ISOs (ISO 409,600 vs ISO 25,600 on the a7 II).

If you’re not quite ready for the cost of full-frame camera (and the pricier full-frame lenses), the Sony Alpha A6000 (the successor to the NEX 6) is a fantastic camera that can take photos rivaling a dSLR at a fraction of the size.

Improvements over the NEX 6

  • Faster startup time
  • Sensor-based 5 axis stabilization for lenses without stabilization; will also enhance the stabilization of sony lenses with built-in stabilization (OSS)
  • Similar focus speed
  • Many buttons that can be customized
  • Same excellent auto mode
  • Weather sealing
  • Magnesium alloy shell
  • Same battery
  • Larger, deeper grip
  • Easier and faster to navigate settings menus
  • Much faster wifi sharing of photos to iOS devices, with dedicated button
  • Higher resolution (24.3 megapixels vs. 16.1 megapixels)
  • Higher maximum shutter speed of 1/8000 vs 1/4000 S
  • Higher flash sync speed of 1/250 S vs 1/160 S
  • Similar power consumption: each can take 270 photos using the viewfinder, or 360 using the rear LCD
  • Similar ISO range: ISO 100 - 25600 (the a7 II also has extended ISOs below 100 starting at ISO 50)
  • Higher maximum ISO in auto mode (ISO 6400 vs 3200)

Disadvantages of the a7 II vs. the NEX 6

  • 74% Heavier (599g with battery and media vs. 345g)
  • Bulkier
  • Full frame lenses are needed to get the most out of the camera, although crop-sensor lenses will work (the crop-sized image will be about 10 megapixels)
  • Lower maximum burst capture (10 FPS (frames per second) for the NEX 6 vs 5 FPS, although the NEX 6 will only track focus at 3FPS, while the a7 II will track focus at 5)
  • No built-in flash

*Moving Average Inc. is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Buying items through this link helps sustain my outrageous camera addiction and is much appreciated!

Wednesday, December 17, 2014

Evaluating a Job Offer Part 9: Conclusions

Few decisions can have a larger impact on your financial life as a software developer than accepting (or not accepting) a new job. This is part nine, the final part of an essay on the financial considerations when evaluating a software developer job offer. Just tuning in now? You can jump to the beginning to learn the risks of taking a new job.

Before you’re ready to accept a new job offer, you’ve hopefully considered your job offer from many different angles. You’ve explored the possible risks of the new job, and compared the costs of living at the new job, the value of the benefits, and the value of any equity in the bargain.
Track Speed
You have all the data. Now you just need to make a decision. Lucky for you, a job offer is not a yes/no decision.

There is a third option in every negotiation: “You’ll have to do better than that.” It’s a line I learned from Secrets of Power Negotiating by Roger Dawson. It really works.

One recruiter sent me a LinkedIn message out the blue. It was for a position in San Francisco with a “competitive salary.” I asked him what the salary range was. He replied that the top of the range was $165,000. I messaged back “Sorry, you’d have to do better than that” and was immediately told they could do $185,000. That’s a 12% increase and I hadn’t even discussed my experience, much less interviewed. Those magic words can pay.

If you look at the numbers and decide to ask them to do better, be prepared for their response. If their recruiter is a good negotiator, they may ask you to justify your numbers. The recruiter might also ask you what they have to offer you to get you to say yes. If you’ve already gone through the process I’ve outlined, it won’t be difficult to explain why the offer isn’t good enough.

You should also be prepared for the recruiter to decide not to do better. Many software developers undervalue themselves, or simply aren’t aware of how to properly evaluate a job offer. As a consequence, many companies have learned that they can hire a developer at the price they want by just making enough offers to different candidates. I’ve personally experienced this, and it’s not fun saying “no” to a job that looks like a lot of fun, but which offered significantly lower compensation than the job I had. It’s even more difficult when you’ve flown out for an interview, met the team, joked around with them, and had a great time. It was difficult, but I did say no.

Hopefully your decision won’t be that difficult. Hopefully you have an offer that you can give an enthusiastic “yes” to, and your new job will make you happy and open new doors for you. Just make sure to consider compensation, benefits, equity, and intangibles like happiness when making that big decision.

Now you know as much as I do about job offers for software developers. If you'd like an easy way to use what you've just read, you can use my calculation spreadsheet to examine and compare job offers. Simply fill out your email below and I'll send you the spreadsheet.
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*Moving Average Inc. is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Buying items through this link helps support the site and is much appreciated!

Tuesday, December 16, 2014

Evaluating a Job Offer Part 8: Happiness

Few decisions can have a larger impact on your financial life as a software developer than accepting (or not accepting) a new job. In this segment, we won't talk finance. Instead, I'll give you permission to turn down more money for less happiness. This is part eight of an essay on the financial considerations when evaluating a software developer job offer. Just tuning in now? You can jump to the beginning to learn the risks of taking a new job.

There is one very good reason to take a job without an increase in pay: happiness. That’s a subject big enough for another essay, and something that should be carefully evaluated separately from the economics.

Just like your job probably has the largest impact on your financial situation, it has one of the largest impacts on your overall happiness as well. You’ll spend about a third of every year at work, so it makes sense to have a job that aligns with your interests and gives you a sense of accomplishment.
The Baguashan Buddha, #Taiwan You can climb inside and see scenes from Buddha's life. Pretty interesting!
One of my worst jobs was a great fit for my skills. The company had a mission that could have had a large positive impact its potential customer base. Unfortunately, the folks in charge at the company were focused on the product instead of the mission. The product was a challenge, but it was developing fine. The biggest challenges, like funding and developing a market, were left up to fate. I hated the feeling of building something really great, but not believing that the company would be successful either financially or at achieving its mission. The situation made me miserable.

The situation of a job can make you more or less happy too. A bad boss can make your life miserable. Nothing has motivated me to leave a job faster than a boss that I didn’t like. Even the work environment can harm you. This article mentions that job strain had a similar impact on health as smoking! How much of a raise would you need to persuade you to take up smoking?

Your job can have an indirect impact on your happiness as well. This study shows how a daily commute impacts happiness. Take particular note that the study found that higher pay didn’t make up for a poor commute.

I don’t think there is anything wrong with accepting a job offer that compensates you less if it will make you happier. Likewise, it makes sense to pass up an increase in compensation to stay at work that will make you happier.

Finally, we'll wrap things up in the conclusion.

To get your offer in black and white, I've created a spreadsheet that will make your decision easier. Fill out your email below and I'll send you the spreadsheet. I promise to never sell or share your email.
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Saturday, December 13, 2014

Evaluating a Developer Job Offer Part 7: Details and Avoiding Traps

Few decisions can have a larger impact on your financial life as a software developer than accepting (or not accepting) a new job. In this segment, we'll get prepared for some persuasive techniques your recruiter might use, and also go over some of the remaining offer details. This is part seven of an essay on the financial considerations when evaluating a software developer job offer. Just tuning in now? You can jump to the beginning to learn the risks of taking a new job.

There are a number of other factors you have to consider before accepting a new job.

Recruiter Gambits

Some recruiters try to sell their equity by claiming that in the past employees were allowed to sell some of their shares after funding rounds. I think that’s a great way to let employees get value from their shares. However, there isn’t any way to know if that will ever happen again, or if you will be allowed to participate. Issues like vesting schedules, the class of stock you have, your seniority, and your contract can prevent you from selling when others might be allowed to.

Another key to understanding your equity is getting a copy of the equity agreement. I’ve made the mistake of accepting a job offer before doing this, and when I eventually saw them, the terms of the agreement were quite surprising to me. Among other things, the stock units had an expiration date. If they expire before the company is sold or makes a public offering, the equity returns to the company and my value is zero.

With those terms, it hardly feels like “my” equity at all.
Pacific surf breaks at Yehliu Geopark. #Taiwan
The kind of equity you’ll probably be offered is worth a lot less than the equity the founders and investors have, but recruiters will tell you that your shares are worth what the last investors paid. I find these claims outrageous. Not only is it unlikely that you would receive the same preferred class of shares that investors have, you also have far less control of the company.

Unless you’re an accredited investor with cash to spare, you can’t invest in a more diversified portfolio of private companies like most investors would. This puts you at a significant disadvantage to the investors, who may have invested because they are specifically looking to invest in risky growth companies that have a chance at 10x or 100x returns. And it seems like those venture funded companies fail about 75% of the time.

It’s also important to know what preferred stock can mean. In some cases, the investors have negotiated a guaranteed return, called a liquidity preference. These preferences mean that the investor gets to take some multiple of their investment out of the value of any sale of the company. If the investor invested $1 million with a 3x liquidity preference, then they get to remove $3 million from any deal in addition to their split of the remainder based on the shares they hold.

I imagine liquidity preferences are an intentionally confusing tool to help investors, and not employees profit from a successful startup. You can ask your recruiter or hiring manager about the financial structure of the company, but I wouldn’t count on their knowledge of the situation. It’s not like public company where investor disclosures are publicly available. I’m sure there are many other tricks investors use that I’m not aware of.

Some companies will have a more credible explanation for their shares value because they have filed for IPO or publicly announced a merger or acquisition. Even if the company has filed for IPO or some other liquidity event, keep in mind that it might change its plans. Just google for “cancels IPO!” There is also no way of knowing how the shares will be valued at the time you’re able to sell them. You’ll almost certainly not be allowed to sell your shares immediately when the IPO or transaction occurs.

To sum up, I almost always value the equity component of an offer at zero. Equity is a great incentive to align your interests with the company so that you’ll share in it’s success. Its contractual caveats, vesting schedule, and lack of liquidity or control make it a poor substitute for cash. Ultimately you buy food and pay rent with cash, not equity.

Bonus Plans

Bonus plans and profit-sharing plans are motivational devices that can be almost anything. Like equity, the value of a bonus plan involves lots of wishful thinking. It’s a lottery that’s held once or more a year.

When negotiating at one place, I was told that one employee purchased a new Porsche with last year’s bonus. I never got a large enough bonus to buy a used Volkswagen, much less a sports car, at that place. I later heard that he had been saving for that car for years and the bonus just made it happen faster. Never take the recruiter’s word on these things at face value.
The sun sets begind the birds and windmills of Gaome Shidi #Taiwan
The nice thing about bonus plans is that there is often documentation to go along with them. I got an offer letter at a different business that laid out the bonus plan rules. Much to my surprise, the bonus was capped to 15% of the base salary. Earlier, I was assured by the recruiter that the annual bonus would make up for the cost of living gap. Even a 15% year wouldn’t get me there.

Obviously you shouldn’t anticipate the best possible year for a bonus, even if the recruiter says otherwise. Take the sage advice from mutual fund prospectuses: “past performance does not necessarily predict future results.” Be sure to at least make note of what things look like with a 0% bonus. Ask the recruiters, managers, and any employees you talk to what the bonus percentages for the past few years were.

Most important of all: don’t forget the taxes that will be taken out of any bonus. I’m happy to have a bonus plan, but I ultimately value these at zero as well.

Sign On Bonus

The sign on bonus is a one-time payment made to the employee, typically in their first paycheck. The sign on bonus might seem like a nice way the new employer can compensate you for the risk of a new job. It might, except that you usually have to repay the bonus if you leave the company before a certain time period. The bonuses I’ve seen require one year of service before you can quit or be fired without repaying the sum.

In summary, the sign on bonus is nice, but it usually won’t help you if you get fired early on. I consider the sign on bonus to be compensation, but because it is paid only once, I amortize it over the two or three years I typically spend at a company.

For example, if I’m offered a $30,000 sign on bonus, I’ll divide it by two years and treat an additional $15,000 as part of the annual compensation. If there are direct expenses related to this job, like relocation, I’ll subtract those from the amount (plus additional for taxes) before figuring out the contribution to my salary.


Titles may not seem important, but they can have an impact on your career. This is a topic that is on the intangible side, so I’ll save my thoughts for a future essay.

The final crucial factor to consider when considering a job offer is happiness, the topic of the next post. That post is coming soon...

To get your offer in black and white, I've created a spreadsheet that will make your decision easier. Fill out your email below and I'll send you the spreadsheet. I promise to never sell or share your email.

Is your job offer fair?

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Friday, December 12, 2014

Evaluating a Developer Job Offer Part 6: Equity

Few decisions can have a larger impact on your financial life as a software developer than accepting (or not accepting) a new job. Today we'll consider a controversial topic: equity. A lot of private companies (e.g. startups) try to sell their equity as a form of financial compensation. I use a ridiculous metaphor to explain why you maybe shouldn't give up money for paper. This is part six of an essay on the financial considerations when evaluating a software developer job offer. Just tuning in now? You can jump to the beginning to learn the risks of taking a new job.

Though it may seem daunting, equity is actually really simple. All you have to do is make sure you get as much as you already have at your current company, or more (in supposed dollar value, based on the last investment). Unless the company has filed for IPO or is publicly traded, value the equity at zero. Don’t accept equity for a salary of lower value.

Lots of people will disagree with the value of zero. I plan to write more about this because it is a complex topic. Most equity in private companies is so encumbered that it has little or no real value. In any case, there typically isn’t enough liquidity to accurately value it.
World Trade Center Building
Unless the company is publicly traded, I see stock, stock options, and restricted stock units (RSUs) as an incentive, not compensation. An incentive is something that helps align your interests with the interests of the company.  Debateably, it can also serve as a motivational tool.

Even if the stock is public, that doesn’t mean that it will keep its value over the next couple of years while it vests. When I last worked at AMD, the stock price was around $7.50 per share. Now in October of 2014 it’s about $3.00. The S&P 500 has increased in value almost as much as AMD has lost value over that same time period. Holding a large amount of your compensation in one undiversified equity is a very risky thing.

Compensation is an exchange of value. You trade one thing of value for another thing of value. Equity is different.

The Investment Metaphor for Equity

Imagine that one day you get an unexpected phone call from someone named Pat. You’ve never talked to Pat before, but Pat has an amazing opportunity for you. If you jump in now, you’ll get in before everyone else! Pat wants you to buy stock in a company working on the future of envelope technology. TongueCut Inc. and their safety envelopes are going to be huge! Not only is it impossible to get a lip or tongue injury with their new envelope technology, Pat explains, but they’re working on flavored adhesives and have 14 envelope patents pending. If you want in — and of course you want in — you only have to invest $40,000. So what do you say?

I think most software developers I know would say “no thanks!” But at least some of them would gladly take a $40,000 paycut in exchange for restricted stock units in an unproven startup. The investment in the envelope company might actually be a better deal since presumably Pat isn’t selling restricted shares!

The Fishing Co-Op Metaphor for Equity

Imagine that instead of developing software, you fish for a living. Instead of selling your fish on the market, you join a fishing co-op. The co-op has an interesting deal. You and the other co-op members deliver all your catch to the warehouse every day. The leaders of the co-op then trade or sell all the fish on behalf of the co-op.
Tug on the Mississippi at Dusk
Some days the leaders decide that they should spend the co-op money to buy new fishing gear, pay rent on the warehouse, that the division of shares should be changed, or that they should give some fish away. At the end of the month, the remaining funds of the co-op are split among the members according to the number of shares each has. It might be zero. If the co-op can figure out a way to make the fish more valuable, or if you have a disproportionate number of shares, you might make more money than you would have as a lone fisherman.

Is that compensation? I don’t think so. It’s more of a form of collectivism with totalitarian rule. Also note that the only thing which you can control is how much effort you put into your fishing. The leaders can eat all of the fish, they can give shares of the co-op to lazy friends, they can take a loan against the co-op to buy a Super Bowl commercial.

Now this metaphor isn’t perfect, but hopefully it illustrates just how little value the stock of a private company can have, unless you own enough to have control (e.g. a seat on the board of directors).

My Equity Experience

If you’re trying to figure out how to evaluate an equity offer, maybe my experience can help. Years ago, I gave up more than half my salary for a chance to work at an interesting startup. Replacing that salary was options that gave me ownership in a few percent of that company. Less than a year into the project, I saw issues that I thought would hurt our chances for success. I tried to persuade the CEO to make some changes, like talking to more than one VC for funding and working more to develop interest in the product. He wasn’t very interested in my opinion. After I quit, I heard that the company let the staff go when funds ran out. I still own the stock, which hasn’t earned me a dime and probably can’t be sold.

I think this perfectly illustrates how even holding actual shares of a private stock doesn’t give you any control. I couldn’t change the course of the company even though I could talk to the CEO every day, and I held more than 1% of the stock! And unlike a shareholder of a public company, I don’t receive quarterly reports on the status of the business.

Even equity in more successful startups offers relatively few rewards. Although I have heard of founders being able to cash in some of their equity during funding rounds, it seems like a very rare option for employees.

As a minority shareholder, I have very few rights, and the shares are mostly useless. And that’s why I believe that the value of equity in startups is a myth that usually benefits the biggest owners of a company, not the employees.

Another important task is examining the details of the offer and avoiding common mistakes, which is covered in the next segment

To get your offer down to the bare numbers, I've created a spreadsheet that will guide you through the process of calculating the financial value of a job offer. Fill out your email below to see how different jobs compare. I promise to never sell or share your email.

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