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Best time to join a company to optimize for equity appreciation?
What is the best time to join a company to optimize for equity appreciation? An engineer asked this. Here is the simple and not-so-simple answer...š
The simple answer is to join when the stock is undervalued and the job market is hot.
2 examples: Meta and Airbnb in Apr/May 2022 when their stocks dropped and the job market hadn't cooled off from all time highs.
Why?
1. Companies grant stock on a $ value based on the stocks current price.
If you get $100,000 of $100 stock, you get 1,000 RSUs.
But if the stock goes up to $200 per share, you only get 500 RSUs, while the person who joined at $100 per share now has 2x their RSU value at $200,000.
2. The $ value of equity you get is higher during hot job markets.
Job markets heat up in cycles where there are more roles than talent, such as 2017, 2019, and 2021.
vs. 2021, we are seeing -25% $ value of equity in startup job offers and similar dips in many publicly traded company job offer equity grants.
But timing this is not so simple...
1. Just because a stock is down doesn't mean it is undervalued.
Not every dropped stock rebounded back up like Meta and Airbnb have since 2022/23. e.g. Zoom and Peloton Interactive kept declining.
2. Hot job markets usually correlate with hot stock markets.
You would have to time your jump perfectly at the time when either
1. the job market heats up before a stock bull run, or
2. the stock cools off before the job market does
Of course, if you have a solid bull case for a stock rebound like many did with Airbnb and Meta at the time, then you might take that bet.
But picking a company to join based on their valuation growth is like picking an individual stock as your only investment strategy.
There is a 9X% chance the company will not do as well as you hoped, especially if it's not one of the giants.
You have to DIVERSIFY your investment beyond just equity appreciation.
This can be tough at senior and leadership levels where equity makes up 50-80% of your total compensation.
So how do you diversify with only one job?
Pick a role that would be a win whether or not the business succeeds.
ā¢ Will you gain more scope or experience?
ā¢ Will you get exposed to a new scale of customer base or team?
ā¢ Will you work in a company that is top-class at something (e.g., design, experimentation, or PLG)?
A good litmus test for joining a company:
Picture the company tanking 1-2 years from now
ā¢ Will you still have a great story on your resume?
ā¢ Will you have fast promotions?
ā¢ Will you learn a world-class skill?
ā¢ Will you have real impact to show?
The more yesses you have, the more diversification you have for the upside value of taking that bet.
Remember, you're an investor, not just an employee...
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madscienceSoftware Engineer
There's some extra nuance to this, but I think it's a great summary that captures the important parts really well. A lot of people ask if they should sell their RSUs when they vest or hold onto them and I always look at it as if I had the cash value of the RSU, would I buy the stock at that price or would I invest it in something else? Having a little bit of insider information on how the company might perform should help as well.
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