Season 1
EP04 - Stock Compensation
How stock-based compensation works in startups and tech companies. Learn about equity compensation, stock options, dilution, and the true cost of employee stock grants.
I got hired by a hot AI startup!
$300k total compensation! The founder is so generous!
Generous?
Seems like I had to show you the greatest money glitch in Silicon Valley.
W-What? You're trying to say I'm getting scammed again?
If everything worked out well, you will be getting a good deal indeed~
But things might not be so lucky for another person.
What just happened is you are getting paid with Stock-Based Compensation.
Simply put, SBC is when the company issues shares to employees as part of payment so they get ownership of the company.
This sounds great!
It's great indeed.
Most companies don't have cash to pay $300k salaries, especially when they have hundreds of engineers.
Instead of all cash, companies discovered they can pay higher salaries by using stock to make up the difference.
Suppose I'm a CEO. The genius of this scheme is employees think I'm generous
They line up to work for me.
Win-win, right?
And I get to report to Wall Street I have 'lower cash burn' under Generally-Accepted Accounting Practices (GAAP).
After all, I only spent $50k to hire you~
Wall Street sees my lower OPEX, thinks I'm impossibly profitable. They assign my company a higher P/E. Retails ape into my stock.
My stock goes higher.
Now, even the stock options I used to hire you get more valuable.
I ended up getting paid more than $300k?!
This sounds too good to be true! You should keep doing it!
Yeah. It's a money glitch.
Glitch? You mean its not infinite?
How can it be? Someone paid for my cake and you to eat it
But who could it be?
The public paid for my OpEx and your salary.
More specifically, it was passive index funds and quant funds that have been overpaying for my stock for years.
Most funds are traded by bots. They do not look too deep into the numbers
If someone signs off our numbers, the bots will believe it.
It is the passive money that keeps pushing my valuation higher.
Then, I use the inflated stock price to raise more capital…
...and hire more people with even more SBC.
The loop feeds itself.
Wait… so the public is basically my sugar daddy?
Exactly.
Retail investors, pension funds, your grandma's 401k — they're all paying for your salary.
I thought the founder believed in me…
He believes in the glitch.
The catch? If the stock ever drops, your $250k becomes wallpaper.
So I'm working 80-hour weeks… for lottery tickets?
It is not too bad of a deal...
How do I win this game?!
Never fall in love with your company's stock.
Cash upfront or sell the second I can!
No no no, have some convictions in where you work at, damn it!
Or… become the one writing the SBC.
Teach me how to start the next unicorn, Sensei!
I might just share with you how to do it next time~
EP03 - Social Security
Understanding Social Security as a pay-as-you-go system. Learn how Social Security funding works, why it's not a savings account, and the challenges facing the system.
EP05 - Digital Brokers
How brokers profit from your trades. Learn about payment for order flow (PFOF), bid-ask spreads, commission-free trading, and the hidden costs of trading platforms.
