Transcript:
Easan Arulanantham:
Yeah, so another kind of market related question with so many people changing jobs and other people, you know, being recruited, how do you value like a? Yes, or a stock ownership option plan or stock? employee stock purchase plan when looking at offers?
Tom Vaughan:
Yeah. So, in my own family, one of my relatives was offered a job at two places. This is a while back, but early 90s, mid 90s. So had a offer from Hewlett Packard and an offer from Cisco, right at that time, Cisco was all of 250 people, right? So small company. And, and so she asked me to do an analysis on the two companies just from a standpoint as a stock. And so I think whether or not the company offers a stock option program of any type, you need to take a look at the company from the standpoint as if you were going to invest in it, and which one would you rather invest in? And so I told her, Well, I would invest in Cisco. Matter of fact, I did, that’s where some of the money came from, to build this house. And I actually found it because of that research I was doing for her, she took that job. And you know, the rest is history, she did really well with those stock options, up until 2000, you know, when the market had a hard time with all of those stocks. So I that would be my recommendation, you know, the program itself is important, how many options you can get how fast you can get them what the vesting schedule is, and all of those things are important.
But if the company isn’t going anywhere, and they’re not growing, and on hindsight, the differential between the stock option program and Hewlett Packard from mid 90s, to now versus at Cisco, you were a lot better off at Cisco, even if they gave you less options. So I would start with the analysis of the company and dig into the financials, especially if it’s public. Already, that makes it easier. You know, what are the revenues? What’s their earnings growth? What are the analysts say about that stock? What are the expectations for, you know, growth over the next two, three years? Those types of things, you need to kind of analyze all the those pieces like you would an investment, you know, what does it look like on the charts? And you know, is it just, you know, languishing or not, what’s the relative strength of that stock versus the market at this point in time, but all of those things, those are more important to me than the actual program that would come first, pick the company that I liked that had the best, you know, possible rates of return in stock. And then, if you had some tiebreakers, it would be which one gives you the most in terms of those stock option programs.
Easan Arulanantham:
So how does that differ when you’re talking about I guess, pre public companies? You know, say you’re looking at like one of the tech startups in the Bay Area? Do you put kind of value on having the option to buy like stock from these pre IPO companies? Or do you want to like look more for hard benefits that you can evaluate?
Tom Vaughan:
No, I’m personally, if it’s me, I’m definitely looking for the big payoff. If I’m going to go that direction, and I’m working for a pre IPO company, a lot of those companies do have some valuation metrics, because they’ve been through some seed capital, at least you can ask them questions about that and see what you know, the company was worth, you know, in the last round of venture capital seed money that came in that type of thing. You know, it’s a little bit harder to really dig in and figure out you can’t look at a chart, there’s no, you know, financials that are very easy to see. And also the probably depends on how much in demand you are, you know, what what, you know, it’s one thing to be, you know, if you’re begging for the job, they’re not going to maybe tell you as much as if they really want you. And then you might be able to extract a little bit more data about how that company’s doing and what the expectations are, and when they might go public. And I would be probably more concerned then about what was being offered, you know, how many options and how fast what’s the vesting schedule, you know, that kind of thing.
So, yeah, it’s a little bit different in the pre IPO arena, but yeah, that can that can work. You know, Instagram was what this little company I think there was nine people working there in this little office in San Francisco when Facebook bought them for a billion dollars. There was a few people there that made it made some good money, you know, so for every one of those unfortunately, there are a whole bunch that we never heard of before because they didn’t work but it’s still my effect. I had a neighbor across the street that went through three of them, and none of them ever quite made it. So you know, he worked very hard. Let’s You don’t normally do at those firms didn’t get a payout. The options package didn’t matter. Guess the companies never got public but you know, so it’s it’s one of those risks that you take but that’s what you should be probably doing in a company like that, to be honest, especially if you have a good skill set is looking for that kind of home run scenario personally