Stock Options Might Be Worthless for Your Startup (And That's Okay)

Every startup in LATAM thinks it needs to offer stock options because it has become a checkbox, exactly like having a ping pong table or a Slack channel called #random. The phrase “competitive salary plus equity” is the default job posting language, copied and pasted directly from YC’s playbook without a single moment of critical thought about what it actually means. That playbook was built around a market with exits, secondary liquidity, tax infrastructure, and employees who have already seen the movie before, and copying those words into a Mexican S.A. de C.V. or a Colombian SAS does not magically import the liquidity. Let me explain why this might be one of the dumbest things your startup is doing right now.

Why options work in Silicon Valley

Stock options make sense in the US tech ecosystem for a very specific reason, there is a functioning exit market where companies go public or get acquired regularly. Employees at companies like Stripe or SpaceX or even mid-stage startups can reasonably expect a liquidity event within a reasonable timeframe, there is a whole secondary market for private shares, and the math actually works because you trade a below market salary for a lottery ticket that has historically paid off for enough people to make the bet rational. The US also has a legal and tax framework designed entirely around equity compensation, with ISOs, NSOs, 409A valuations, and QSBS exclusions creating an entire infrastructure built to make stock options functional and tax efficient.

LATAM has almost none of this.

The LATAM reality

In LATAM the exit market is tiny, most startups do not get acquired, almost none go public, and the IPO market for tech companies in Latin America is essentially nonexistent. The acquisitions that do happen are often acquihires, strategic deals with weird earnouts, or transactions structured in ways that do not benefit common shareholders much if at all.

So when you offer a LATAM engineer stock options you are often offering them a piece of paper that has no secondary market, no realistic path to liquidity, no clean way to explain the tax treatment, and no local cultural muscle memory around exercising options. In Mexico, for example, stock options can be taxed as income at exercise, meaning your employee might owe taxes on gains they cannot even sell. You are essentially asking them to accept a lower salary in exchange for a lottery ticket in a lottery that rarely pays out, so it is no wonder that the best engineers in LATAM (the ones who have US remote work options) are increasingly skeptical of equity offers.

The honesty problem

What bothers me the most is that most founders are not honest about what equity is actually worth. I have been in recruiting conversations where founders pitch equity to early employees like it is a sure thing, claiming they are aiming for a Series A, then they will grow 10x, and the options will be worth a fortune, painting a picture that has maybe a 3% chance of materializing. This is not malicious because the founders genuinely believe it, but belief is not the same thing as honesty.

When I hire someone and offer them equity I am completely explicit, telling them this might be worth something but it also might be worth nothing, and while I believe in what we are building I want them to make their decision based on the salary and the work instead of the options. I tell them to consider the options a bonus and not compensation, and while some people appreciate the honesty, others are put off by it because they want the fantasy. I would rather lose a candidate to honesty than gain one through a story I cannot guarantee.

What felt less dishonest

The better conversations my friends and I have had were not about making equity sound bigger, they were about making the actual offer cleaner.

Pay closer to market rate. I know this sounds revolutionary, but do not hide behind the excuse of the “local market” when the person is shipping global software for global customers. LATAM salaries vary wildly by country, seniority, English level, and access to US remote work, and the good people know the spread, so do not use equity as an excuse to underpay.

Profit-sharing or bonuses tied to real metrics. Revenue targets, customer milestones, and shipping deadlines are things the team can actually control and see the results of within months instead of years, and this is far more motivating than a vague promise of future wealth.

Education and growth budgets. Paying for conferences, courses, certifications, English coaching, and travel to meet the team is extremely valuable. For many LATAM engineers the opportunity to level up their skills and increase their global earning power is worth way more than options they cannot exercise, and this also makes them more valuable to the company.

Revenue-based profit sharing. If the company does well the team does well, keeping it simple, transparent, and tied to actual performance rather than hypothetical valuations because people trust deposits more than cap table fairy tales.

Phantom equity or SARs. If the goal is alignment without the legal mess of actual stock options then synthetic equity instruments can work, as they are simpler, can be structured tax efficiently, and do not require the same corporate gymnastics, which is where a real local lawyer earns their invoice.

When options are not a joke

I am not saying you should never offer options, because if you are a venture backed company with a realistic path to a large exit then options can absolutely make sense. If you are building in a market where acquisitions happen regularly the math changes, and if you are incorporated in the US and your team understands what they are getting then the story is different.

But most LATAM startups are not venture backed with a clear path to exit, most are building sustainable businesses that will generate returns through profitability and not through a massive liquidity event. For those companies the Silicon Valley equity playbook is not just wrong, it is a dangerous distraction.

The uncomfortable question we kept coming back to

The question we kept coming back to was incredibly simple: would I accept a 30% pay cut in exchange for stock in my own company if I were not the founder? If the answer is no (and for most companies it absolutely should be) then you should not be asking your employees to make that trade.

Build a company people want to work at because of the work, the culture, the compensation, and the growth, not because of a lottery ticket you dressed up as equity. The best thing you can offer someone is a job that pays fairly, challenges them, and does not require them to bet their financial future on your fundraising ability, and if you do that you will not need stock options to attract great people.