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Ask HN: Former employees' RSUs at risk after startup's IPO

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Re: Ask HN: Former employees' RSUs at risk after startup's IPO

#11

Post by danielmarkbruce »

JumpCrisscross wrote: post #9

Most RSUs have a time and liquidity vesting. The latter triggers on IPO. If your company didn’t follow that convention, they went out of their way to screw you [1]. (RSUs are generally a worse deal than IPOs. They’re a great deal for companies, which is why Andreessen et al push them.) > current employees have access to a sell-to-cover option, while former employees are required to prepay in cash This is common. Cash…

The 185 day thing is fine. It's common. The company has likely made a legal commitment to not have any employees (past or present) sell for that time period.

Look in the company's s-1, it will be there.

Re: Ask HN: Former employees' RSUs at risk after startup's IPO

#12

Post by ryandrake »

1. Never heard of having to wire taxes as a condition of receiving stock owed to you. Your taxes are between you and the IRS. Sell-to-cover should be considered standard if the stock is liquid. Any reputable company working with any reputable broker should be able to manage it.

2. Lawyer

3. Ridiculous. Lawyer

4. So they can do sell-to-cover, they just don't want to for some reason.

If the equity amounts to a significant amount of money, you would probably benefit from consulting your own attorney. Don't take advice on an internet forum and definitely don't accept "Trust Me Bro" from the company. Good luck.

Re: Ask HN: Former employees' RSUs at risk after startup's IPO

#13

Post by andrewf »

On point 3 specifically: I work for a FAANG, and the employees need to nominate the percentage the company should sell-to-cover, they don't figure it out for you. If you're no longer employed by the company I don't know _how_ they'd figure it out. If RSUs are still W-2 income for a former employee (I don't know this?) it's the extra tax you'd pay on that much income - for me I estimate using the tax bracket it'll pull me into, plus any other applicable federal taxes (medicare, additional medicare, social security). They may need you to cover state taxes as well?

I'm not an accountant, you shouldn't rely on this post, and I don't know if/how you might get screwed on the other points.

Re: Ask HN: Former employees' RSUs at risk after startup's IPO

#14

Post by danielmarkbruce »

hansonkd wrote: post #6

> We are curious if this type of distinction between current and former employees is typical for post-IPO RSU settlements. I'm watching this thread, but just as a reminder that it benefits the company to be as vague and complicated as possible for ex-employees trying to exercise their equity rights. You and your equity are effectively dead weight to the company now and it's in their best interest to get you to forfei…

This is cynical and more frequently wrong that right. In most cases, the company is trying to avoid securities regulation screw ups, tax screw ups, other regulatory or legal screw ups. Sometimes they are overly conservative and it seems annoying, but that's what they are doing.

As an example, Stripe went out of their way to get former employees paid.

Re: Ask HN: Former employees' RSUs at risk after startup's IPO

#15

Post by greenspam »

andrewf wrote: post #13

On point 3 specifically: I work for a FAANG, and the employees need to nominate the percentage the company should sell-to-cover, they don't figure it out for you. If you're no longer employed by the company I don't know _how_ they'd figure it out. If RSUs are still W-2 income for a former employee (I don't know this?) it's the extra tax you'd pay on that much income - for me I estimate using the tax bracket it'll pul…

Right. Instead of the IPO date, or the end of the lockup date, they chose 3/15 as the date to settle the vested RSU. And require us to estimate our tax, based on the fair market value of that future date, with this formula, and pay cash, otherwise the vested RSU will be canceled:

Number of vested RSUs * the estimated fair market value of the stock at the settlement date * the appliable highest marginal federal, state, local income tax rate and employment tax rate.

In theory if someone pump up the stock price for that date, we are screwed. Even if no one pump up the stock price, the amount of cash needed in such a short notice, is unbearable, which will make most ex-employees to give up their shares.

Re: Ask HN: Former employees' RSUs at risk after startup's IPO

#16

Post by JumpCrisscross »

danielmarkbruce wrote: post #11
JumpCrisscross wrote: post #9

Most RSUs have a time and liquidity vesting. The latter triggers on IPO. If your company didn’t follow that convention, they went out of their way to screw you [1]. (RSUs are generally a worse deal than IPOs. They’re a great deal for companies, which is why Andreessen et al push them.) > current employees have access to a sell-to-cover option, while former employees are required to prepay in cash This is common. Cash…

The 185 day thing is fine. It's common. The company has likely made a legal commitment to not have any employees (past or present) sell for that time period. Look in the company's s-1, it will be there.

> 185 day thing is fine. It's common

This is the lock-up agreement. It’s negotiated between the company and its underwriters and is orthogonal to the RSUs.

Re: Ask HN: Former employees' RSUs at risk after startup's IPO

#17

Post by JumpCrisscross »

ryandrake wrote: post #12

1. Never heard of having to wire taxes as a condition of receiving stock owed to you. Your taxes are between you and the IRS. Sell-to-cover should be considered standard if the stock is liquid. Any reputable company working with any reputable broker should be able to manage it. 2. Lawyer 3. Ridiculous. Lawyer 4. So they can do sell-to-cover, they just don't want to for some reason. If the equity amounts to a signific…

> Never heard of having to wire taxes as a condition of receiving stock owed to you

Extremely common with ISOs and RSUs. There are consequences for issuers if their options are improperly exercised or RSUs improperly vested.

Re: Ask HN: Former employees' RSUs at risk after startup's IPO

#18

Post by greenspam »

danielmarkbruce wrote: post #11
JumpCrisscross wrote: post #9

Most RSUs have a time and liquidity vesting. The latter triggers on IPO. If your company didn’t follow that convention, they went out of their way to screw you [1]. (RSUs are generally a worse deal than IPOs. They’re a great deal for companies, which is why Andreessen et al push them.) > current employees have access to a sell-to-cover option, while former employees are required to prepay in cash This is common. Cash…

The 185 day thing is fine. It's common. The company has likely made a legal commitment to not have any employees (past or present) sell for that time period. Look in the company's s-1, it will be there.

I commented with a correction. March 15, 2025 is 140 days from the IPO day. This is before the lockup periods ends and they require us to estimate our tax, based on the fair market value of that date, with the following formula, and pay cash, otherwise the vested RSU will be canceled:

Number of vested RSUs * the estimated fair market value of the stock at the settlement date * the appliable highest marginal federal, state, local income tax rate and employment tax rate.

Even if no one pump up the stock price, the amount of cash needed in such a short notice, is unbearable, which will make most ex-employees to give up their shares.

Re: Ask HN: Former employees' RSUs at risk after startup's IPO

#19

Post by JumpCrisscross »

greenspam wrote: post #18
danielmarkbruce wrote: post #11

Earlier quoted context omitted.

The 185 day thing is fine. It's common. The company has likely made a legal commitment to not have any employees (past or present) sell for that time period. Look in the company's s-1, it will be there.

I commented with a correction. March 15, 2025 is 140 days from the IPO day. This is before the lockup periods ends and they require us to estimate our tax, based on the fair market value of that date, with the following formula, and pay cash, otherwise the vested RSU will be canceled: Number of vested RSUs * the estimated fair market value of the stock at the settlement date * the appliable highest marginal federal,…

Borrow against the RSUs. If you have more than $500k, this should be trivial to privately arrange. (If less, idk. Also, not legal advice!)

Re: Ask HN: Former employees' RSUs at risk after startup's IPO

#20

Post by danielmarkbruce »

JumpCrisscross wrote: post #16
danielmarkbruce wrote: post #11

Earlier quoted context omitted.

The 185 day thing is fine. It's common. The company has likely made a legal commitment to not have any employees (past or present) sell for that time period. Look in the company's s-1, it will be there.

> 185 day thing is fine. It's common This is the lock-up agreement. It’s negotiated between the company and its underwriters and is orthogonal to the RSUs.

It's not orthogonal. The agreement usually covers shares owned by employees and former employees.
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