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When a Unicorn Startup Stumbles, Its Employees Get Hurt

nytimes.com

231–240 of 274 posts

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#231
post #7

This article is written as if it's the startup's fault that tax laws are irrational. Doesn't reflect well on the NYT.

The startup and/or its employees should have known the tax laws. It's not like this exact thing hasn't been happening for years and years. (And it kind of is the startups fault that there isn't a way to exercise-and-sell the options. If it was a public company you wouldn't need to take the risk of a massive AMT bill)

Exactly! I had left options on the table at several companies because I knew about the tax implications. In one case, I would have made money had I accepted the options.

During the 1999 crash, they actually bailed out some dot-come speculators who "didn't know" about AMT. This outraged me. I purposely didn't speculate, and yet I was forced to subsidize those who did. America is disgustingly unfair.

(Most of the people posting here do not understand taxes and the AMT.)

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#233
post #214

Earlier quoted context omitted.

> How many programmers belong to a union? Thankfully none. One of the main reasons the car companies stumbled are unions. The whole thing has degenerated to insanity squared. For example, GM had a clause in their contract requiring them to not fire employees displaced by technology or automation. In other words, if you improve your workflow and process and can do the same work with 25 people instead of 100, you can't…

You earn a union. You earn a union by not treating your employees well, if you knew the history of the labor movement in the 30's you'd better understand how things got to be the way they are, and why the relationship is adversarial, instead of cooperative. If your employees are trying to unionize its because of longstanding grievances held by a significant minority if not majority of your workforce - grievances that…

> If you don't want a union, pay your employees well (well above market), or have a great working environment

Third option seems to move the jobs out of the country, which is what happened to highly unionized manufacturing sector.

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#234
post #93
post #82

Earlier quoted context omitted.

> Tech employees need to wake up about common vs preferred shares, and that the former are worthless. > ... > They are worthless because they are designed, as a financial instrument, to be fake equity with no real protection from dilution and liquidation preference. You've muddled orthogonal concepts together here. 1. Common shares are not worthless. In general, just ask any founder who's had a successful exit. Found…

Thank you for the informative response. 1) Ok, Google/FB common shares were worth something. Those are extreme outliers in exits, and had ethical founders. But founders have another option if they drive the common share value to nothing - retention bonuses. They can say, ok we will make all the common shares worthless, but you can just give me a huge package as part of the aquisition. So employees can't rely on found…

> 2) All these financial experts can figure out a way to protect their necks without leaving the employees necks under the axe.

Liquidation preferences are not the default in startup financing. They show up when money on better terms is not available.

Any management team is free to walk away from a term sheet that has liquidation preferences spelled out towards a term sheet that has VC buying common shares with no downside protection whatsoever, if such term sheet exists.

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#235
post #212

Earlier quoted context omitted.

> How many programmers belong to a union? Thankfully none. One of the main reasons the car companies stumbled are unions. The whole thing has degenerated to insanity squared. For example, GM had a clause in their contract requiring them to not fire employees displaced by technology or automation. In other words, if you improve your workflow and process and can do the same work with 25 people instead of 100, you can't…

I think I may be one of the few people who up voted you, only because I think you raise an interesting point. Yes, the auto industry unions caused a shot storm. But do you honest, y think that a modern union, (which learns from the lessons of the past) would really be a bad thing? I'm still not sure about the value of unions, but I think it is an area that should be explored with a modern mindset.

Unions are important. They give voice to people within companies who have tens of thousands to hundreds of thousands of employees. Most people are not adept at negotiating for anything. So, yes, conceptually, they are a good idea and they should not go away. I never proposed that they disappear.

The problem is that American unions succeeded at entering into a destructive feedback loop where union management had to justify their existence (and huge salaries) by always grabbing more and more for the membership. Even to the point of the ridiculous examples I laid out from the automotive industry.

This seems to be a common failure in both government and organizations such as unions: Past a certain point it is nearly impossible for management to go to their members and say something like "We need to stop asking for more on pensions, salaries and benefits because we are going to cause damage to the future viability of this company".

Why? Because of pandering or populism. There's always a sick would-be leader who will step in and counter that with gifts-a-plenty while vilifying the guy who proposed moderation or, the unthinkable, cut-backs and concessions in order to ensure things remain viable for the greater good.

That's the mechanism that has turned a lot of unions (not all) in to agents of destruction rather than responsible participants in an ecosystem. Union members are NOT bad people. They, like anyone else, would like to live better, earn more and retire well. They trust and follow the people they hire to represent them, the union leaders. This leadership, high on power and, yes, in cooperation with incompetent company executives ultimately fails their membership by creating situations where the company's own survival becomes mathematically impossible.

You know, what's interesting about this is that down-votes fail at masking reality. We have an entire city, if not a state, to serve as evidence for the sheer destruction caused by the combination of bad union leadership when combined with incompetent corporate management. Had these companies not been bailed out to the tune of billions of dollars Detroit would have cratered under the weight of an utterly unsustainable equation.

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#236
post #214

Earlier quoted context omitted.

You earn a union. You earn a union by not treating your employees well, if you knew the history of the labor movement in the 30's you'd better understand how things got to be the way they are, and why the relationship is adversarial, instead of cooperative. If your employees are trying to unionize its because of longstanding grievances held by a significant minority if not majority of your workforce - grievances that…

> If you don't want a union, pay your employees well (well above market), or have a great working environment Third option seems to move the jobs out of the country, which is what happened to highly unionized manufacturing sector.

It isn't about not wanting them. It's about them being constructive as opposed to destructive in the long term.

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#237

Earlier quoted context omitted.

> How many programmers belong to a union? Thankfully none. One of the main reasons the car companies stumbled are unions. The whole thing has degenerated to insanity squared. For example, GM had a clause in their contract requiring them to not fire employees displaced by technology or automation. In other words, if you improve your workflow and process and can do the same work with 25 people instead of 100, you can't…

The autoworkers are not really a good analog for what a programmers' union would be. If a programmer's union formed it would probably be a trade union more similar to the NFL Players Association, or the Writers Guild of America, than a labor union for relatively unskilled workers. The NFL, Hollywood, and TV have obviously not been harmed by doing deals with these unions.

I don't know anything about he NFL (rich players, high class problems). Various Hollywood associations were crumbling under the weight of their unsustainable pension obligations. The solution is always the same, financing of some sort that kicks the problem forward a few years for someone else --or the next generation-- to deal with. That is morally and ethically wrong.

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#238
I worked for this company (Good Technology) from July 2012 until Jan 2015 in their San Diego office.

I never exercised my options (they clearly weren't worth the strike price I had as a late joining employee at any time that I had vested shares) so no skin off my back, though I do know people who got screwed by exercising options because they left the company prior to the sale to Blackberry and were essentially forced to exercise the shares or just lose them. (I'm all for the trend pushing for much longer windows on this).

I also know a lot of people who came from companies this company aquired who stuck around for the eventual big payout that was much bandied about by much of the C-level management the entire time I was there who basically traded years of sweat equity for nothing (better than walking away in the hole, though!)

I found the article to be a pretty fair writeup of the events and a useful warning to people on the risks of stock exercising prior to liquidity events. This is a lesson I learned the hard way years ago (first dotcom boom), so I didn't get burned this time, and actually really enjoyed my time working for this company because the team in San Diego (which was pretty well isolated from the teams at the Sunnyvale headquarters) was a great group of people to work with, and I was paid pretty decently.

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#239
post #78

Earlier quoted context omitted.

Information asymetry is the way people get screwed over in financial transactions. Most potential startup employees have no idea what common or preferred shares are. Let alone all of the other details like dilution, liquidation preference, tax implications of employee stock options and lack of liquidity in private securities. Potential startup employees should learn about these things and understand how to protect th…

Where can one learn about these?

"Consider Your Options" was recommended at one private company I worked for that was nearing exit http://fairmark.com/books-fairmark-press/consider-your-optio...

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#240

Earlier quoted context omitted.

Yeah, typically you have to make at least $200k/year or have a net worth of $500k (the term is "accredited investor"). Thanks to a new law, though, you no longer have to be accredited to invest small amounts.

I believe it's net worth of a million dollars ( http://www.investor.gov/news-alerts/investor-bulletins/inves... ). I've been following the crowdfunding legislation and it seems like there may be additional requirements to accept such investments if you are an early startup with just friends & family investments. But the bottom line, I think, is that to do the strategy you suggest, you currently need to be an accredit…

Excluding primary residence :)
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