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Do the math on your stock options

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Re: Do the math on your stock options

#161

Post by jeremyjh »

nippoo wrote: post #153
dripton wrote: post #150

Earlier quoted context omitted.

I've had ISOs in a couple of startup employers, non-qualified options in a startup customer, and RSUs in a couple of public employers. The only book I've read on stock options is _Consider Your Options_ by Kaye Thomas, which I thought was good. I do my own taxes, and there was enough detail in that book to let me figure out the tax implications of my options. (Including AMT the one time I had to pay it.) The actual m…

Did you get the cash and options the wrong way round in your example ($100k + 5000 options / $110k + 3000 options)? That bit confused me for a while. Or maybe I'm missing something about how they work!

Why would you assume 3000 options at Startup A are worth less than 5000 at Startup B?

Re: Do the math on your stock options

#162

Post by harryh »

AndrewKemendo wrote: post #142

Options are for suckers. Do you want to be an investor? No? then why would you pay for stock out of your own money? At our startup everyone gets the same stock, not options, through our Equity Incentive Plan. Here's how it works. 1. We lend new employees the amount of money it would take to buy common stock on a non-recourse promissory note the collateral in this case is the stock itself. 2. The employee then buys th…

Tax fraud is a hell of a drug.

Re: Do the math on your stock options

#163

Post by olefoo »

Lawtonfogle wrote: post #125
rahimnathwani wrote: post #9

Earlier quoted context omitted.

You did the right thing. The situation is analogous to someone telling you the numerical amount of your proposed salary, but not telling you the currency and/or frequency. You don't have a right to know the details, but without the details it's hard to evaluate them as worth more than 0.

If you are signing a contract, why don't you have the right to know? If I tried to defend the fact that I never specified paying in US currency in some contract and instead used what ever the new hyper-inflated currency is, a judge would kick me out of the court room. Only if it was explicitly stated would a judge uphold such a contract.

This is a case where you have the right if you insist on it.

Your BATNA is to walk away from a deal where the counterparty refuses to give you the information needed to make a rational decision.

Re: Do the math on your stock options

#164

Post by relkor »

AndrewKemendo wrote: post #142

Options are for suckers. Do you want to be an investor? No? then why would you pay for stock out of your own money? At our startup everyone gets the same stock, not options, through our Equity Incentive Plan. Here's how it works. 1. We lend new employees the amount of money it would take to buy common stock on a non-recourse promissory note the collateral in this case is the stock itself. 2. The employee then buys th…

This is exactly what I was looking for. As a first time founder at a small private business I was looking for a nicer way to compensate the employees other than sticking them with a huge tax bill as thanks for our success.

Has this approach held up in court or survived an audit? Do you actually transfer the money to the employee's account? How do how do you prevent them from having a program to immediately wire the money to Zurich and run off, given that you have a non-recourse note for the stock that never got purchased?

[edit] I say small business because we do not yet have the 10-15% weekly growth required to be called a startup. Until you are expanding like a airbag, you are just fooling yourself that you matter by calling your company a startup.

Re: Do the math on your stock options

#165

Post by harryh »

jfountain2015 wrote: post #118

If you are considering a job that offers options/stock I think this is the most important thing to consider. 1. Do the founders have a history of successful exits? 2. If so, did all employees with stock get paid? If either is no, you should consider options/stock worth $0

Some of the most successful exits in the tech industry were started by first time founders. I don't think that's a very good criterion.

Re: Do the math on your stock options

#166

Post by usaar333 »

JumpCrisscross wrote: post #40

Always ask for: 1. TRANSFERABILITY. If you are given options to buy privately-held common stock in lieu of compensation, you must demand transferability. Rights of first refusal (ROFRs) are fine. "Board approval" is not. "Board approval" means "you may not sell your shares until we go public, except to us, if and when we feel like it, and at a price we get to unilaterally decide". 2. CASHLESS EXERCISABILITY. Always a…

I imagine cashless exercise is only valuable for ISO options that expire 90 days after leaving?

Generally, you'll want to hold your options until the company is public or acquired, so you wouldn't need to worry about this.

If you are receiving NSOs, it is best to be at a company where they expire 7 years after leaving.

Even if you cashlessly exercise, you are still going to have a tax-bill problem, which can be a huge problem if current FMV is far higher than strike.

Re: Do the math on your stock options

#167

Post by SeoxyS »

nippoo wrote: post #153
dripton wrote: post #150

Earlier quoted context omitted.

I've had ISOs in a couple of startup employers, non-qualified options in a startup customer, and RSUs in a couple of public employers. The only book I've read on stock options is _Consider Your Options_ by Kaye Thomas, which I thought was good. I do my own taxes, and there was enough detail in that book to let me figure out the tax implications of my options. (Including AMT the one time I had to pay it.) The actual m…

Did you get the cash and options the wrong way round in your example ($100k + 5000 options / $110k + 3000 options)? That bit confused me for a while. Or maybe I'm missing something about how they work!

Actually, his example works either way. Imagine this:

- $110k + 5k options, with 5M shares outstanding, at a strike price of $1 / share.

- $100k + 3k options, with 1M shares outstanding, at a strike price of $0.01 / share

Both are realistic scenarios for an early-stage startup. The 3k options in the second deal are worth much more than the 5k options in the first deal, on paper. (This is without even brining in valuation in question.)

Re: Do the math on your stock options

#168

Post by crabasa »

One mistake I see people make quite often is failing to adequately research the reputation of a prospective employer and their executives. I've seen people accept offers because the option grant was marginally better at company A than company B.

There are so many things that can effect the outcome of an employee with options (subsequent funding rounds, liquidation preference, if and how the exit happens) that it often boils down to whether or not you believe you will be treated fairly.

Re: Do the math on your stock options

#169

Post by relkor »

jonathanwallace wrote: post #84
inthewoods wrote: post #68

Earlier quoted context omitted.

I've never seen the ability to customize these kind of things because they generally are, in my experience, part of the core options agreement for the entire company and would require BoD approval. Thus, you're asking a lot - works if your a key employee but probably not for the average employee. Would love to hear if people have been able to get these terms.

If everyone asks for such things, then boards will get the message and make this standard to compete.

Or you know, the board might not be a dick. Some of us founders are less outright hostile to employees and we are definitely on the board (usually with majority when the first 20-50 employees are coming on).

Re: Do the math on your stock options

#170

Post by mrkurt »

AndrewKemendo wrote: post #142

Options are for suckers. Do you want to be an investor? No? then why would you pay for stock out of your own money? At our startup everyone gets the same stock, not options, through our Equity Incentive Plan. Here's how it works. 1. We lend new employees the amount of money it would take to buy common stock on a non-recourse promissory note the collateral in this case is the stock itself. 2. The employee then buys th…

This is clever. Who put the plan together? #4 seems like something the IRS would look on unfavorably. Also, before a 409a valuation wouldn't you just be better off granting the shares outright and having employees write a check for $20 or whatever?
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