Do the math on your stock options • Hacker News Board

Re: Do the math on your stock options

#201

Post by Ixiaus » Thu, Dec 31, 2015, 8:12 PM UTC

dmitrygr wrote: post #193

Ixiaus wrote: post #188

Earlier quoted context omitted.

Most founders go with no pay for quite some time. You can still be a co-founder and receive pay but being a co-founder conveys far more risk and responsibility than being one of the first x employees in the company. Even if you happen to be the person "building pretty much everything", it still does not justify being a co-founder. If you wish to be a co-founder, you typically have to be willing to take more than 40%…

You're totally right! Without that guy who builds everything your company will do just fine...doing nothing and having nothing to sell.... just wow ... Also, what risk? There has never in history of history been easier access to money than now, and never better terms. Hell, tell a stranger in palo alto you're an MIT dropout, and have a Stanford dropout friend, and they will practically write you a blank check.

Your thinking is clearly very black and white, also highly entitled - quite common with engineers. There is no doubt that a product would not exist without the people to build it but an organization would not exist without the people to organize it.

Many roles in the company are invaluable. Not just the engineer.

It sounds like you've had a bad experience and I'm sorry if you have, but not all companies are "pointy haired bosses that take advantage of the underlings".

> Also, what risk?

You clearly have no idea.

> There has never in history of history been easier access to money than now, and never better terms.

You still have no idea. I'm not even going to try.

> Hell, tell a stranger in palo alto you're an MIT dropout, and have a Stanford dropout friend, and they will practically write you a blank check.

This is a pretty offensive statement and you've lost me entirely, your perspective is so far detached from reality that it makes a lot of sense why you're so upset, sarcastic, and frustrated. Instead of a self-righteous attitude, go build your own startup if it really is that easy and low risk.

If you have built your own startup and received a blank check and performed the feat [of building a startup] with no risk to yourself or your peers then I call bullshit or you're just internet trolling.

Re: Do the math on your stock options

#202

Post by Ixiaus » Thu, Dec 31, 2015, 8:13 PM UTC

dmitrygr wrote: post #198

Ixiaus wrote: post #194

Earlier quoted context omitted.

Sarcasm is a crude tool for communicating your point, it also causes me to have less empathy for you. > It is rude to lie to people about the value of their options to hire them. ("Your options are 0.866% of the company"). But to try to defend that practice in public is just hilarious. I never once stated that one should lie to employees about the value of their options. Those conversations are always highly specific…

> unless that [money] is all you care about It is. If i wanted to change the world, I'd join the red cross. Attempting to make someone feel bad for only caring about pay, as a way to get them to work for worthless options only works on some people. :)

Again, there you go with saying I've said something I did not. I never once said you should feel bad for only caring about money, I said if that's all you care about, I would go do something else that's more lucrative and predictable (work in the fintech sector or defense sector, lots of money there).

Re: Do the math on your stock options

#203

Post by jypepin » Thu, Dec 31, 2015, 8:14 PM UTC

bankim wrote: post #196

Elaborating on early exercise. Employee can choose to pre-exercise ISOs soon after starting job (before vesting) and file 83b. In this case, the difference between strike price and FMV is $0 and hence tax realized is also $0. This also starts ticker for capital gains sooner and if the company gets sold/IPO after 1 year from date of exercise and 2 year from date of grant then long term capital gains will apply and not…

"the difference between strike price and FMV is $0 and hence tax realized is also $0"

well, this is assuming your company's value hasn't increased since then. But I do agree it's usually an interesting move if you believe in the company since you'll pay taxes earlier.

Re: Do the math on your stock options

#204

Post by gohrt » Thu, Dec 31, 2015, 8:16 PM UTC

jackgavigan wrote: post #75

rday wrote: post #62

Earlier quoted context omitted.

> Never attribute to malice that which is adequately explained by stupidity. So what is the lesson here? I hear this saying over and over, always with the implication of "Give them a pass". Who cares if they are being crooked, or are too dumb to do division. Either way, the employee loses.

There's no lesson. I'm just pointing out that many founders are more focused on tech or product than they are in options and cap tables. And many startups employ staff who are also unfamiliar with such things. Given my experience of advising early stage startup founders on equity investment, dilution, cap tables, etc., I believe that ignorance is at least as likely as malice in situations where they seem unwilling to…

That's fine. I don't care if the Cxo is lying or stupid. The conclusion is the same: I don't trust them to deliver value on my shares.

Re: Do the math on your stock options

#205

Post by [deleted] » Thu, Dec 31, 2015, 8:16 PM UTC

icedchai wrote: post #90

Gibbon1 wrote: post #19

Earlier quoted context omitted.

If they told you that the number of outstanding shares was privileged and confidential they are crooks in nice suits. Also at this point in time there is so much shady stuff going on with options that you should always always value options at zero. Frankly if all you are offering is your labor in return for options you don't have the pull to get a particularly good deal. (Example: Friend worked three years at a start…

In addition to the # of outstanding shares, you want the valuation, the # of preferred shares, their liquidation preferences and multiples, and a couple more things I'm probably forgetting. You can never get this information even as an employee. You ask directly, and nothing. They don't want to give it to you. Your company could be sold for 100's of millions, paying off the investors at 2x investment, and the common…

[deleted]

Re: Do the math on your stock options

#206

Post by s73v3r » Thu, Dec 31, 2015, 8:17 PM UTC

mpdehaan2 wrote: post #128

pc86 wrote: post #120

Earlier quoted context omitted.

There is absolutely no reason not to disclose the number of outstanding shares. Failure to do so means the denominator in the equation can be anything. One or one billion. At that point you have to value the entire option nonsense at $0 total, or even negative given the tax implications. It takes all the truth out of the statement "our cash compensation is below market because of our generous option grants." If I can…

Reasons exist.... One reason is likely that they want to keep the valuation confidential outside of the company (people talk), because as a private company that information doesn't have to be public. It's not a great reason for the employees - but it's there, nonetheless. It's tricky to share that with employees and not have it get out. That being said, if it were all public, I think that would be fine, I'm not sure…

"Reasons exist"

And absolutely none of them are valid. If you're going to have this person work on the core of your company, there is absolutely no reason to not be up front with them.

Re: Do the math on your stock options

#207

Post by Ixiaus » Thu, Dec 31, 2015, 8:19 PM UTC

dmitrygr wrote: post #197

Ixiaus wrote: post #194

Earlier quoted context omitted.

Sarcasm is a crude tool for communicating your point, it also causes me to have less empathy for you. > It is rude to lie to people about the value of their options to hire them. ("Your options are 0.866% of the company"). But to try to defend that practice in public is just hilarious. I never once stated that one should lie to employees about the value of their options. Those conversations are always highly specific…

>Most think founders have the upper-hand. Very few ever do Upper hand, n: having better knowledge, information, or otherwise situation than the rest. Compared to the employees founders most definitely do. Eg: how many startups will give you the answers to the listed questions easily? Founders have them. I am not saying founders are above all, but they definitely have the upper hand when compared to those pesky employ…

You've clearly been burned in the past and I'm sorry that was your experience. Not all founders, executives, or organizations are like that though. You will always have to grapple with sociology, hierarchy, and power structures but that's a fact of human life - not all are "bad" though.

It's also on you to be clear about what you want and to vet orgs and people. If an org will not share sensitive information with you in order to make a sound decision, then I certainly would not join it. If the leadership won't go to bat for their own people or honor their word, I will not work for them.

Re: Do the math on your stock options

#208

Post by mpdehaan2 » Thu, Dec 31, 2015, 8:19 PM UTC

bgxor wrote: post #191

mpdehaan2 wrote: post #105

Earlier quoted context omitted.

Issuing 10,000 options and not telling you how many options are outstanding is very very common for startups, unfortunately. I don't know how many times I've joined companies that listed 10,000 options and I was too dumb to question it. In many cases, it's because they don't want non-executive employees to be able to know certain financial details, including the valuation of the company. I wish this wasn't the case,…

In this "growth above all else" ecosystem, do you think profit sharing could possibly be just as bad? I'm not sure how those deals are usually set up, but unless you set aside a portion of revenue to share I could see people losing out here too. Do you know of good examples of this working? I'm interested in how it might work with a typical startup.

I don't know of any examples, it just seems like it would be a good way to structure things. I also can't see it being bad if it did not differentiate by position - I've heard a lot about how much, say, enterprise sales pays itself (because effectively it sees the money first and controls who sees the money) and I'd be very wanting to make sure everyone - admin assistants, everyone, who made the organization great had a chance.

I think you would want to calculate a % early in the year, and then award that percentage at the end of the year.

If you wanted to taper that somewhat by employee reviews I guess you could, but it shouldn't be on quota - and ideally you'd just not continue to employ those people you didn't want to be there.

Yes, everybody would lose out if there were no profits. And a lot of startups aren't profitable. But (IMHO) I think that's also where SV investment gets it wrong -- they value growth above profitability sometimes, and this desire for rapid scaling makes or breaks companies, when in the end, I think a greater percentage could be BOTH happy and moderately successful at the same time, rather trying to bust themselves and "go big or go home".

This model is probably a LOT easier to adopt in a bootstrapped company, where there's less likely a board to say no to it -- and yeah, if you're not profitable, you wouldn't do it... and you also would be unlikely to have stock anyway.

Re: Do the math on your stock options

#209

Post by dmitrygr » Thu, Dec 31, 2015, 8:27 PM UTC

Ixiaus wrote: post #201

dmitrygr wrote: post #193

Earlier quoted context omitted.

You're totally right! Without that guy who builds everything your company will do just fine...doing nothing and having nothing to sell.... just wow ... Also, what risk? There has never in history of history been easier access to money than now, and never better terms. Hell, tell a stranger in palo alto you're an MIT dropout, and have a Stanford dropout friend, and they will practically write you a blank check.

Your thinking is clearly very black and white, also highly entitled - quite common with engineers. There is no doubt that a product would not exist without the people to build it but an organization would not exist without the people to organize it. Many roles in the company are invaluable. Not just the engineer. It sounds like you've had a bad experience and I'm sorry if you have, but not all companies are "pointy h…

https://medium.com/@tikhon/founders-it-s-not-1990-stop-treat...

Re: Do the math on your stock options

#210

Post by ewams » Thu, Dec 31, 2015, 8:36 PM UTC

jaredhansen wrote: post #192

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…

>Exercising risklessly is safe It may be safe, but it isn't free. As with most other things, you pay a risk premium -- in this case, in the form of failure to qualify for capital gains tax treatment on the resulting gain, because you didn't exercise in time to hold the underlying stock for more than one year. Depending on the amount, this difference can be quite significant. You do your own taxes so probably know all…

In the US, do you pay taxes when you exercise your option to buy the stock?

For you example, say I exercise my option to by 1 at strike price of $100 in 2015. I hold on to it and sell it in 2017 for the FMV of $1000. Do you only pay the capital gains tax of the $900 gain?

Ignore state rules, just at the fed.