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Handcuffed to Uber

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Re: Handcuffed to Uber

#51

Post by YuriNiyazov »

pfarnsworth wrote: post #42

I recently got an offer from Uber (didn't accept for various reasons), so I have a couple of data points. In the last two years, they started offering RSUs, not options, that addressed this issue. And two years ago, they had roughly 200 engineers vs 2000+ engineers now. The issues they had 2 years ago are different, as was the business, it wasn't nearly as ubiquitous and now since they offer RSUs, there isn't the sam…

It's completely founded. This article is about the issues of people that started out when Uber was giving out options.

Re: Handcuffed to Uber

#52

Post by ryporter »

scurvy wrote: post #41

One thing to keep in mind is that you might not have until next April 15th to pay your taxes after exercise. If the exercise benefit is large enough compared to your typical income, you might owe estimated taxes that quarter.

This is a great point. Additionally, you're fine if you pay 110% of your prior year's tax bill. For most employees referred to in this article, this amount should be payable.

Re: Handcuffed to Uber

#53

Post by kelukelugames »

roflchoppa wrote: post #47
kelukelugames wrote: post #29

Earlier quoted context omitted.

I read the Pinterest policy last year and ask my CEO about doing something similar during a company meeting. He just laughed. Then he apologized the next meeting for misunderstanding the question and still said no. I left the company.

what happened to the company?

It's chugging along. I exercised my options and just hope they IPO so I can cash out.

Re: Handcuffed to Uber

#54

Post by yummyfajitas »

sopooneo wrote: post #39
yummyfajitas wrote: post #8

Earlier quoted context omitted.

Yes. It's a huge problem - the IRS demands liquid cash in order to pay tax on illiquid in-kind transfers. The problem isn't just in startups with stock options; another big place it arises is closely held businesses. You receive the family business as an inheritance and suddenly you need to pay - in cash - 40% of the value of the business. Such a large cash hit can and does destroy many companies. The solution is of…

I'm surprised financial services have not popped up just to help people in such situations. The service could confirm the person has as much coming as they say, have him sign his life away to them, and then float him enough cash to buy the stock and pay the taxes on time. Then the employee pay some portion of his new wealth to the financial services company. Does that really not exist?

They do exist but are very expensive. Basically by the time you go to them they know you are screwed and in desperate IRS-caused need of liquidity. So while the actual estate tax may be 40%, you wind up paying 50% or more. This is usually a debt deal, not an equity one - who wants shares in a closely held family corporation?

For developers at unicorns I think services are somewhat better (e.g. secondmarket, elite crowdfunder).

Re: Handcuffed to Uber

#55

Post by _9vpl »

robbiemitchell wrote: post #38
pcl wrote: post #20

Earlier quoted context omitted.

There's no liquid market for Uber shares. The article further states that Uber has taken measures to prevent a secondary market from developing. I wonder what those measures are. I imagine it's straightforward to prevent someone who wants to keep working at Uber from doing a secondary sale, but what sorts of contract terms can Uber put in place to prevent someone from quitting and then selling on the secondary market…

My understanding is, right of first refusal includes the option to render the equity worthless if this right is not honored. It's a threat I've seen made before by a CEO who did not want a secondary market to exist.

Can you expand on that? How would one be able to render the equity worthless?

My best understanding of a typical "right of first refusal" clause is that it gives the company the right to match any offer by a third-party buyer.

This would add some friction to the transaction, in that the company could have some specified period to consider the offer, leaving the pending transaction with a third-party buyer in limbo (or discourage the third-party from even considering the transaction). But if the company refuses to buy back the stock at the terms of the third-party offer or the period of time for the company to consider the offer expires, then you could go ahead with the sale to the third-party.

Re: Handcuffed to Uber

#56

Post by xiaoma »

> Not only does it not allow employees to sell their shares to secondary buyers, it also won’t allow them to use services like those offered by 137 Ventures, which makes loans to founders and early employees using their stock as collateral. (Snapchat, Dropbox, and Airbnb have similar policies.)

Does keeping early employees "handcuffed" essentially as indentured servants until IPO align with YC's ethics policy?

Re: Handcuffed to Uber

#57

Post by superuser2 »

matchagaucho wrote: post #43
pfarnsworth wrote: post #42

I recently got an offer from Uber (didn't accept for various reasons), so I have a couple of data points. In the last two years, they started offering RSUs, not options, that addressed this issue. And two years ago, they had roughly 200 engineers vs 2000+ engineers now. The issues they had 2 years ago are different, as was the business, it wasn't nearly as ubiquitous and now since they offer RSUs, there isn't the sam…

The latest Uber investment rounds require that employees hold onto their shares for one year after going public. This will prevent employees from flooding the market post-IPO and devaluing the stock.

But the stock will be considered income in the IPO year and subject to withholding, right?

So some employees will work for a negative potentially six figure salary (100% withholding + 5-6 figures owed to the IRS) with no way to pay the IRS until they can sell the stock in the next year?

That can't be right. How does this work?

Re: Handcuffed to Uber

#58

Post by _9vpl »

Illniyar wrote: post #5
zzalpha wrote: post #2

I'm far more curious about what will happen when these companies start seeing significant portions of their workforce facing expiring option plans...

Is that a thing? I didn't know options can expire, what kind of an expiration date do they have?

It's common for companies to have a 90-day window to exercise your options after leaving the company. There are some friendlier companies with longer exercise windows. See: https://github.com/holman/extended-exercise-windows

Re: Handcuffed to Uber

#60

Post by matchagaucho »

superuser2 wrote: post #57
matchagaucho wrote: post #43

Earlier quoted context omitted.

The latest Uber investment rounds require that employees hold onto their shares for one year after going public. This will prevent employees from flooding the market post-IPO and devaluing the stock.

But the stock will be considered income in the IPO year and subject to withholding, right? So some employees will work for a negative potentially six figure salary (100% withholding + 5-6 figures owed to the IRS) with no way to pay the IRS until they can sell the stock in the next year? That can't be right. How does this work?

RSUs are "restricted" in the sense that employees do not own them until exercised, which defers the tax burden.

Typically, a portion of the RSUs are withheld to cover taxes when exercised.

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