Uber’s position is that if it learns [of a sale or loan] that goes around its share-transfer restrictions, there will be consequences What consequences?
They give 'em the ol' cement shoes.
Handcuffed to Uber
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Re: Handcuffed to Uber
#92Re: Handcuffed to Uber
#93Hmm. I've heard that Uber does have a stock buyback plan in place for employees.
Maybe there are limitations on how much can be exercised/sold, so that someone with $300mm post-option exercise can't exercise their whole position.
Re: Handcuffed to Uber
#94Pinterest allows employees to hold onto their options for seven years after leaving (if they stay at the company for two years) to avoid this scenario. I think there are a few other companies that have done similar things. http://fortune.com/2015/03/23/pinterest-employee-taxes/ Disclosure: I work for Pinterest
Here's a list of such companies with extended exercise windows: https://github.com/holman/extended-exercise-windows Disclaimer: I work at Flexport which has a ten-year window.
I recently learned that Instacart has a 7 year exercise window, and they are not on this list.
Re: Handcuffed to Uber
#95Earlier quoted context omitted.
You disagree in terms of diction. It was an analogy, after all. History doesn't repeat itself. It rhymes. Do you actually support the practice from an ethical standpoint? Employees are recruited to start-ups with equity. That's a core part of their compensation for their work (for which they likely could have received more salary from Google, Amazon, Facebook, etc). Then after they've already done the work , that com…
You disagree in terms of diction. No, there really is a pretty massive material difference between a startup employee and an indentured servant. It takes extreme naiveté or extreme privilege to confuse these two concepts.
They weren't literally "handcuffed" either.
Have you ever used the term "piracy" to describe unauthorized copying rather than attacking and plundering ships on the high seas?
Re: Handcuffed to Uber
#96Earlier quoted context omitted.
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?
RSU's are sold at vest to cover taxes.
But if Uber isn't yet public, and won't allow a market in its shares, who would one sell the shares TO to cover the tax?
Re: Handcuffed to Uber
#97Earlier quoted context omitted.
Uber specifically does not allow this (mentioned halfway the article).
There's no reason they have to find out. You just won the lottery or received an inheritance from a distant relative. How you acquire capital is none of their business.
They'll find out. You can't get an under the table loan for millions of dollars from a reputable organization. Plus, the IRS and everyone else will be looking into where the money came from.
Re: Handcuffed to Uber
#98Earlier quoted context omitted.
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.
What happens when private RSUs vest? Do companies withhold some RSUs and the government considers the tax bill paid by the withheld amount?
Re: Handcuffed to Uber
#99> 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?
Sam Altman has commented on this before. Among other things, he advocates for much longer (10 years) exercise periods for equity grants.[0]
He also discusses the need for a change in tax treatment by the IRS. One of the fundamental issues is how options are taxed. Should you exercise an option, you will need to pay taxes on the spread (delta of strike price and current FMV, i.e. latest 409A valuation).
In many cases, the spread is so small or nonexistent, that the tax bill is irrelevant. But, in a few cases it's so large that most people can't possibly raise the capital to cover the tax bill.
I think the fundamental issue is the definition of FMV. When there's no public market, and employees are covenanting away any rights to sell their equity on secondary markets, is there really a fair market? I would say no.
Re: Handcuffed to Uber
#100> 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?
Sam Altman has commented on this before. Among other things, he advocates for much longer (10 years) exercise periods for equity grants.[0] He also discusses the need for a change in tax treatment by the IRS. One of the fundamental issues is how options are taxed. Should you exercise an option, you will need to pay taxes on the spread (delta of strike price and current FMV, i.e. latest 409A valuation). In many cases,…
Thanks. That was a great post. Hopefully, his proposed solutions gain traction.