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Handcuffed to Uber

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Re: Handcuffed to Uber

#171

Post by ubernostrum »

joncalhoun wrote: post #35
jsprogrammer wrote: post #13

Earlier quoted context omitted.

Why would the IRS want to own and manage family businesses?

They wouldn't, and the original poster isn't implying that they would. I believe the argument here is that if the government wants to claim that these shares have a certain monetary value for tax purposes, then the government should stand behind that value and allow you to pay taxes with those shares at their claimed monetary value. The end goal would be to prevent small business (or people with stock options) from g…

Or we could do away with the idea of giving people stock that they can't ever legally sell.

Re: Handcuffed to Uber

#172

Post by gyardley »

scurvy wrote: post #67
_9vpl wrote: post #55

Earlier quoted context omitted.

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 (o…

There's almost never a timeliness clause in the right of first refusal (ROFS) section. They can simply choose to ignore your request...indefinitely.

Every right of first refusal clause I've ever been subjected to or subjected others to has had a thirty day deadline, so I don't think this is accurate. It's unlikely that the set of companies I worked for / founded was that unrepresentative.

Mind you, when I did do a sale on the secondary market, it always took the full thirty days for the company to approve.

Re: Handcuffed to Uber

#173

Post by huac »

scurvy wrote: post #144
huac wrote: post #138

Earlier quoted context omitted.

Black-Scholes (and the Merton version) are useful as simple estimates of option prices. Of course it's not going to be accurate (it assumes a lognormal distribution for volatility, JFC) - but the model is public and easy to calculate, providing a stable basis for these kinds of prices. Edit: people buying/selling options are of course performing their own pricing operations. They don't care how the market price is de…

There's not much difference between an American style public equity option and private equity option. Both can be exercised at any time. Perhaps you're thinking of European style options, that can only be exercised on a fixed date (expiry). While neither are great, binomial is better for American style options than BS.

American options still have fixed expiration dates, and cannot be exercised after that. While that's closer to a startup's option structure, it still doesn't account for the uncertainty in when or if the startup will go public. Additionally, you never exercise dividend-less American options early, and startups generally don't offer dividends.

I guess you could choose an arbitrarily distant expiration date, but my bigger point was that while BS is clearly not going to give perfect results, the results are reasonable enough and transparent enough to justify their use for tax purposes in lieu of actual market prices.

Re: Handcuffed to Uber

#174

Post by phamilton »

scurvy wrote: post #152
throwaway_exer wrote: post #143

Earlier quoted context omitted.

The IRS will say that you "owe" quarterly, but there's no penalty for not doing so.

It's a 3% penalty on the difference between what you owe and what you've paid. It's a pretty minor amount, but there is a penalty. http://www.inman.com/2012/06/08/dont-sweat-quarterly-tax-dea...

If the difference is less than $1000 or if you withheld more this year than you owed last year or if you withheld 90% of your total bill, there is no penalty.

Re: Handcuffed to Uber

#175

Post by mindingdata »

cplease wrote: post #151
redshirtrob wrote: post #99

Earlier quoted context omitted.

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,…

If the spread is nonexistent, why exercise at all? Why not just dump your money in an index fund?

Because you may have the belief that the shares will grow much faster than an index fund.

Re: Handcuffed to Uber

#177

Post by phamilton »

toomuchtodo wrote: post #46
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.

It also prevents employees from realizing any value if the stock price drops in the first year. EDIT: Nothing quite like watching the public stock price decline while you're in your lockup period.

Similar vein is getting acquired by a public company and watching your stock based retention packaged drop by 30% before the 1 year cliff hits.

Re: Handcuffed to Uber

#178

Post by nraynaud »

redshirtrob wrote: post #117
brianmcconnell wrote: post #66

I am currently dealing with this issue, though on a smaller scale. The moral of the story is to forward exercise options if you can. Basically what this means is you pay to exercise on your start date. If you quit or get pink slipped before the standard one year cliff, the company does a buyback. Otherwise, the shares vest as per your vesting schedule. You can potentially avoid a lot of the AMT nastiness this way, an…

Be careful, the company may not be required to buyback the shares. The company may have the option to accelerate the vesting schedule on the options. It's best to assume they'll choose to do this only when it's optimal for them, which likely means when it's suboptimal for you.

Happened to me. (Not a big sum)

Re: Handcuffed to Uber

#179

Post by xiaoma »

giaour wrote: post #109
xiaoma wrote: post #95

Earlier quoted context omitted.

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?

Yes, they were literally handcuffed.

You must have been shown a part of the Uber offices outsiders don't normally get to see.

Re: Handcuffed to Uber

#180

Post by mirimir »

williamscales wrote: post #129
giaour wrote: post #106

Earlier quoted context omitted.

Options are inherently risky and should be accepted as compensation with the knowledge that there is a non-zero chance that they might turn out to be worth nothing. What's described in the article is an interesting way for those options to be effectively worthless, but it's not materially different (for an option-holding employee without unlimited means) from Uber going bankrupt or having all unvested options cancell…

The twist here is that the options end up worthless despite the hard work of the employee that leads the company to be successful. The options are supposed to incentivise this. Something about the incentive structure is wonky---in the case of Uber going bankrupt then the options "should" be worthless. But if Uber succeeds, then the incentive should pay out.

That makes sense to me?

So have options just become a total con?

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