171–180 of 243 posts
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In my mind, startups are less like the lottery and more like blackjack. You are gambling either way (as with any investment) but, with blackjack and startups you can optimize. Unlike the lottery, knowledge and skill play a role here.
The odds for startups are a lot closer to a lottery than they are to blackjack.
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The upside is a non-zero chance of becoming filthy rich. Some people are willing to put up with a lower expected value in exchange for that chance. It's a fancy version of the lottery, which many people also play.
You shouldn't be able to influence a lottery outcome. Presumably, you can influence share prices if you work for a company that you have an ownership claim on.
I guess the same type of mind that believes meritocracy really exists could believe such a thing...
It's interesting to see the popular response to this thread being one where people think employees are better off with salary over options. This seems crazy to me as I have watched many close friends cash out options from companies including Google, Yelp, Apple and Pandora and buy houses (some with cash), start companies, become investors and/or take long sabbaticals with the proceeds from their options. With salary…
I'm mot even sure how you "optimize for gaining a "life changing amount of money"? That's like saying you are going to optimize for luck. There a substantial amount of luck involved in seriously "cashing out" on a startup.
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You know the simple solution to this is that companies withhold the amount of RSUs from you that would be taxed, when they vest. Its almost like so simple of a solution that reporters won't touch it. edit: nevermind. even the company cant pay the tax with their illiquid RSUs so its still a problem, and a bigger problem if the share valuation increases, pre-IPO
In this case they are still withholding, but the withholding doesn't cover enough because of AMT and other reasons.
There is a downside to RSUs. Say you work for a private company with a high valuation, e.g. AirBnB at $25B, and you are granted 0.01% equity over 4 years. That means you are vesting $2.5m of RSUs over 4 years, and these RSUs are taxable at that amount. Typically for folks earning over $150k/year in base salary, particularly if married, even half as much will put you into AMT territory, and you will end up paying a si…
Does the government take private RSU's as payment for taxes? It seems unfair to tax people for equity that even the government itself doesn't value.
Fair and equitable are not often words used to describe the US tax code.
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Basically your thesis is that as an asset class, late stage private technology companies are underpriced, since the presumed employee option pool will be smaller than previously assumed, and thus dilution will be smaller than previously assumed. Thus you can bid a higher price than your competitors and still come out ahead in your investment in this asset class. What I don't understand is how you get around the fact…
> What I don't understand is how you get around the fact that you would still have to "pick winners". If you didn't lead investments and instead diversified substantially amongst late-stage companies, you could probably get sufficient overall exposure to the class so as to not be driven by the performance of individual companies. In reply to your other comment, VC investors tend to have a "thesis" about a particular…
Oh that was the missing link. I forgot that you can "not lead" a round, allowing you to avoid committing too much of the fund in a given company. Thanks for pointing this out.
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You can still do remote work from a cheap location, or stay and have FU money. Giving up 500k in salary for a chance to make 500k in stock is a terrible bet. Alternatively, only save up 100k in 10 years, go to Vegas and bet it all at slightly negative odds. You can set things up for a 20% chance of getting ~500k which is better odds than many startups while still having more day to day money.
You can still do remote work from a cheap location, or stay and have FU money. Do they have good schools in $cheap_location?
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In this case they are still withholding, but the withholding doesn't cover enough because of AMT and other reasons.
I am curious what is the purpose of this withholding strategy then? I am not familiar with this. Doesn't sound great to me, at least with a quarterly vesting schedule you can generally go and sell them on the secondary market.
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I'm not sure why you think single is a positive if you're trying to save. It's far more cost effective to be married to another high-income earner. Living in a cheap location is also not everyone's dream. It would be life changing for me to retire to Costa Rica, but it would not be a positive change. I live in a pretty expensive city (Seattle) because I like it here.
If X, says nothing about if not X. Dual income no kids @ 200+k can be a great way to save a lot of money. But, you have far less control over your spouses spending and willingness to relocate. Also, even if you don't move having 500+k / person in the bank is life changing. The median bay area house is 635,000$ which becomes affordable while saving money. Dual income with a 1+ Million down payment and you can actually…
When you repeatedly refer to being single, you imply that it's the better way to save, whether you intend that or not. And when someone asks about it, brushing off the question by pretending they should have applied rigorous logic to the statement is somewhat... let's say silly. Ability to control a spouse's spending and willingness to relocate are legitimate answers that you make weaker with the attempted logical refutation.
Having 500k in the bank also isn't really life changing if your plan is to spend it on a house. With a high income, you could theoretically save for 10ish years and buy a pretty nice home outright. You could also just take a loan out immediately and live in the same home for those ten years, acquiring equity and tax benefits along the way.
Saving to buy outright or mostly outright only makes sense if you are either extremely risk averse or you believe that non-real assets will appreciate much faster than real assets over the medium term. Right now you can get a super jumbo loan at less than 4%. If you want buy a million dollar home and have a million dollars in cash, it's really not a given that you should buy the house in cash. That implies that you believe the stock market will do worse than, say, 3% (reduced due to tax advantages of mortgages and disadvantages of capital gains) for many years.
This is where having a lobbying group would be helpful -- this really needs to be fixed through policy. We need to get the tax law changed so that RSUs are taxed on liquidity instead of vesting. Then you'll still avoid the corruption the tax is supposed to protect against (paying an executives millions in what was previously untaxed compensation through RSUs in the 80s) but still allowing them to be given as startup…
Can you go into a bit more detail on what counts as liquidity? Can I sell on a secondary market? Can a bank let me guarantee a loan based on my current units? Can non-liquid units be transferred to my next of kin tax free?
> Can I sell on a secondary market?
Sure, and then you get taxed on the money you made, where your basis is $0.
> Can a bank let me guarantee a loan based on my current units?
That's tricky because it would be a way for people to work around the law. What if we made you pay tax if you took out a loan with the stock as collateral?
> Can non-liquid units be transferred to my next of kin tax free?
Seems like it would be reasonable to allow that. The value would still be $0, but when it became liquid, your next of kin would have to pay taxes on the value with a basis of $0, which would make it not a good workaround for estate tax since you would save money if you transferred it under the $5M lifetime limit.