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What I Wish I'd Known About Equity Before Joining a Unicorn

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Re: What I Wish I'd Known About Equity Before Joining a Unicorn

#151

Post by rrhyne »

bluejekyll wrote: post #21
fermigier wrote: post #10

Should have been titled "... in the USA" as tax rules are very different in other countries. For instance, in France, you only owe money to the taxperson when you sell your shares, for a profit. If you sell for a loss, this is tax-deducible.

This is true in the US as well. And until the 409a rule, it was also exactly how you state. After 409a, private companies are required to speculate at their current value, and this sets the difference between your strike price and that at which you purchased the stock. It's this difference which is taxable. The US was trying to fix something that didn't exactly have a problem, making sure people are being taxed on pr…

See my top level comment regarding legislation in progress to fix the issue.

Re: What I Wish I'd Known About Equity Before Joining a Unicorn

#153

Post by khazhou »

jaymzcampbell wrote: post #5

As always the main rule you need to live by is value the equity at zero and you'll be (maybe) happy. Short of being a founder (and thus not really being offered equity) I have never treated these things as anything beyond a minor on paper "bonus". Given you'd be lucky to get anything more than 1% even as a first employee I find them next to worthless as early stage motivators. Which is how everyone seems to play it -…

I'm always amused how employees are encouraged to think of their stock as zero-value, which founders and investors keep 85% of this "zero value" for themselves.

Re: What I Wish I'd Known About Equity Before Joining a Unicorn

#154

Post by mikemac »

tibbon wrote: post #31

I've worked at several small startups, in the range of seed to C-rounds. Except for the one that I've was co-founder, I never knew when/how to ask or negotiate options things. It always felt like something that was supposed to happen at 'other companies' and not the one I was applying/negotiating to work at. I know I should in theory ask to see the cap table, but it seems awkward and if shown it right then I'm not su…

I really doubt any startup would let you see the cap table as a prospective employee, ahead of being hired full time.

It's better to ask what percentage of the company your X amount of shares would be. Company A could offer 1,000 shares and Company B could offer 10,000 shares but you have no idea what amount of ownership that actually is for either of them.

Re: What I Wish I'd Known About Equity Before Joining a Unicorn

#155

Post by nwellinghoff »

jaymzcampbell wrote: post #5

As always the main rule you need to live by is value the equity at zero and you'll be (maybe) happy. Short of being a founder (and thus not really being offered equity) I have never treated these things as anything beyond a minor on paper "bonus". Given you'd be lucky to get anything more than 1% even as a first employee I find them next to worthless as early stage motivators. Which is how everyone seems to play it -…

It would behoove everyone to learn the basics of the terms you are getting stock. I have been through it and know. It will take you a couple afternoons of casual reading to nail it down. But to save you some time let me give you a template for the type of stock option deal you want and you don't want.

Don’t want 1) 409A valuation price is already in the multiple dollar range. a. Why : You can’t afford to exercise do to tax burden 2) No acceleration – e.g. in the event of sale or IPO your unvested shares DON’T fully vest. a. Why: You should be rewarded for taking the risk position. Negotiate acceleration or what is known as ratcheting if you are a very early employee. 3) Stock buyback rights – The company has the right to buy back all your shares if you leave the company before a liquidity event a. Why: This is a prison sentence and a total gamble as you really own nothing until an event. 4) The company is past its 3nd round of funding. In all but rare cases your percentage ownership will be so low at this point it is not worth it.

WANT 1) 409A valuation price is in cents and the stock option plan has an early exercise option. a. Why: You can file an 83b election with the IRS and pre exercise all your stock for a few hundred dollars. Because the strike price is the same as the value you will owe 0 tax. In addition you start the clock on long term capital gains as soon as the stock does vest according to the vesting schedule. This is how all the big boys make their money. As they vest you actually own them and are free to leave the company at any time with what has vested. 2) Acceleration or ratcheting – In situations like the company gets bought, IPO or management wants you gone and you have unvested shares they must accelerate your vesting schedule. You own them and can go anywhere you want. 3) The company is in seed or series A and you own at least 0.5%+ of the company. a. The company’s founders do not want to take series C unless they absolutely have to. Ask them!

In short, you will only be rewarded by taking the risk of wasting your TIME in an early stage that has potential with a good founding team. And never forget the freaking 83b election!

Re: What I Wish I'd Known About Equity Before Joining a Unicorn

#156

Post by JonFish85 »

luckystartup wrote: post #120

This is all true. I moved to San Francisco to join a startup as an early employee. The biggest surprise was when I had to empty my savings (and borrow a lot of money) to exercise my stock options. I filed an 83b election so that I didn't have to pay any taxes immediately, but $20,000 was (and still is) a huge amount of money. I had no idea it was so expensive to join a startup. At least, if you want to avoid golden h…

Don't spend the money before you have it in your account. It's easy to get lured into the idea that the paper money is real ("worst case, it's worth 25% of that and it's still millions!"). There are still so very many things that can wipe that out, if not to zero, to something that isn't even close to life-changing money.

Easier said than done, but really the best thing to do is focus on your current work / life. Keep saving, keep working hard, enjoy yourself the same way you have. Don't get a fancy new car that you normally wouldn't get because "soon it won't matter". Don't drain savings, don't live a lifestyle you think you'll be able to afford soon, don't shop for houses, etc.

Re: What I Wish I'd Known About Equity Before Joining a Unicorn

#157

Post by maxxxxx »

stanfordkid wrote: post #103
jaymzcampbell wrote: post #5

As always the main rule you need to live by is value the equity at zero and you'll be (maybe) happy. Short of being a founder (and thus not really being offered equity) I have never treated these things as anything beyond a minor on paper "bonus". Given you'd be lucky to get anything more than 1% even as a first employee I find them next to worthless as early stage motivators. Which is how everyone seems to play it -…

This would be true ... but only because people don't understand how to leverage and negotiate using their power. Engineers have historically been unable to organize large movements and work together. The size of most of these unicorns is still under 2000 people, with less than 4-500 engineers. This means that if you really want to you can "lead a revolt" Think about it -- any engineer at these companies can easily le…

Pretty much every "policy" you are told about by a company is bullshit.

Re: What I Wish I'd Known About Equity Before Joining a Unicorn

#158

Post by bacongobbler »

luckystartup wrote: post #120

This is all true. I moved to San Francisco to join a startup as an early employee. The biggest surprise was when I had to empty my savings (and borrow a lot of money) to exercise my stock options. I filed an 83b election so that I didn't have to pay any taxes immediately, but $20,000 was (and still is) a huge amount of money. I had no idea it was so expensive to join a startup. At least, if you want to avoid golden h…

Nope. Congratulations on winning the lottery!

Re: What I Wish I'd Known About Equity Before Joining a Unicorn

#159

Post by mtgx »

dpark wrote: post #99
battlebot wrote: post #51

Earlier quoted context omitted.

We citizens have very little say in the machinery. That is the biggest problem we face these days. Regular people have no agency at all and there is a sneering elite that runs things from the coasts who believe everyone else is a sheep to be sheared for them.

More than half the population lives on the coasts. Most of them are "regular people", too. The problem with our tax code is the same as the problem with the rest of our laws: pandering politicians push through complex and expensive trash because it makes either their constituents or their donors happy. For taxes specifically, normal people have complex taxes because of the dozens of deductions and credits that hide t…

All of that, plus tax software companies, such as Intuit lobbying against simplifying the tax code.

https://techcrunch.com/2013/03/27/turbotax-maker-funnels-mil...

And once again we reach the conclusion that corporate lobbying and donations are the "root of all evil" in American politics, and everything is broken because of it. Larry Lessig has been right all along when he said this needs to be fixed before anything else [1]. Because once this is fixed, everything else should be a lot easier and a lot more in tune with what the People want [2].

[1] https://www.youtube.com/watch?v=mw2z9lV3W1g

[2] https://www.youtube.com/watch?v=5tu32CCA_Ig

It's just so easy and so cheap for corporations to buy votes right now. Why wouldn't they do it, when the upside is billions of dollars and there's no penalty for it? They can literally buy a vote with a few thousand dollars "donation". Set a limit of $200 (maybe $500 for presidential candidates) political donation per year per person and imprison (6-36 months) anyone who dares to do it any other way, fast and furious, no matter who he is, wealthy billionaire or former president. It's the only way to escape this corruption in the system.

Also, I think the U.S. would need a special agency whose sole mission is to look for this type of corruption. In this case, "mission creep" and the purpose of maintaining their jobs would work in the People's favor. The more the agency would do (catch corrupt donors or politicians), the more it could justify its existence. Similar agencies have seen a lot of success in Europe, trying to catch corrupt politicians.

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