What I Wish I'd Known About Equity Before Joining a Unicorn • Hacker News Board

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

#271

Post by econner » Wed, Jan 18, 2017, 6:47 PM UTC

chrdlu wrote: post #247

econner wrote: post #24

Earlier quoted context omitted.

This advice is often given but it's easier said than done. Let's say you work at a unicorn for 3 years and in that time it goes up 10x in VC fantasy land valuation. On paper you have a lot of money and the company reasonably might go public a couple years after you leave. Let's say you're granted about a year's salary in shares when you first join so you've vested $100K for a round number. When you leave that equity…

The good news is that there are a couple new firms that aim to address this exact issue. The firm I work for is called the Employee Stock Option Fund (ESOFund) and we aim to help employees exercise and cover the taxes associated with the exercise (on a non-recourse basis - meaning you don't have to pay us back if the company fails). In exchange, we split the future profits. If you use us, it is a risk-free way to exe…

What percent of the "profits" do you take? Can you explain how ESOFund would work in the situation I outlined above?

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

#272

Post by brianwawok » Wed, Jan 18, 2017, 6:48 PM UTC

finnh wrote: post #210

econner wrote: post #24

Earlier quoted context omitted.

This advice is often given but it's easier said than done. Let's say you work at a unicorn for 3 years and in that time it goes up 10x in VC fantasy land valuation. On paper you have a lot of money and the company reasonably might go public a couple years after you leave. Let's say you're granted about a year's salary in shares when you first join so you've vested $100K for a round number. When you leave that equity…

There's a growing secondary market for illiquid shares of private companies; I would look into that before letting the options lapse. There a few market-making websites as well as VCs that specialize in this. You need to be pretty savvy to marshal the whole process and understand the contracts, though - it is not turnkey.

Don't most options include right of first refusal and more, to prevent you from selling them on the private market?

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

#273

Post by adventured » Wed, Jan 18, 2017, 6:50 PM UTC

roadnottaken wrote: post #84

rrhyne wrote: post #78

Really surprised how few people know about this legislation to fix the tax laws that cause one of the biggest issues with options. https://www.gop.gov/better-way-startups/ It made it through the house and was approved by senate finance committee but is now stuck in a bill about retirement savings legislation. Even finding information about the bill on the web or twitter is incredibly difficult. Please tweet, blog, et…

Wow, did not know about that. What do you think the chances are it gets passed in the forseeable future?

The chances of it getting through within the next few years, is 100%, in my opinion. There will be numerous opportunities to fix this particular problem, along with all the other items getting targeted when it comes to tax & regulation reform. It has wide bi-partisan support, and the tech industry is the largest lobbyist force on earth now, as such it'll be a matter of how soon rather than if.

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

#274

Post by econner » Wed, Jan 18, 2017, 6:50 PM UTC

compsciphd wrote: post #270

econner wrote: post #24

Earlier quoted context omitted.

This advice is often given but it's easier said than done. Let's say you work at a unicorn for 3 years and in that time it goes up 10x in VC fantasy land valuation. On paper you have a lot of money and the company reasonably might go public a couple years after you leave. Let's say you're granted about a year's salary in shares when you first join so you've vested $100K for a round number. When you leave that equity…

I believe It's only a $3K per year income deduction if you have no other capital gains to offset it with. If you have future capital gains of $200K, it can make that go to 0 and you wouldn't have to pay tax on it.

Ah, yes, you're right. It would offset future capital gains.

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

#275

Post by dj-wonk » Wed, Jan 18, 2017, 6:51 PM UTC

compuguy wrote: post #126

dj-wonk wrote: post #73

Earlier quoted context omitted.

I'd highly recommend checking out alternatives. The one that impressed me (for a particular situation) the most recently is Clubhouse. Compare based on your needs. Enterprise needs with established products are not the same as a startup, as you know or will soon.

Until these alternatives have self hosted options, most companies are not going to use them.

Yes, some companies prefer / require / demand self-hosted installations. Some do it for logical, financially responsible reasons too.

Numbers-wise (measured on a 'per company' basis), I would tend to disagree with the 'most' part of your sentence. Aren't there are many more 'smaller' companies happy to use hosted services as compared with companies that require self-hosted ones?

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

#276

Post by matthewmcg » Wed, Jan 18, 2017, 6:53 PM UTC

stanfordkid wrote: post #267

matthewmcg wrote: post #254

Earlier quoted context omitted.

"The company can choose not to buy back your unexercised options at par-value for as long as it wants." That's usually not right for incentive options. Check your option agreement. Most will say that the stock option automatically expires or converts to a non-qualified option if not exercised within 90 days of termination without the company having to decide to do anything. What you are describing is more commonly as…

It is a legal rule that the company decided to impose in it's corporate charter, they can amend it to be whatever they want. It's arbitrary and not a fundamental part of US/State corporate law (like say race discrimination or workers comp). If they wanted to put a law in that you need to spin in circles and tap dance or else your stock automatically gets reclaimed they could create a clause in their charter for that…

No, this is a provision in the agreement that's driven by the tax code and IRS regulations. It is required if you want the option to be an incentive stock option. It's not arbitrary.

You're right that you are free to to negotiate a different exercise window prior to accepting your stock grant (and a lot of more progressive companies are offering this). You just can't, under current tax law, get the sometimes beneficial ISO treatment with a longer window.

There's a nice summary of the situation here: https://news.ycombinator.com/item?id=9254299

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

#277

Post by carlosdp » Wed, Jan 18, 2017, 6:54 PM UTC

chris_7 wrote: post #19

> fixed PTO Why on earth is this a downside? "Unlimited vacation" is a scam.

See, people say that, but I have yet to see that in practice. I worked at a unicorn with an unlimited PTO policy and it worked out very well for everyone. It was very comforting to know I could just tell my manager "hey, I'd like to take 2 days off next week to go on a ski trip, is that cool?" and not have it count toward a timer.

Is it possible I would have gotten more days under a fixed policy? Maybe, I didn't really count and neither did they. But who cares? It's not like x amount of vacation days makes me more relaxed, it's knowing that I can take one that relaxes me.

Having fixed vacation days kinda stresses me, as now I have to worry about not using them all throughout the year, or have to worry about not wasting them.

Bottom line, I think successful vacation policies depend on company culture, not fixed or unlimited days. You can certainly have fixed days and still have a culture that frowns upon using them.

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

#278

Post by bluetwo » Wed, Jan 18, 2017, 6:57 PM UTC

delinka wrote: post #115

econner wrote: post #24

Earlier quoted context omitted.

This advice is often given but it's easier said than done. Let's say you work at a unicorn for 3 years and in that time it goes up 10x in VC fantasy land valuation. On paper you have a lot of money and the company reasonably might go public a couple years after you leave. Let's say you're granted about a year's salary in shares when you first join so you've vested $100K for a round number. When you leave that equity…

"Let's say you're granted about a year's salary in shares..." Please use correct terminology. You're given options to purchase shares, or you're given shares outright. The former is what most people are accustomed to: options to purchase shares at a discounted price. The latter, know as a "stock grant," does not require the employee to purchase the shares - they've been granted to the employee. Both of these things t…

Yep. And there is the problem. I don't want options to buy anything. I want shares. Actually, I want cash.

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

#279

Post by finnh » Wed, Jan 18, 2017, 7:00 PM UTC

brianwawok wrote: post #272

finnh wrote: post #210

Earlier quoted context omitted.

There's a growing secondary market for illiquid shares of private companies; I would look into that before letting the options lapse. There a few market-making websites as well as VCs that specialize in this. You need to be pretty savvy to marshal the whole process and understand the contracts, though - it is not turnkey.

Don't most options include right of first refusal and more, to prevent you from selling them on the private market?

Yes, but ROFR doesn't necessarily hurt you - it just slows down the deal. Also, the VCs who do this also structure the deal in certain ways to make the ROFR price unclear and therefore negotiable.

But, you're right, some start-ups are explicitly putting in an explicit "consent" clause into the ISO. Which I think is unfair, and kind of BS - certainly if such a clause were valid, that would drastically reduce the value of non-publicly-tradeable shares, and it would be nice if the IRS agreed =)

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

#280

Post by iamcasen » Wed, Jan 18, 2017, 7:00 PM UTC

johngalt wrote: post #236

The equity payday funnel looks bleak. 1. Will this company succeed? 2. Once it succeeds will my equity be valuable? 3. If my equity could be valuable, will it be diluted before I can get paid? 4. If not diluted will it ever be liquid? 5. If there is liquidity will I be able to participate? Or only founders/investors. 6. If employees are able to extract real dollars, will I be forced out, laid off, constructively dism…

Your funnel is so spot on it hurts. I made it all the way to number 6, and boy let me tell you, it was a shit show. People being strong armed left and right, people suddenly not showing up to work, and management offering a memo like "Larry has decided to pursue something different in his career."