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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

#291

Post by rosser »

Apparently, "forward exercise" (also called an 83(b) election) isn't something The Fine Article's author has ever heard of. Nearly every one of the tax consequences this article bemoans could have been avoided, with just that one move.

Yes, it means you need to have the cash on hand, but honestly, taking out a bank loan to forward exercise your option grant would probably be orders of magnitude cheaper than wrestling with the 409a valuation or AMT or any of that garbage — especially for very early stage employees.

And it starts the long term capital gains counter earlier, too.

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

#292

Post by hendzen »

billmalarky wrote: post #228
sbierwagen wrote: post #173

Earlier quoted context omitted.

Also note that RSUs and options are taxed differently. When you're issued a block of RSUs, you almost always do a section 83(b) election, declaring the RSUs as ordinary income. When you sell them years later, the difference in value is then taxed at the lower capital gains rate, rather than the income tax rate. However, this means you take the tax hit when you receive RSUs, unlike options, where you're taxed when you…

I was of the impression that typically a portion of your RSUs are used to handle the income tax from receiving them immediately, so you simply receive less RSUs as opposed to the full amount plus a big initial tax bill. That seems to me like a good way to offset the risk that the RSUs could be worthless in the future.

That only works if the company's shares are publicly traded.

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

#293

Post by aaroninsf »

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 -…

The frame reality however is that the mythology of the windfall is part of the sell and a motivator for many. People _want_ to believe. And secretly in their heart of hearts they do believe.

Not in the reality, which they are likely smart enough to determine by reading their paperwork, and running the scenarios–even if they are treated properly, which seems increasingly rare...

...in the fantasy.

The fantasy is part of the sell. It is part of the glamor (sic) of being able to present yourself to others as _working in a startup in the Bay Area_.

IMO companies with integrity would _actively_ tell people up front what to expect (zero) and to explain why they offer equity anyway.

Were I interviewing, the company that led with that kind of honesty would stand out, regardless of its size or prospects.

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

#294

Post by jdavis703 »

djb_hackernews wrote: post #144
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 whole premise of a startup in any stage hiring a technical employee and granting them $100k worth of stock options will never happen. Typically you are granted X number of options. You are never told what the outstanding # of shares are and typically the shares themselves are valued in pennies. The idea is you think to yourself "well, it's 10k shares worth about $5k at the current valuation, but if they IPO and i…

I always ask what the valuation is, and they'll usually tell you after some back and forth of "why are you giving me a job offer with a value that I don't understand? You wouldn't keep the salary a secret, so why are you keeping the value of my options secret?"

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

#295

Post by emodendroket »

bitwize wrote: post #284
emodendroket wrote: post #250

Earlier quoted context omitted.

And if Bison's scheme to take over the world worked the Bison dollars would make you totally rich.

Options work the same way. Your equity in Bronygram could be worth millions if Bronygram's world-domination schemes go off without a hitch and if they IPO. But those are big ifs, and when you're employee #7 or even #107, you really can't assign meaningful value to those stocks, because they are simultaneously worth "zero" and "a fuckton", and the wave function hasn't collapsed.

Yes, that was the intended implication.

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

#296

Post by Bartweiss »

logicallee wrote: post #182
pbkhrv wrote: post #136

Earlier quoted context omitted.

You missed the second part: "But that was in the days of IPOs, now the investors prefer to keep the rise in equity to themselves. So you chances of winning the lottery are much less."

I didn't miss the second part.

Many agreements explicitly ban just-post-IPO sales these days. His point is that the $10 million in profit would have evaporated if not for a rapid cash-out which is often illegal to perform today.

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

#297

Post by UseYrIllusion11 »

cookiecaper wrote: post #162
adekok wrote: post #97

Earlier quoted context omitted.

I agree. I worked for one startup which got bought. The founders made money. All of the employees lost money. One of the founders reached out to me a few years later, asking me to join his new startup as employee #2. I said "yes", but only if I made 10% of what he made. The answer was "No". OK... maybe 1% of what he makes? "No". Thanks, but no thanks. If you admit that you're not going to share the benefits, I have n…

Yeah, most of the time, there is an expectation that employees will be employed at a market salary and remain content with that. There are not many ways around this. If you don't want to be a wage slave, it's hard to wage slave your way out of it. Just have to save until you can start something on your own, rinse and repeat until you strike it big. The systems are always going to be biased to the people who have the…

Honestly, in my experience company loyalty in employees has less to do with outside financial incentives and much more to do with internal transparency and mutual respect at all levels of the company than compensation.

One of the main problems with the current startup culture is that everything is overly commoditized. For something to be considered a unicorn it has to fit a model, have a certain amount of growth, a certain amount of revenue, a certain number of employees. This hurts a lot of companies's success because it forces them to adhere to a model that's designed around a totally different organization, ironically the same thing that created "Startup Culture" in the first place.

I would and have much preferred working at companies where I liked my coworkers managers and reports rather than ones where I was simply paid more.

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

#298

Post by Bartweiss »

msandford wrote: post #255
logicallee wrote: post #182

Earlier quoted context omitted.

I didn't miss the second part.

The second part was basically "but that was during a different time when such a thing was possible" and the not-too-subtle implication is that it's not possible anymore. You know, since startups aren't IPO-ing to nearly the degree that they used to. If at all. Hence the "it worked for him then, but probably wouldn't work for anyone else, now"

It's not just "aren't IPO-ing" - the rapid sale described is often banned today under agreements where shares can't be offloaded for a certain period after the IPO, so that the banks backing the offering can make their money.

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

#299

Post by ska »

jMyles wrote: post #138
tdiggity wrote: post #121

Earlier quoted context omitted.

Salary doesn't come into play when calculating gains taxes in the USA. In other words, the article has it correct.

Wow. That's terrible. My gains tax for 2017 just went up. :-) So, what if you work 100% for equity? Even then, you don't get to declare any part of that?

Declare as what? It's treated as income - you declare it, and you pay tax on it.

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

#300

Post by st3v3r »

maverick_iceman wrote: post #123
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 -…

Assuming equity is worthless the base salary has to be north of 200K to match the market rate (for low level software engineers) for public tech companies. In most Unicorns that's definitely not the case. In fact when I interviewed for Uber they explicitly said that their base salary is low compared to Google/FB but they make it up in equity.

What're the odds that equity actually ends up making up for the difference in salary, though?
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