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What I Wish I'd Known About Equity Before Joining a Unicorn
341–350 of 586 posts
Re: What I Wish I'd Known About Equity Before Joining a Unicorn
#342[deleted]
Re: What I Wish I'd Known About Equity Before Joining a Unicorn
#343Interestingly I've had the opposite experience. I work in the crypto space. My monthly comp is a combination of bitcoin, and some units of the crypto token that we invented that will power the app we are developing. When I first signed on, the token was not yet released, but the plan was for it to be minted and released on crypto exchanges way before our app is actually complete. This allows people to speculate on the future success of our app. Once the coin is out there, we have no control of it, it becomes an independent asset that anyone can trade without our approval or knowledge. This makes the coin perfectly liquid with an actual value.
Since when I first signed on, the token wasn't out yet, we had to negotiate a value for it. The value we agreed on ended up being much lower than the actual value when it was finally released. This created a strange situation. My monthly salary, which was at one point a combination of money (bitcoin) and some pie-in-the-sky uncertain token, simply became money + money since it was all liquid. I was therefore getting paid much more than expected, and more than another engineer of similar skill would require. This creates pressure on the founders to consider letting me go - even though I was a critical component of getting it to where it was. The psychology when the equity is not liquid seems very different. Even if a company's valuation starts to become much higher than expected, the fact that there still has to be an unlikely far-in-the-future liquidity event for any of it to be worth anything, significantly changes the dynamics. But when your engineer is simply getting paid quadruple market value in real liquid money, thoughts start to materialize that they can simply exchange me for 4 other engineers.
Re: What I Wish I'd Known About Equity Before Joining a Unicorn
#344Earlier quoted context omitted.
That only works if the company's shares are publicly traded.
Care to give a citation there? I'm quite certain you are wrong; there's no reason your employer can't withhold X% of your RSU at vesting time for taxes. In practice all this "really" means is they don't give you the full amount and send the equivalent dollar amount to the IRS instead.
It seems like this would be a very costly alternative for a company since it would essentially be a commitment to buy back 30-40% of outstanding RSU's at the equivalent price (current 409A valuation?). Over time I'd imagine this would become a major drain on cash reserves.
Google, Facebook, Netflix etc. can do this easily since they can just sell the RSU shares on the public market. It's the illiquidity of the shares that makes this option costly for private companies.
Re: What I Wish I'd Known About Equity Before Joining a Unicorn
#345Earlier quoted context omitted.
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.
Is the market rate really >$200k for "low level software engineers"? I know a lot of them, even some that are working at Google, and my impression is that $200k is quite high for someone in that category.
It is very high, of course, but this is HN, where everyone knows some friend's roommate's brother who makes $200K at Google--therefore $200K must be the going rate for software engineers everywhere in the valley. I highly doubt that there is a significant number of engineers outside these few outlier companies making those figures.
Re: What I Wish I'd Known About Equity Before Joining a Unicorn
#346Earlier 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…
tldr: 83b isn't just for RSUs. You _may_ be able to perform an early exercise on ISOs and perform an 83(b) election at the same time. I've done that twice now .. the first time worked out very well. The second time I'd anticipate will work out quite well as well.
> You _may_ be able to perform an early exercise on ISOs and perform an 83(b) election at the same time. I've done that twice now .. the first time worked out very well. The second time I'd anticipate will work out quite well as well.
Be careful. If your total grant (not the amount your exercising, but the total amount that will vest over four years) is worth more than $100,000, the amount in excess of $100,000 will lose ISO treatment and be treated as NSOs. So if your grant is worth $500,000, and you early-exercise a single share, $400,000 will be automatically converted to NSOs.
This is an IRS rule, independent of your company's terms.
Re: What I Wish I'd Known About Equity Before Joining a Unicorn
#347Earlier quoted context omitted.
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.
This lockup normally affects everyone who had shares pre-IPO -- investors, founders, and employees -- when did it not exist? It played a large role in making people sad when the Internet Bubble burst, for example.
Re: What I Wish I'd Known About Equity Before Joining a Unicorn
#348Earlier quoted context omitted.
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.
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Re: What I Wish I'd Known About Equity Before Joining a Unicorn
#349Earlier quoted context omitted.
"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…
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…
The proper way to do this for a non public company is to settle the stock for RSU based on the vesting schedule AND an exit (IPO/acquisition). This way you don't technically own the stock and have to pay taxes until there's liquidity. I believe this is how a lot of the bigger unicorns are issuing RSUs now.
http://avc.com/2010/11/employee-equity-restricted-stock-and-...
Re: What I Wish I'd Known About Equity Before Joining a Unicorn
#350Really 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…
I think that will solve a lot of the headache around stock options. Exercising options could still be cost prohibitive depending on price and quantity but at least there wouldn't be any tax burden until a liquidation event. There would still be issues around percentage and dilution but that isn't something the government can or should solve in my opinion.
The relief of the tax burden is all the legislation addresses.