81–90 of 132 posts
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I don't buy that argument for a second. The employees actual work, causing the startup to be able to actually do something or sell something, is what allows the company to survive.
And the investors are who pays for the employees, no?
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I'm not sure about "a lot of startups", I'm personally only aware of a very few that are doing this. Word on the street that I hear is that maaaaybe your current employer might do this for employees they like, but not as a consistent policy. Many board members, founders, etc... feel they will take a retention hit if they were to implement something like this. I personally think the status quo is insane, and I will ne…
We do it. And I know of many startups that also followed Quora's example. Definitely not everybody does it, but also it's more than 0.
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Wise advice but if the distinction between preferred+common is a real difference, then don't take the stock. Hella don't take the stock.
Curious about this, what "distinction" are you referring to here exactly? My understand is that the whole point of preferred vs. common shares is that there's a distinction: preferred shares get, well, preference in a liquidity event. This ensures investors recoup their losses if things go awry.
What I am saying is that if+when an employee leaves a startup and has say 90 days to buy any accrued options then that employee should utterly pass if they think the company looks at all dicey. If it looks dicey then the distinction between preferred and common is very real and hella pass.
Most startups fail and this employee is leaving that company for some reason. Now if the employee is early and the options are cheap and there's little taxes then maybe it's a lottery ticket. The details are always more complex.
I'm just looking at it from an employee's POV. You're probably looking at it from a VC's POV. Would you voluntarily sign a pay to play agreement late in the game? No. You'd stare cold and hard at the facts on the table. You sure wouldn't throw good money after bad. You should expect the same from a rational employee.
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In Japan you owe taxes when you vest options (not even exercise!!) Which is even worse.
That doesn't sound right. It should be when you exercise the options or when you sell the stocks: > Basic taxation of stock options depends on whether they are qualified stocks or unqualified stocks. The qualified stock option is not subject to Japanese income tax until it is sold, on the other hand the unqualified stock option is subject to Japanese income tax when it is exercised and sold. http://tk-tax-accounting.…
Might be because foreign options cannot be qualified. IANAL.
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Shares vested x fair market value at vest. So you get 1000 shares when you join, worth $1/share. 250 vest on your first year, and that's when tax is due. But say the company grows and shares are $5/share. 5x250 is 1250 taxed income on the anniversary. Normally at early stages you're talking many thousands of shares though, that can increase rapidly. The fmv is recalculated every year, or on any fundraise events. It n…
>"The fmv is recalculated every year, or on any fundraise events." This is the piece I was missing. Thank you for the clear explanation. That being said it would be interesting to buy exercise them just to see what the company is actually valuing those options at, since this is often opaque to the average worker. I wonder if it's possible to exercise a single option and use it as a barometer of sorts to quantify you…
In my experience most people at startups who leave end up not exercising their options due to the cost of exercising them coupled with the fact that they may be underpaid due to the assumption that their options may end up quite valuable. So basically they pay somebody 90k/year then give them ~20k/year in options. Then they quit after 2 years and have 90 days to buy like 50k worth of stock at the strike price they we…
In my experience most people at startups who leave end up not exercising their options due to the cost of exercising them coupled with the fact that they may be underpaid due to the assumption that their options may end up quite valuable. So basically they pay somebody 90k/year then give them ~20k/year in options. Then they quit after 2 years and have 90 days to buy like 50k worth of stock at the strike price they we…
This is missing the key point of the article which is that there are also taxes to pay, not just the strike price. What you're saying is valid -- even the strike price can be a lot for someone to afford on their way out without any liquidity. But it is very important to understand that it's much worse than that at "successful" startups that have increased in value substantially over those 2 years. You also have to pay AMT (28%) on much of that gain in value, which could end up costing even more than the strike price itself.
Hopefully more startups will offer extended exercise windows of several years. Some are. See: https://github.com/holman/extended-exercise-windows
Serious question: why does the IRS insist on valuing private company stock on the basis of a 409a valuation without taking into account whether a market for it even exists? The 409a is paid for by the company which (as the article mentioned) has an interest in keeping it lower. And holders of common stock in private companies, in most cases, can't actually liquidate their holdings (leaving apart cases like pre-IPO Fa…
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Yea I'll have to find some term sheets laying around, but I can't remember seeing the 90 day exercise being explicitly written into most term sheets. I only have seen it written into people's offer letters. Does anybody know where that language would be written actually otherwise? Some sort of bylaws or something -- seems like that could be relatively easily changed to read something like "exercise period of employee…
It's usually in the underlying option plan I believe. I think the challenge with changing the 90 day window is that you run the risk of the option not qualifying as an ISO. If that's the case, it would instead be classified as a non-qualified stock option and the holder would lose the capital gains benefits and be subject to ordinary income tax (IANAL though, so could be way off base).
It's explicitly written into the tax code that an option must be exercised within 90 days of leaving a company if the option is to be treated as an ISO. ISOs are arguably more advantageous than NSOs, which is why this is the default.