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Former Uber employees have gone into debt to exercise options they can’t sell

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Re: Former Uber employees have gone into debt to exercise options they can’t sell

#31

Post by sokoloff »

mabbo wrote: post #25

> To qualify for the tender offer, participants must have at least 10,000 Uber shares and be “accredited investors,” an SEC designation (pdf) for wealthy individuals. From the SEC link: > An accredited investor, in the context of a natural person, includes anyone who: > earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the cur…

While it's obviously true what the effect of the law is, I find it a more good than bad law. It's intended to protect non-accredited investors from flim-flam investment schemes, by making it a federal crime to solicit money from them. Soliciting money from accredited investors has a certain supposition that they are at least one (if not both) of better able to withstand a loss of principal in an investment and better able to protect themselves from investment scams.

Though the article says otherwise, I don't believe one has to be an accredited investor to liquidate any position, only to initiate one. (I suppose there's an argument that you could swindled on the sale as well, but I find that a lot less compelling than on the buy.)

Re: Former Uber employees have gone into debt to exercise options they can’t sell

#32

Post by olivermarks »

influx wrote: post #19
sockgrant wrote: post #12

Earlier quoted context omitted.

How's the eng culture?

They hired too many, too fast. When I was there, the whole thing was chaos. Instead of using a cloud provider, they are building basic infrastructure because engineers have to do something. Beyond the obvious HR issues that Susan Fowler exposed, it was a bad place to work for almost any engineer. I would stay far away if you get an offer there.

I just submitted this FT piece on Fowler https://www.ft.com/content/b4bc2a68-dc4f-11e7-a039-c64b1c09b...

Re: Former Uber employees have gone into debt to exercise options they can’t sell

#33

Post by lhorie »

marioestrada wrote: post #9
influx wrote: post #8

Earlier quoted context omitted.

There is a year lockout of Uber employees after an IPO. Source: ex Uber employee.

If you quit during that time can you sell?

I don't know details on stock options, but for RSUs, my understanding is that it works like this: your signing bonus and part of yearly perf bonus is in equity. Signing bonus matures in four years, incrementally. 25% vests at the end of 1st year, the rest vests incrementally by month. Perf bonus vests in 1 yr. Once a RSU vests, it's yours. If you leave the company before a RSU vests, you lose it.

At IPO, RSUs get converted into stocks, however, there's a restriction that you can't sell them for 1 year from the IPO date. Tax obligation is handled by subtracting a portion of the units, rather than by paying out-of-pocket.

Re: Former Uber employees have gone into debt to exercise options they can’t sell

#34

Post by hkmurakami »

sockgrant wrote: post #23
hinkley wrote: post #13

Earlier quoted context omitted.

The moment for me when I realized that options were bullshit was when I got a story about how “we wanted to give you a bigger raise but it’s not in the budget, so here’s $3k less and $3k worth of options” As if options had a value.

Yeah they always assign a dollar amount to options instead of a % amount which is what really matters. $100,000 in options sounds great but if it’s .01% of options then you’ll have to be part of a monster IPO or sale to get a windfall. Always insist on the % amount. Most founders will try not to share it.

If you have the dollar amount and the # of shares, then you can backtrack it to a rough percentage.

Also options are a % increase in share price play, so $100,000 strike price can at least give you some information wrt how much $ you can make if the per share price of the company triples, etc.

It's not always better to know % and % only. Let's say you get 1% options of a company valued at $10B. Options are priced at the preferred price, no discount. The company IPOs at $10B. Did you make $100M? Nope you made $0 so far!

Re: Former Uber employees have gone into debt to exercise options they can’t sell

#35

Post by hkmurakami »

bsimpson wrote: post #26
sockgrant wrote: post #10

Yet another reason why taking startup stock sucks. Oh? You managed to actually get stock in a startup that seems to be worth something? And you didn't get diluted to a pittance? And the board / founders didn't try to fire you or ask you to give stock back to the pool? Lucky you, you're one of the 1% of the 1%. Now stay there until the company sells or goes public. Wait -- they got bought? Congratulations, you just wo…

Another detail that's not well-known unless you know someone who's gone through it: buying your shares comes with a huge tax bill. As I understand it, you have to pay tax on the difference between the option price and the value at the time you buy them. So if you have a bunch of options to buy at $10 per share, and the company grows to $90 per share by the time you quit/have to buy your shares, you're taxed on $80 a…

This is if you hit AMT, if you have ISOs. One positive for startup employees of the GOP tax bill is that it seeks to repeal AMT for individuals.

If you have NQOs, this tax always happens.

Re: Former Uber employees have gone into debt to exercise options they can’t sell

#36

Post by hkmurakami »

JumpCrisscross wrote: post #14

Uber is specifically and wilfully shitty when it comes to employees’ stock. Large investors have always been able to sell, in part because they hold their shares in LLCs. Smaller investors, however, get blocked. When the price started crashing, the big guys got out. The little guys remain locked inside. Something similar happened at Palantir. When a big little guy sued, things changed [1]. [1] https://www.bloomberg.c…

Palantir is worse. Far worse. They are still on options when they're valued at $10B+.

They're smart though. This reduces their employee comp cost significantly through cheap internal buybacks.

Re: Former Uber employees have gone into debt to exercise options they can’t sell

#37

Post by rsynnott »

bsimpson wrote: post #26
sockgrant wrote: post #10

Yet another reason why taking startup stock sucks. Oh? You managed to actually get stock in a startup that seems to be worth something? And you didn't get diluted to a pittance? And the board / founders didn't try to fire you or ask you to give stock back to the pool? Lucky you, you're one of the 1% of the 1%. Now stay there until the company sells or goes public. Wait -- they got bought? Congratulations, you just wo…

Another detail that's not well-known unless you know someone who's gone through it: buying your shares comes with a huge tax bill. As I understand it, you have to pay tax on the difference between the option price and the value at the time you buy them. So if you have a bunch of options to buy at $10 per share, and the company grows to $90 per share by the time you quit/have to buy your shares, you're taxed on $80 a…

Which is why, in general, you shouldn’t exercise them unless the company is sold/goes public.

Could be worse; in Ireland I’d pay a little over 50% on my options if I exercised them. Which is why I don’t.

I certainly wouldn’t be interested in taking a job in a private company where options were a significant part of compensation.

EDIT: Just noticed from the article, Uber employees had to exercise within 30 days. Wow. 7 years seems to be normal in this country.

Re: Former Uber employees have gone into debt to exercise options they can’t sell

#38

Post by gamblor956 »

JumpCrisscross wrote: post #14

Uber is specifically and wilfully shitty when it comes to employees’ stock. Large investors have always been able to sell, in part because they hold their shares in LLCs. Smaller investors, however, get blocked. When the price started crashing, the big guys got out. The little guys remain locked inside. Something similar happened at Palantir. When a big little guy sued, things changed [1]. [1] https://www.bloomberg.c…

Uber isn't publicly traded, so its stock price couldn't have "started crashing."

Large investors aren't able to sell because they hold their shares in LLCs. They're able to sell because selling rights are part of the terms they negotiated as part of their agreement to invest. The form of ownership has nothing to do with it, and indeed the use of an LLC as a holding company for corporate stock usually complicates the legal and tax considerations for the sale of stock held by the LLC.

Also not sure why you're including a disclaimer? You're not offering any sort of advice so you don't need to disclaim anything.

Re: Former Uber employees have gone into debt to exercise options they can’t sell

#39

Post by clairity »

sockgrant wrote: post #10

Yet another reason why taking startup stock sucks. Oh? You managed to actually get stock in a startup that seems to be worth something? And you didn't get diluted to a pittance? And the board / founders didn't try to fire you or ask you to give stock back to the pool? Lucky you, you're one of the 1% of the 1%. Now stay there until the company sells or goes public. Wait -- they got bought? Congratulations, you just wo…

libertarians will tell you that that's on you for not understanding the risks involved, but that's a heartlessness and antisocial position to take.

instead, potential startup employees can educate themselves a bit on how options are a risky derivative investment in the startup you work for. there's really no need for the bitterness in your post once you can properly account for them (they're like lottery tickets that are only mostly, but not completely, up to chance).

if you know some quantitative finance, you can (approximately) value the options (binomial and black-scholes are commonly taught in b-school), but it's really easy to miss important valuation factors that will throw your valuation way off.

for example, preferred shares bought by investors could have (very unfriendly) participating preferred clauses that discount the value of your common shares. you can value that, but you'd need to be pretty good about forecasting the future value of the company to get it right.

a simpler approach is to do a rough back-of-the-envelope calculation like this: i've noticed (completely anecdotally) that startups will give you options at the current valuation that if the company has a good outcome, will net you about 1-5 years worth of salary in the end. if my salary is $100K and i believe the chances of this startup succeeding is 20% (this is the hand-wavy part), my options are worth $20-100K in 5-7 years when the startup exits.

or if you're risk averse, you'll completely discount the value of the options in comp negotiations. that's different by the way from scornful statements like "options have no value" where you're completely surrendering your agency in the matter. in this case, you acknowledge your risk tolerance and account for it.

Re: Former Uber employees have gone into debt to exercise options they can’t sell

#40

Post by Groxx »

JumpCrisscross wrote: post #22
eddieplan9 wrote: post #17

Why is this even news? This is the case for pretty much every privately-held company in the valley, because the tax law dictates that [1]. When Pinterest changed their exercise window from 90 days to 7 years, it was big news [2]. When you leave a privately-held company, you have to convert your stock options to stocks to hold onto them, and then AMT kicks in and taxes you on the spread and that often hurt a lot. But…

> This is the case for pretty much every privately-held company in the valley Many companies allow employees and ex-employees to sell shares.

Being able to sell shares would imply it's a public company, not a private one, right?
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