Former Uber employees have gone into debt to exercise options they can’t sell • Hacker News Board

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

#121

Post by sjg007 » Tue, Dec 12, 2017, 9:05 PM UTC

JumpCrisscross wrote: post #46

gamblor956 wrote: post #38

Earlier quoted context omitted.

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…

> Uber isn't publicly traded, so its stock price couldn't have "started crashing" "Crashing" is a function of value, not registration status. For example, CDOs "crashed" in the crisis [1]. > Large investors aren't able to sell because they hold their shares in LLCs With all due respect, this is wrong. Selling SPVs (or stakes therein) containing the shares of a single company is a common institutional tactic. [1] http…

Huh.. the LLC thing is a smart idea.. Seems rational for employees to start their own LLCs for the purpose of buying their options. Maybe the could group together.

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

#122

Post by rockinghigh » Tue, Dec 12, 2017, 9:06 PM UTC

influx wrote: post #8

luckyt wrote: post #5

The day Uber goes public there will be a mass exodus of employees waiting for years to leave the company. I wonder if Uber will stay private permanently to prevent this?

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

The lockout conditions are 6 months after IPO and one year after vesting.

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

#123

Post by usaar333 » Tue, Dec 12, 2017, 9:23 PM UTC

erentz wrote: post #99

usaar333 wrote: post #69

Earlier quoted context omitted.

I'd argue that working at crappy companies is the problem and stock comp pain is just one symptom -- I find various forms of crappiness tend to correlate. At places with solid cultural values (Pinterest, Dropbox, Asana, Coinbase to name drop a few), employees are treating reasonably fairly on all dimensions. There's just a few ground rules: 1. Is the company giving options? They better have a 7 year exercise window (…

Why do you say 50% taxes on RSUs? You pay tax on them as normal income for their equivalent cash value at vesting. If you want to immediately sell you can. RSUs suck only when the company has one year vesting schedules. Quarterly or monthly vesting schedules work fine by me.

I was unclear in my post and sadly the edit timeout has passed.

You pay taxes on RSUs not at vesting, but when they settle into shares. This might be shortly after vesting; it might be delayed until an acquisition/IPO. (generally it is delayed for companies far away from IPO).

The delay causes multi-year income to be batched into a single year. With a progressive tax system, that results in your money being taxed at a rather high marginal tax rate: If you have a substantial amount you vest a year, it's easiest to use the highest marginal bracket as a conservative guess of what you'll be taking home. In California, that's somewhere on the order of 48% combined state + federal.

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

#124

Post by tzhenghao » Tue, Dec 12, 2017, 9:30 PM UTC

How many employees are allowed to participate? Seems like they need to be accredited investors. Many will be left out of this.

under Wikipedia:

In the United States, to be considered an accredited investor, one must have a net worth of at least $1,000,000, excluding the value of one's primary residence, or have income at least $200,000 each year for the last two years (or $300,000 combined income if married) and have the expectation to make the same amount this year. [1]

[1] https://en.wikipedia.org/wiki/Accredited_investor

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

#125

Post by jalonso510 » Tue, Dec 12, 2017, 9:36 PM UTC

hkmurakami wrote: post #45

abalone wrote: post #29

This reflects one of the more notable changes of late in the basic SV startup template. More companies are going with so-called "extended" exercise windows, converting from 90-day-window ISOs to multi-year-window NSOs upon exit. Zach Holman (ex-Github) wrote a short, fun post on this a couple years ago.[1] Y Combinator has made it their standard around when Pinterest did it as well.[2] It was fun to watch Andreessen…

RSUs vs ISOs > before a priced round (83b is cheap at this point), and after you're a massive company, say $2-5B range (option upside is too small so you put a double trigger vest clause in to protect employees from taxes on illiquid shares)

Early stage would be plain Restricted Stock, as opposed to Restricted Stock Units, which are what is typically granted later on once the company gets large. RSUs are "units" not actual shares of stock with associated ownership rights. The recipient gets an award calculated based on the value of the stock, without actually owning stock.

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

#126

Post by xapata » Tue, Dec 12, 2017, 9:39 PM UTC

gfodor wrote: post #115

rconti wrote: post #112

Earlier quoted context omitted.

I'd say "risky" rather than "poor". They probably knew it was "risky" in the sense that they were extending themselves but perhaps underestimated the tax consequences or risk of the company's fortunes turning. Many people just stick it out with their employer hoping that their options become liquid; in some ways that can also be risky/poor decision making. Maybe it's an unhealthy work environment or you've stopped le…

if you are optimizing for regret minimization I'd probably argue that it's way less regrettable to end up in $200-300k in debt due to a crazy, unexpected snafu occurring (like an economic crash or company crash) than have to know for the rest of your life you could have been a millionaire if you just had bet on the (at the time) reasonably high probability event of eventual liquidity, by exercising options that you w…

Plus, in the event you have $300k of debt and no assets, you can file for bankruptcy.

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

#127

Post by phonon » Tue, Dec 12, 2017, 9:41 PM UTC

usaar333 wrote: post #72

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…

The tax law only required it for ISOs. Companies were doing it for Non-qualified Stock Options as well, mostly because they could get away with it.

It's actually worse than that--you can have an option that's an ISO if exercised within 90 days of termination, and otherwise an NSO if exercised outside that period (say up to a year, or even 10 years). The only reason to not do it that way is because you hope some leaving employees will just let the options lapse.

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

#128

Post by influx » Tue, Dec 12, 2017, 9:42 PM UTC

mlazos wrote: post #113

influx wrote: post #103

Earlier quoted context omitted.

I probably can't say a lot due to NDA, but does it make sense to you that AWS or Google Cloud can't scale to the level of Uber, such that Uber has to build their own datacenters and write their own Lambda equivalent? Further, does it make sense that you'd rather buy hardware up front to scale for Halloween and New Years instead of being able to dynamically surge your infrastructure?

Does it make sense that managing your own hardware and data center is extraordinarily expensive? Why do you think public cloud providers are so popular? I don’t buy your scalability argument either. Netflix has about 100m users and moved from having their own data centers to AWS and is extremely profitable. Uber has 40m. Given they might have different requirements for a system it might make sense but if scalability…

I think we are violently agreeing :)

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

#129

Post by niuzeta » Tue, Dec 12, 2017, 9:55 PM UTC

>> One of those former employees paid about $100,000 to exercise more than 20,000 incentive stock options (ISOs), plus a tax bill of over $200,000. The other paid about $70,000 to exercise about 5,000 ISOs, and then about $160,000 in taxes.

Maybe it's a common knowledge amongst the Silicon Valley engineers, but for those of us who are not in startup, could someone please explain how this is possible? Specifically, in what logic would you owe more tax to exercise the option(which amounts to purchasing at this point) for half the amount of tax you'll pay? How does purchasing something of $X force you to pay $2X in taxes? I've combed through this thread for answers and it seems like a commonly understood problem.

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

#130

Post by niuzeta » Tue, Dec 12, 2017, 9:58 PM UTC

niuzeta wrote: post #129

>> One of those former employees paid about $100,000 to exercise more than 20,000 incentive stock options (ISOs), plus a tax bill of over $200,000. The other paid about $70,000 to exercise about 5,000 ISOs, and then about $160,000 in taxes. Maybe it's a common knowledge amongst the Silicon Valley engineers, but for those of us who are not in startup, could someone please explain how this is possible? Specifically, in…

Responding to my own inquiry, from the article:

> Under current tax law, the income from exercising ISOs, a special type of option typically reserved for executives and senior employees, falls under an alternative tax calculation designed to prevent high-earners from using deductions to avoid paying tax. Non-qualified stock options, more commonly awarded to regular employees, are taxed the year they’re exercised on the gain in the stock.