Relevant discussion: “Ask HN: Where to sell my startup shares?” https://news.ycombinator.com/item?id=20411135
For Airbnb employees, dream turns into disillusionment
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Re: For Airbnb employees, dream turns into disillusionment
#22I spent most of my 20s (7+ years) at a startup that is currently a “unicorn”, and consequently have an ok amount of shares locked up in the same situation. As the company’s valuation grew higher and higher the equity grants became significant lower. It was balanced out by my pay becoming more and more competitive vs other large companies. But eventuality I decided ~80% was as fully vested as I’ll ever be — Not to men…
don't you owe taxes on the stock appreciation?
Re: For Airbnb employees, dream turns into disillusionment
#23My company (unicorn) allows all employees to sell shares and there is a market on Shares Post for them. All companies should allow such pre-public trades.
Re: For Airbnb employees, dream turns into disillusionment
#24I spent most of my 20s (7+ years) at a startup that is currently a “unicorn”, and consequently have an ok amount of shares locked up in the same situation. As the company’s valuation grew higher and higher the equity grants became significant lower. It was balanced out by my pay becoming more and more competitive vs other large companies. But eventuality I decided ~80% was as fully vested as I’ll ever be — Not to men…
"and because I joined so early my options were cheap enough to exercise over time" --> So you were exercising regularly while the company still wasn't worth much? That's a best-case scenario. The problem comes when early employees have a low strike price but don't exercise until the valuation is high, either because of vesting or just not getting around to it. Anyone with, e.g. 50 cent Airbnb options is looking at a massive AMT hit if they wanted to exercise.
Re: For Airbnb employees, dream turns into disillusionment
#25"two tranches of employee equity that are set to start expiring in November 2020 and in mid-2021; those shares will become worthless if the company is not trading publicly by then, they said." I don't understand the above statement. How does not being publicly traded make the options worthless? Doesn't it just make them more risky because you have to put up a pile of money w/o knowing when and at what value you will…
Options usually have an expiry when granted, i.e. they need to be exercised (employee pays cash at the strike price for it) before the expiry.
You need to pay capital gains tax when the gains are realized, I.e. at exercise.
I’m just speculating here but I think the problem is that the value of Airbnb stock has increased so much that the taxes due on the capital gain large enough that these option holders can’t afford to pay it without a liquidity event e.g IPO, where they could just sell the acquired stock to pay taxes.
So these early employees that were compensated in options are in this weird place where they can’t afford to exercise and are short on luck if their options expire before an IPO.
Also if you leave the company, your options usually expire some time after (perhaps 90 days?). I think that’s why some employees are complaining the lack of an IPO prevents them from moving on.
I presume later employees are conpensated in Restricted Stock Units which don’t have this problem.
Re: For Airbnb employees, dream turns into disillusionment
#26This is the number one reason I would not want to work for a startup. Even in the unlikely event that the company is successful, there's better than even odds that you won't be able to trade on that success for years to come. That means you're effectively locked in at the company until it suits the executives to let you out. No thanks. I'd rather have a higher salary and immediately tradable equity grants with a comp…
In addition to that, the founders are signaling their own long-term lack of confidence by selling their shares when no one else is allowed to do so.
Employees are correct to pressure their employers to IPO or GTFO, especially considering that many of these companies are on a trajectory where they're worth less over time (e.g. the collapsing valuations of Uber, Lyft, Slack, "We", etc).
Re: For Airbnb employees, dream turns into disillusionment
#27Earlier quoted context omitted.
Why? What's so special about those shares?
It’s typically a condition of your options agreement. Unless you get a (company sanctioned) secondary sale somehow, you’re locked up until IPO or an acquisition. You can sometimes perform some clever financial engineering with a forward contract and a motivated investor to get around this though.
Those are some really dirty rules - to have the company sanction the transfer of its own securities. In principle it should be the other way around (i.e. shareholders decide what the company does, not company decides what shareholders do). Do you have examples of such contracts?
Re: For Airbnb employees, dream turns into disillusionment
#28Earlier quoted context omitted.
It’s typically a condition of your options agreement. Unless you get a (company sanctioned) secondary sale somehow, you’re locked up until IPO or an acquisition. You can sometimes perform some clever financial engineering with a forward contract and a motivated investor to get around this though.
Those are some really dirty rules - to have the company sanction the transfer of its own securities. In principle it should be the other way around (i.e. shareholders decide what the company does, not company decides what shareholders do). Do you have examples of such contracts?
https://www.clerky.com/assets/forms/stock-option-award.docx
“The attached document is part of the Startup Forms Library made available by Clerky as part of an initiative with Orrick and Y Combinator to streamline startup legal documents. By using or viewing the attached document, you agree to the Terms of Use for the Startup Forms Library, which can be viewed at https://www.clerky.com/site/form-terms.”
Transferability:
“You may not transfer this Option except as set forth in Section 6 of the Stock Option Agreement (subject to compliance with Applicable Laws). You must obtain Company approval prior to any transfer of the Shares received upon exercise of this Option.”
Re: For Airbnb employees, dream turns into disillusionment
#29I don't understand this article one bit. Why is the article speaking in the present tense? Why have dreams turned into disillusionment now, once the company has already announced they're going to IPO in 2020? The article bellymoans about how employees can't cash out their shares yet - well yeah duh, that's kind of the whole risk/reward aspect of startups. Maybe they go public. Maybe they go under. Maybe they take a l…
Option expiry before they go public effectively blocking early employees from being able to realize the upside of going public.
Re: For Airbnb employees, dream turns into disillusionment
#30"two tranches of employee equity that are set to start expiring in November 2020 and in mid-2021; those shares will become worthless if the company is not trading publicly by then, they said." I don't understand the above statement. How does not being publicly traded make the options worthless? Doesn't it just make them more risky because you have to put up a pile of money w/o knowing when and at what value you will…
Yes, the article seems to not understand why people work at startups. The risk is high that your equity is worth nothing, the the reward at a liquidity event is large.
> [T]he reward at a liquidity event is large
Does anyone have any numbers showing the typical employee being rewarded? Exactly how much money did the median employee at Uber, Lyft, or Slack make?