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Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

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Re: Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

#91

Post by mizzao »

roflc0ptic wrote: post #26

I just started working somewhere that does a different equity scheme called “profit interest.” The gist is, they issue you equity whose worth is based on growth in valuation from when you joined. So if you’re granted 1% shares and the company grows from 100m to 200m on liquidity, you’re entitled to 1m. It avoids you having to front money for stock options, and it also avoids the tax burden b/c when issued, the shares…

Can you share more about this? Trying to figure out how to be fair to future employees as a founder and considering all the options

Re: Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

#92

Post by roflc0ptic »

dd36 wrote: post #69
roflc0ptic wrote: post #26

I just started working somewhere that does a different equity scheme called “profit interest.” The gist is, they issue you equity whose worth is based on growth in valuation from when you joined. So if you’re granted 1% shares and the company grows from 100m to 200m on liquidity, you’re entitled to 1m. It avoids you having to front money for stock options, and it also avoids the tax burden b/c when issued, the shares…

Doesn’t that just mean you work for an LLC?

Yes, it's an LLC.

Re: Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

#93

Post by jeremyis »

andygcook wrote: post #87

> “For later employees make sure the company offers “refresh” option grants to longer-tenured employees. Better yet, offer restricted stock units (RSUs). Restricted Stock Units are a company’s promise to give you shares of the company’s stock. Unlike a stock option, which always has a strike (purchase) price higher than $0, an RSU is an option with a $0 purchase price. The lower the strike price, the less you have to…

I think it’s time of liquidity for double triggered RSUs. That’s what big pre IPO companies give and at IPO all the accrued RSUs are taxed as income.

Re: Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

#94

Post by rwmj »

srtjstjsj wrote: post #64
rwmj wrote: post #33

I think there are also tax implications of leaving a start-up with vested stock that you may not be able to sell on the market for another 8 years?

Only in the sense that you can't harvest losses by selling.

Don't you have to pay tax on the notional value of the shares, which leaves you in a difficult position because you cannot realise those gains.

Re: Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

#95

Post by caust1c »

formalsystem wrote: post #81

Is there any reason why stock options can't be non dilutable? If new investors want to come in, they need to buy existing shares, the number of shares can be infinitely divisible to make it easy to always accommodate new investors.

There is no legal reason why we can't have non-dilutable options. The only reason why it's such common practice is probably vanity (investors want to know they're getting X% when they invest) and the complexity of planning your fundraising schedule at the day of founding. Probably mostly the latter.

Re: Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

#96

Post by eternalban »

johannes1234321 wrote: post #52
eternalban wrote: post #20

Earlier quoted context omitted.

> Technical people can rarely prove "ownership" of revenue Maybe we geeks should let the sales teams run Powerpoint presentations instead of the actual product to address that misunderstanding.

The point is: You can see which sales rep closed which deal and therefore can see what they brought in. (While a good sales rep assigned to a bad territory or losing a big deal last minute, after long negotiations, due to product quality suffers) Imma technical role that relationship isn't there as much. Sometimes one can implement a feature a specific customer (group) wants, sometimes a specific bug fix, but most of…

The point is: Sales team needs to _share_ with the team that is actually giving the salesperson a viable product. After all, we can “see what they [the developers] brought in”.

Re: Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

#97

Post by commandlinefan »

ransom1538 wrote: post #19

What makes options a rough deal is the part of the contract: "We can change anything at anytime for any reason". What kills your options is dilution. You have no control over this AND as time progresses you get more and more diluted with new hires and rounds. You could be the second employee - however, if the founders & VC decide to make 20 million more shares [which they will] - you effectively have toilet paper --…

This isn't new, either - this happened to me a couple times in the late 90's/early 2000's and I've since made a point of not even taking "stock options" into consideration when evaluating job offers. Yet my most downvoted comment on reddit ever was on /r/cscareerquestions when somebody was asking how to weigh stock options when considering job options and I said "not at all" and shared my own experiences.

Re: Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

#98

Post by kevinmchugh »

rongenre wrote: post #80

The other point here is that it's taking ~10 years to go from a company being started to going public. So most employees are going to have to make the decision to either cough up thousands to exercise their illiquid options and pay taxes on them or just have them expire worthless. At this point, joining as a seed-round or series A employee seems like a sucker's bet if you're expecting equity to be worth anything.

Only if you think the exit must be an IPO. Acquisitions and mergers can happen a lot earlier than that. Though those don't always pay out, of course

Re: Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

#99

Post by draw_down »

andygcook wrote: post #87

> “For later employees make sure the company offers “refresh” option grants to longer-tenured employees. Better yet, offer restricted stock units (RSUs). Restricted Stock Units are a company’s promise to give you shares of the company’s stock. Unlike a stock option, which always has a strike (purchase) price higher than $0, an RSU is an option with a $0 purchase price. The lower the strike price, the less you have to…

Don’t think so because they don’t have value at time of grant. They have a double trigger structure that doesn’t grant the employee a share until liquidity event. From a legal perspective there is a “significant risk” of them expiring worthless (typical window is 7 years I believe). This makes it not a simple windfall for the employee.

Re: Startup Stock Options – Why A Good Deal Has Gone Bad (2019)

#100

Post by commandlinefan »

andygcook wrote: post #87

> “For later employees make sure the company offers “refresh” option grants to longer-tenured employees. Better yet, offer restricted stock units (RSUs). Restricted Stock Units are a company’s promise to give you shares of the company’s stock. Unlike a stock option, which always has a strike (purchase) price higher than $0, an RSU is an option with a $0 purchase price. The lower the strike price, the less you have to…

> Aren’t RSUs taxed at the time of grant?

Not the times I've had them - they were always taxed at time of vesting. There's always an option (or at least I was always offered an option) to sell back some of the stock at the time to cover the tax, even if you weren't exercising the remainder right away. That way there was no out-of-pocket cost to you at the time of vesting (but you did have the option to keep all the RSU's and pay the tax due if you wanted to).

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