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Poll: How much did you earn from your stock options during exit?

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61–70 of 191 posts

Re: Poll: How much did you earn from your stock options during exit?

#61
post #51

First employee hired at a startup. Paid for my options before leaving the company. Six months later the company was acquihired by Google. Three months after that I was given paperwork informing me that those shares are now worth exactly $0.00/each. Founders made out well enough from the deal to pick up high-end luxury sports cars though, which is the important part of an exit, right?

Maybe you should let us know what the startup was, as well as the people behind it, so we can avoid working with them.

I'd prefer to be the better person here rather than defame them publicly. If anyone would like more information or to discuss this privately, however, my email is in my profile.

Re: Poll: How much did you earn from your stock options during exit?

#62
post #36

I voted three times...but this is missing a negative entry - you know, the scenario where you pay an obscene amount of taxes on the ridiculously inflated price of your shares when you exercise (and can't sell yet while awaiting a liquidity event), but the shares are later downgraded to 1/10th taxable estimate...so you get to hold on to that loss for years, hoping at some point to be able to be in the position to writ…

Wait. Why would you do this? Can't you hold your options as, well, options until you want to exercise and sell them? I don't get why you would convert options to stock unless you wanted to sell them right away. I'm sure I'm missing something. Thanks.

Re: Poll: How much did you earn from your stock options during exit?

#63

I believe that the exact amount was $112 (net). Unbeknownst to most, our executives screwed everyone over and issued preferred stock to a major investment bank. I, and many others, had thousands of options, but the share price for common shares was too low for most grants to be worth anything. The executives all received bonuses for the sale from the investment bank.

I had a similar experience, a VC bought "preferred stock" (I can't remember the exact jargon), when the company was sold, the payout went entirely to the VC, and no standard stock holders received anything.

Re: Poll: How much did you earn from your stock options during exit?

#64
post #61

Earlier quoted context omitted.

Maybe you should let us know what the startup was, as well as the people behind it, so we can avoid working with them.

I'd prefer to be the better person here rather than defame them publicly. If anyone would like more information or to discuss this privately, however, my email is in my profile.

I respect that, but maybe people wouldn't get away with this kind of thing if it was made more public.

Re: Poll: How much did you earn from your stock options during exit?

#65

"None - my stock option vanished and don't own any". What does this mean? How stock options vanish?

Lots of companies have claw-back clauses where they buy the options back from you if you leave before they've vested. Or, in my case, the company was sold and the common stock (I bought the shares not options) was worthless.

Re: Poll: How much did you earn from your stock options during exit?

#66

You'd have to be pretty dumb to be an employee at a startup because of the money: bad hours, lots of risk, bad pay and lots of personal confrontation.

That's an incorrect overgeneralization. Not all startups are alike, as I'm sure you know.

If the employees get screwed over, then it doesn't sound like they are valued. I see many startups where the employees are super valued assets, get a decent salary AND they do what they love.

Re: Poll: How much did you earn from your stock options during exit?

#67
post #51

First employee hired at a startup. Paid for my options before leaving the company. Six months later the company was acquihired by Google. Three months after that I was given paperwork informing me that those shares are now worth exactly $0.00/each. Founders made out well enough from the deal to pick up high-end luxury sports cars though, which is the important part of an exit, right?

Maybe you should let us know what the startup was, as well as the people behind it, so we can avoid working with them.

No, James is doing the right thing taking a more noble path and not publicy defaming the company. There is a time and place for that and these sort of discussions will not be conducive for the HN community. Talking about his experience will be what most of us be interested in.

Having said that, all you need is 2 minutes, google and you can easily deduce yourself what company he is referring to.

Re: Poll: How much did you earn from your stock options during exit?

#68
post #36

I voted three times...but this is missing a negative entry - you know, the scenario where you pay an obscene amount of taxes on the ridiculously inflated price of your shares when you exercise (and can't sell yet while awaiting a liquidity event), but the shares are later downgraded to 1/10th taxable estimate...so you get to hold on to that loss for years, hoping at some point to be able to be in the position to writ…

Wait. Why would you do this? Can't you hold your options as, well, options until you want to exercise and sell them? I don't get why you would convert options to stock unless you wanted to sell them right away. I'm sure I'm missing something. Thanks.

There are a couple reason you might exercise you options.

First is that options come in two flavors ISO and NSO (or Non-Qualified). If you are issues ISO options then you could exercise and hold to qualify for long-term capital gains.

http://www.startupcompanylawyer.com/2008/03/05/whats-the-dif...

2. Your options are going to expire and you need to convert them to shares.

3. You are leaving and want to hold on to your shares. Typically you need to convert them within 3 months.

Re: Poll: How much did you earn from your stock options during exit?

#69

Would be more interesting to see values divided by founders, early employees, late employees.

Probably something like 95%/4%/1%

That's not percentage of the company - that's percentage of the equity held by employees. In some cases it might actually turn out a bit better, like 90/5/5 or something like that.

Regardless, the outcome seen by founders is orders of magnitude better than even early employees.

This can be exacerbated by a bunch of games that can be played at an exit to make the disparity larger. For example, you can cancel all unvested options. Founders have likely been around longer than the employees, so they have more stock vested, plus they typically get some acceleration upon change of control.

For example, imagine that a founder has 25%, and employee number 1 (who was hired 6 months after the company started) has 2%. That they sell to Google after the company has been around for 2 years, and that all unvested shares are cancelled. Employee 1 gets .75%, and the founder, who has 1 year acceleration on change of control, has 18.75%. On top of that, the founder probably gets long-term capital gains treatment because he exercised his shares immediately, where the employee didn't exercise any of his shares and treats the gain as income (if he had a 1-year cliff, he probably couldn't exercise for a year, at which point it didn't matter, because he had only held the shares for 6 months when the company was sold). So the employee ends up with 0.5% after taxes, and the founder ends up with 15.63%.

Which means that he ends up doing about 30x as well as the first employee.

Re: Poll: How much did you earn from your stock options during exit?

#70
post #36

I voted three times...but this is missing a negative entry - you know, the scenario where you pay an obscene amount of taxes on the ridiculously inflated price of your shares when you exercise (and can't sell yet while awaiting a liquidity event), but the shares are later downgraded to 1/10th taxable estimate...so you get to hold on to that loss for years, hoping at some point to be able to be in the position to writ…

Wait. Why would you do this? Can't you hold your options as, well, options until you want to exercise and sell them? I don't get why you would convert options to stock unless you wanted to sell them right away. I'm sure I'm missing something. Thanks.

When one exercises options that starts holding period for capital gains...
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