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I'm not following why there is a tax bill. If the stocks are founder stock or RSU, then the employee should have done an 83b election to avoid paying tax as they vest. If they are options, then the employee is under no obligation to exercise them, and owes no tax until they are exercised. What am I missing?
(Uninvolved growth-stage CFO perspective) The IRS mandates that stock option grants expire after 10 years. My best guess is these early employees are quickly approaching those grants' 10 year mark, and face an exercise or "lose it" situation. If you exercise, you have to pay the gain. For early employees, this could/would be a massive bill -- probably well into the 7-8 digit range for some early hires. Stripe seems t…
All of what you said is literally the content of the article.
(Uninvolved growth-stage CFO perspective) The IRS mandates that stock option grants expire after 10 years. My best guess is these early employees are quickly approaching those grants' 10 year mark, and face an exercise or "lose it" situation. If you exercise, you have to pay the gain. For early employees, this could/would be a massive bill -- probably well into the 7-8 digit range for some early hires. Stripe seems t…
But why? What's wrong with early people getting wealthy?
I'm not following why there is a tax bill. If the stocks are founder stock or RSU, then the employee should have done an 83b election to avoid paying tax as they vest. If they are options, then the employee is under no obligation to exercise them, and owes no tax until they are exercised. What am I missing?
(Uninvolved growth-stage CFO perspective) The IRS mandates that stock option grants expire after 10 years. My best guess is these early employees are quickly approaching those grants' 10 year mark, and face an exercise or "lose it" situation. If you exercise, you have to pay the gain. For early employees, this could/would be a massive bill -- probably well into the 7-8 digit range for some early hires. Stripe seems t…
> to make sure early employees don't get rich before the IPO But why? What's wrong with early people getting wealthy?
(Uninvolved growth-stage CFO perspective) The IRS mandates that stock option grants expire after 10 years. My best guess is these early employees are quickly approaching those grants' 10 year mark, and face an exercise or "lose it" situation. If you exercise, you have to pay the gain. For early employees, this could/would be a massive bill -- probably well into the 7-8 digit range for some early hires. Stripe seems t…
> to make sure early employees don't get rich before the IPO But why? What's wrong with early people getting wealthy?
1. Stripe has to pay $3.5B in taxes. This is unrelated to employee stock.
2. Lots of long term employees have expiring options, and if they exercised them they would face a massive tax bill.
To solve both 1 & 2 Strips is doing an additional raise of $2.3B from private investors which will (1) give them money to pay that tax this quarter and (2) let employees exercise their options and sell shares to the same investors ($600M worth) – so basically a buyback event.
(Uninvolved growth-stage CFO perspective) The IRS mandates that stock option grants expire after 10 years. My best guess is these early employees are quickly approaching those grants' 10 year mark, and face an exercise or "lose it" situation. If you exercise, you have to pay the gain. For early employees, this could/would be a massive bill -- probably well into the 7-8 digit range for some early hires. Stripe seems t…
I don't think the issue is making employees wealthy or not: It's 10 year old RSUs, so most of them are owned by former employees. But consider the size: If the tax bill is 3.5B, the full size of the grants we are talking about here is over 10B! last valuations in the press are at something like 60b. So 1 in 6 shares in the secondary market? Might as well be an actual IPO.
Without 2022 going the way it did, I'd have expected that there would have been yet another regular round, where the investors ate enough common stock for current and former employees to vest the RSUs. That, or maybe the company really IPOs, which clears out all the comp problems. But Stripe finds it very valuable to keep the company closed, so instead of IPOing when everyone else does, they delayed too much.
So there's no real need for not wanting people to get rich here: It's just a very uncomfortable amount of stock to have to turn into liquidity either way.
Did the CEO/CFO not see this one coming? Or was it a calculated gamble they took and lost on?
They were enjoying the years of free* VC money before the recent interest hikes were made.
At the time, Stripe said they can wait, no time to rush for an IPO. Now they know they need to IPO before their employee options expire and the down-rounds coming in.
Earlier quoted context omitted.
I don't know why you believe later employees get options. It is true that at public companies, employees often are compensated with options, but at "startup"s where the FMV of a new employee grant would be prohibitively expensive to either early exercise or pay income taxes on, employees get RSUs. Options are for small companies, and 83b elections when the exercise price can be paid by the employee upfront. RSU are f…
Someone here is confused, and it might be me. As I understand it: In a company where the fair market value share price is $1/share, if you get granted 100 options, you owe tax on $0 because options are not taxable. If you get granted 100 RSUs which are all fully vested, you owe tax on $100 because stocks are taxable. If the RSUs are 0% vested you don't owe any tax yet. Then, if the share price goes up to $2 a share,…